Congress is returning from the Thanksgiving recess with plans for a three-week stretch of pre-holiday legislating on agenda items that include an extension of government funding beyond the current December 20 expiration, the National Defense Authorization Act (NDAA), and disaster relief. President-elect Trump's proposed new tariffs are attracting a lot of attention, here and globally, along with the groundwork being laid by Republicans for a major tax bill early in 2025 anchored by Tax Cuts & Jobs Act (TCJA) extensions.

Government funding — House Speaker Mike Johnson (R-LA) has said he would prefer a temporary funding measure into the first part of 2025, then enacting appropriations bills through the end of the fiscal year under Republican control in Washington, when they will have a greater influence. A continuing resolution (CR), if that is the path chosen, could carry government funding through sometime in February or March. Other Republicans want to "clear the decks" with an omnibus spending bill through the end of the fiscal year (September 30, 2025), as opposed to a CR that may occupy lawmakers earlier next year when Republicans plan to be considering a reconciliation bill.

House Ways & Means Chairman Jason Smith (R-MO) said on Fox News November 21, "We need to take numerous things off of the desk so that President Trump doesn't have to deal with that whenever we come to Washington, DC. One thing that we'll make sure is that government funding is taken care of appropriately. However, there are so many items that are left on the table that President Trump should not have to inherit whenever he becomes president on January 20." The interview addressed year-end items like disaster relief and deadlines for telehealth coverage, Medicaid cuts, and Medicare physician payments.

A tax wrinkle has emerged as the current CR (through December 20, 2024) was a date change from the FY2024 appropriations package approved in March that, pursuant to earlier bipartisan spending deals, pulled back $20.2 billion of the $80 billion in additional funding provided to the IRS in the Inflation Reduction Act (IRA). The language was retained in the September 2024 CR. Tax Notes reported, "The effect of those two policy riders isn't to claw back another $20.2 billion in IRS funding, but it freezes the money pending the negotiation of an omnibus." Deputy Treasury Secretary Wally Adeyemo was cited in news reports as saying an omnibus or special exemption in a CR would be required to free up the funds. "If you live in the CR world all year, then you lose the $20 billion. If you have an omnibus and the omnibus doesn't say anything about this, then the $20 billion is restored," he said, according to Federal News Network.

The Tax Relief for American Families and Workers Act (H.R. 7024) — addressing the IRC Sections 174 and 163(j), and bonus depreciation issues, along with Child Tax Credit (CTC) changes, disaster relief, and a Taiwan tax bill — has long been stalled in the Senate and doesn't appear to have a chance to move in the lame-duck session, but the disaster and Taiwan pieces could. "Legislation to extend tax treaty-like benefits to Taiwan, a key U.S. ally, is also still in the mix for some sort of year-end action, though it's looking like it may not make the cut for NDAA … " Punchbowl News reported last night. "The Taiwan tax bill probably can't ride in the tax package that the GOP is plotting for next year under reconciliation rules, so that could give it some oomph now."

The Senate is back in session today (December 2), with a vote at 5:30 p.m. on a judicial nomination. Prior to Thanksgiving, Senate Majority Leader Chuck Schumer (D-NY) enumerated the items Congress must address before year end: keeping the government open beyond the December 20 deadline, the annual defense authorization bill, progress on the farm bill "to avoid going over the so-called dairy cliff at the end of December," and disaster aid that benefits states represented by members of both parties.

The House is back on Tuesday, December 3, with votes under the suspension calendar on bills reported from the Judiciary Committee and Natural Resources Committee. Votes later in the week include the Disabled Veterans Housing Support Act (H.R. 7480).

There are no hearings currently scheduled in the tax-writing committees.

Tariffs — President-elect Trump announced last week that one of his first Executive Orders will impose a 25% tariff on all products imported into the US from Mexico and Canada, with illegal immigration concerns as the impetus, and that certain foreign rival nations may face additional 10% tariffs. There has been significant press coverage of the potential effects of the proposed tariffs and what President-elect Trump is seeking to accomplish, with observations that Trump is asserting his authority and positioning the US to try to strike a more advantageous deal in the USMCA review called for by the existing agreement in 2026.

Canadian Prime Minister Justin Trudeau met with President-elect Trump in Florida on Friday. Canada's CTV reported November 30, "Trump and his team conveyed that they plan to balance their federal budget through tariffs, and then strike exemption side deals on a country-by-country basis."

On Fox News Sunday, Senator Marsha Blackburn (R-TN), a member of the Senate Finance Committee, suggested that Trudeau's visit was emblematic of the view around the world that President-elect Trump is a strong leader who will hold other nations accountable and impose sanctions. "I will add to this, not only the geopolitical issues, but you look at the economic issues with the Pillar One and Pillar Two taxes, the global minimum tax," she said. "They know full well Donald Trump is not going to allow U.S. companies to carry the bulk of that tax, which is what the Biden administration has pushed them to do."

Senator Ted Cruz (R-TX) said on Face the Nation that "the threat of tariffs against Mexico and Canada immediately has produced action. We've seen the president of Mexico stand up and promise that she is going to work hand in hand with the president of the United States, President Trump, to secure the border." Asked whether he takes tariffs seriously as an economic matter or only as a diplomatic lever, Senator Cruz said, "I think the president was explicit with Mexico and Canada. He said he will impose these tariffs unless they secure the border. It was explicitly leverage."

Tax — Republicans have been open about laying the groundwork even prior to the election for a first-100 days effort to use the budget reconciliation process to enact a GOP-only reconciliation bill with extensions of expiring TCJA provisions and other priorities, possibly addressing immigration, health care, and energy issues. Reconciliation allows a bill meeting strict criteria to pass the Senate with a simple majority vote rather than the 60-vote filibuster threshold that would apply to a tax bill under a divided Congress. The focus now is speculation over forthcoming negotiations among Republicans to decide on a revenue target for the bill, determining how much of the cost will be paid for and how much will be added to the budget deficit, and what proposals may be tapped as revenue offsets. Expectations for the bill are growing.

House and Senate Republican leaders were widely reported to have met to discuss reconciliation on November 25. Additionally, Bloomberg Government November 25 cited House Budget Committee Chairman Jodey Arrington (R-TX) as saying, "The Speaker and leader asked me to run point, to sort of take inventory of all the various policies and strategies that we could deploy in a resolution with reconciliation instructions." NBC News reported December 1 that "GOP leaders are looking to tee up the process with a budget setting the parameters for the bill in early January, even before Trump takes office." Further, "senior Republicans said they also want to use the bill to give the incoming administration more resources to carry out border enforcement … repeal clean energy funding in President Joe Biden's Inflation Reduction Act and use the package to slash other federal spending."

Chairman Arrington was cited in a Politico story as saying, "Deficit neutral is what you want to achieve," which contravenes the position of incoming Senate Finance Committee Chairman Mike Crapo (R-ID), who argues for a current policy baseline that doesn't count the cost of tax cut extensions. Politico further reported, "Arrington says there are other, less-conventional possibilities too, arguing Republicans ought to be able to count revenue stemming from the economic boost that comes with reducing regulations, something that's currently omitted from the congressional budgeting process."

A WCEY Alert on the post-election outlook is available here.

Energy tax — IRA energy tax credits have been a focus of speculation about potential revenue offsets for a tax bill. Republicans, including President-elect Trump and Chairman Arrington, have criticized the provisions and called for them to be rolled back. But the issue isn't black-and-white, as the credits benefit projects in Republican-held districts and some members have called for at least some to be preserved.

A story in the November 29 Wall Street Journal said, "Lawmakers are expected to comb through clean-energy provisions and other parts of the federal budget for spending and tax credits they can slash to help offset the costs of the tax cuts. The administration could adjust guidance for some provisions, such as EV credits, that make them harder or virtually impossible to use. Lawmakers could put new, shorter time limits on when certain tax credits expire, such as incentives for the generation of electricity from wind, solar and other renewable sources."

Health care — A November 30 AP story on the forthcoming tax deliberations said: "At the same time, the new Congress will also be considering spending reductions, particularly to food stamps and health care programs, goals long sought by conservatives as part of the annual appropriations process. One cut is almost certain to fall on the COVID-19-era subsidy that helps defray the cost of health insurance for people who buy their own policies via the Affordable Care Act exchange. The extra health care subsidies were extended through 2025 in" the IRA.

A story in the November 29 WSJ focused on how hospitals may be squeezed by Republicans holding a trifecta of power next year, in addition to the more oft-cited ramifications for pharmaceutical companies. "Much of it comes down to hospitals' reliance on government insurance programs like Affordable Care Act exchanges and Medicaid that could be cut down to size by Republicans looking for ways to trim government spending and pay for tax cuts," the story said. "Medicaid expansions, boosted subsidies for ACA plans and programs like state directed payments — which funnel Medicaid dollars to hospitals — poured billions into the system, benefiting insurers and providers serving these programs."

Congress — In addition to the 53-47 majority in the Senate, the House Republican majority — currently at 220-213 with a vacancy in each party — is certain to be narrow in the next Congress. The projected post-election ratio is 220-214 with recently called outstanding races including Ways & Means member Michelle Steel (R-CA) being defeated in CA-45. In the remaining uncalled race, Democrat Adam Gray leads Rep. John Duarte (R-CA) in CA-13. If that lead holds, it would be a 220-215 ratio in the next Congress. With three Republican seats affected by Trump nominations — Rep. Elise Stefanik (R-NY) as UN Ambassador, Rep. Mike Waltz (R-FL) as National Security Adviser, and Rep. Matt Gaetz (R-FL) as Attorney General (withdrawn) — the ratio could be 217-215 for some period to start the year. Special elections for the Waltz and Gaetz seats have been set for April 1.

On CNN's State of the Union, Rep. Mike Lawler (R-NY) said the narrow margin, "especially in the early months" with three vacancies and the majority most likely at 217, means Republicans "will need every vote to pass legislation, which means we have got to compromise and work together." He said, "the American people elected Donald Trump and majorities in both the House and the Senate for the Republicans and, obviously, the focus will be on the economy, the border, energy policy, the international crises that we are dealing with, tax reform, and spending and government reform."

IRS — In Notice 2024-85, the IRS confirmed its previously announced delay in implementing the reduced $600 de minimis threshold for reporting transactions by third-party settlement organizations (TPSOs) on Form 1099-K, Payment Card and Third-Party Network Transactions. The IRS said it would not penalize TPSOs who use a $5,000 threshold for 2024. In addition, the IRS announced a $2,500 threshold for 2025, which it called the "final" transition year. The $600 threshold will be in force for 2026.

Next administration — President-elect Trump's incoming economic team has been rounded out as he nominated Scott Bessent to be the next Treasury Secretary, Kevin Hassett to direct the National Economic Council, and Jamieson Greer as the US Trade Representative. Bessent said he prioritizes extending expiring TCJA provisions, possibly with revenue offsets, and enacting President-elect Trump's tax proposals.