Congressional Republicans' intraparty deliberations over use of the budget reconciliation process continues, after incoming Senate Majority Leader John Thune (R-SD) told his members he wants a quick-hit reconciliation bill early next year on border, defense, and energy, and to save extensions of expiring Tax Cuts & Jobs Act (TCJA) provisions for a second reconciliation bill later in the year. House leaders continued making the case for tax to move in one big reconciliation bill early on, but on another moving piece — how much of a tax package to pay for — House Ways & Means Committee Chairman Jason Smith (R-MO) expressed support for a current policy baseline under which extending existing tax policy needn't be paid for. "Existing tax policy is never offset," he said at the CNBC CFO Council Summit December 4.

That aligns with the view of incoming Senate Finance Committee Chairman Mike Crapo (R-ID), who has cited the precedent that extension of the Bush tax cuts at the end of 2012 were not offset. It seems to contravene, however, the views of some House Republicans, notably House Budget Committee Chairman Jodey Arrington (R-TX), who called for a deficit neutral bill. Chairman Smith made news earlier this year in saying some Republicans favored a corporate tax rate increase to pay for tax cut extensions. Now, with the benefit of the GOP trifecta of control in Washington for 2025, Smith says he is confident the corporate rate won't go up from 21%, but he is concerned about preserving the 199A pass-through deduction.

Still, in contrast to Thune's argument, Smith said he expects one major reconciliation bill next year encompassing President-elect Trump's top priorities, addressing tax cuts, energy, and immigration. "So to come up with the idea that we will do a small reconciliation at the beginning that does energy and immigration and defense, and a second will be tax, is very foolish," Smith said. "It breeds failure, in my opinion."

Senator Thune's position seems well thought through by other Republicans, as Semafor December 5 reported GOP senators as eyeing a $60 billion to $85 billion border and energy-focused initial reconciliation bill that Sen. John Hoeven (R-ND) said could be paid for with items including new energy permitting. "The idea here: Put some legislative points up early on one of Donald Trump's top priorities, then return later for tax reform," the report said.

Two separate reconciliation packages are available to Republicans next year — using the FY2025 budget resolution, because the current Congress did not process one, then another for FY2026 — and the mixed views about what priorities would go in each continued to play out in press stories. Tax Notes December 5 reported Chairman Smith as saying of a tax-plus package, "It needs to be one bill, and it needs to be the first one." On Fox News December 4, House Speaker Mike Johnson (R-LA) said, "These are all big priorities. We have to do them all early in the - in the Trump administration because we'll have the largest tax increase in U.S. history all at once. I mean trillions of dollars by the end of the year if we don't get the Trump tax cuts extended. So, everybody … knows that's a big priority. But also border, and also all these other things — energy policy … "

Punchbowl News reported Ways & Means member Kevin Hern (R-OK), the incoming Republican policy chair, as saying he doesn't "fully understand" why Senate Republicans are opposed to combining the two proposed bills together. "It's always a concern you might run out of time," Hern said. "And is there enough courage to do two separate ones?"

The presumption is that key decisionmakers like Leader Thune and Chairman Smith will, before long, need to talk with each other about reconciliation plans, and not through the press, and there possibly may need to be some cajoling from President-elect Trump, who hasn't publicly weighed in on his vision for reconciliation bill sequencing. A December 5 Wall Street Journal (WSJ) story said Trump and Speaker Johnson were informed about Thune's pitch for a two-phase plan before he outlined it.

The story offered some arguments from luminary members: "'There are some constituencies within the House and the Senate who would be more inclined to vote for, for example, a tax package or a spending package if there was border,' said Rep. Jodey Arrington (R., Texas), chairman of the House Budget Committee. 'And there are people who would vote for a border package if there was tax.' Sen. Todd Young (R., Ind.) said he liked the two-bill approach, starting with an issue where Republicans agree. 'The last election was in large measure about border security. We have a mandate to address border security.'"

It has been well-noted that the tight party ratios in the next Congress will make enacting a GOP-only bill a threading-the-needle exercise. Reconciliation allows a bill meeting strict criteria to pass the Senate with a simple majority vote, which, with a 53-47 majority, means Republicans won't need to negotiate to win the support of at least seven Democrats to meet the 60-vote filibuster threshold that applies to most legislation. There will be a 220-215 House ratio in the next Congress, and with three Republican seats affected by Trump nominations the ratio will likely drop to 217-215 early in the year, leaving no room for Republican defections.

It is not unusual for the same political party to have trouble coalescing around a reconciliation bill.

• In 2017, an initial reconciliation effort to repeal the Affordable Care Act (ACA) could not be enacted (following the famous thumbs-down vote of Senator McCain). Republicans then turned to tax reform and, in the run-up to the TCJA, had a dispute over the revenue target before Senator Bob Corker (R-TN) was convinced to spend $1.5 trillion.
• During 2021 Build Back Better Act (BBBA) negotiations, Senator Kyrsten Sinema (I-AZ) blocked tax rate increases, forcing Democrats to turn to other revenue offsets. Senator Joe Manchin (I-WV) paused BBBA consideration for months, then blocked international tax changes in the resulting bill, the narrower 2022 Inflation Reduction Act (IRA).

Disaster relief — The House-passed 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 have a chance to move in the lame-duck session. Thus, disaster-related tax relief was split off and moved separately. The Senate December 5 cleared by unanimous consent the previously House-passed standalone bill on disaster relief, the Federal Disaster Tax Relief Act (H.R. 5863), that extends rules for the treatment of disaster-related personal casualty losses and provides relief for losses due to wildfires and a train derailment, sending the bill to the President for his signature. Currently in the House, Freedom Caucus members are balking at spending more on disaster relief, possibly making the May approval of the disaster tax bill fortuitous, along with the Senate unanimous consent, which doesn't happen often for tax bills.

The roughly $5 billion bill excludes from taxpayer gross income, for income tax purposes, any amount received by an individual taxpayer as compensation for expenses or losses incurred due to a qualified wildfire disaster (a disaster declared after 2014 as a result of a forest or range fire). It also excludes relief payments for losses resulting from the East Palestine, Ohio, train derailment on February 3, 2023.

Energy tax — The IRS and Treasury Department have released final regulations (TD 10005) relating to the types of energy property that qualify for the IRC Section 48 investment tax credit, incorporating changes made by the Inflation Reduction Act of 2022 and clarifying issues such as those concerning offshore wind farms, geothermal heat pumps, biogas property, ownership of energy property, co-located energy storage and hydrogen storage. The final regulations adopt the proposed regulations with some modifications.

Next administration — President-elect Trump continued choosing nominees for his Administration next year. President-elect Trump said he would appoint former Rep. Billy Long (R-MO), who served in the House from 2011—2023 before losing a Senate primary, as the next IRS commissioner. Long did not serve on the Ways & Means Committee and has a scant record of positions on tax issues, aside from at times calling for abolishment of the IRS. Implicit in the announcement is that current commissioner Danny Werfel will be dismissed well prior to the end of his five-year term, which is unusual but not prohibited. (He was confirmed in March 2023.) "As is the case at the FBI … Trump signaled his intent to choose his own appointee for a job that usually spans administrations," the Washington Post observed.

Trump also picked Frank Bisignano, the chairman of the data processing company Fiserv, to be the next commissioner of the Social Security Administration, to replace former Maryland Governor (and Baltimore Mayor and presidential candidate) Martin O'Malley.

On Wednesday, December 4, President-elect Trump nominated economist Michael Faulkender, a finance professor at the University of Maryland's business school, as deputy Treasury secretary, the second highest-ranking position at the department. Faulkender, who managed a pandemic-era loan program at Treasury during the first Trump administration, would serve as deputy to investor Scott Bessent, Trump's choice for Treasury secretary. Faulkender is also chief economist at the America First Policy Institute, a conservative think tank aligned with the president-elect.

The deputy secretary's portfolio typically includes tax policy, markets regulation, sanctions policy and the $28 trillion Treasury debt market. During his first stint at Treasury, Faulkender served as an assistant secretary, advising then-Treasury Secretary Steven Mnuchin on economic policy issues. During the pandemic, he was tasked to run Treasury's Paycheck Protection Program (PPP), a stimulus policy that distributed nearly $800 billion in loans to small and mid-sized businesses in an effort to keep workers on payrolls. The PPP experienced a high rate of fraud, and most of its loans were forgiven.

"Mike is a distinguished economist and policy practitioner who will drive our America-first agenda," Trump posted on Truth Social. "He will help Treasury Secretary Nominee Scott Bessent usher in a new Golden Age for the United States by delivering a Great Economic Boom for all Americans."

Also on Wednesday, President-elect Trump nominated Paul Atkins to replace Gary Gensler as chairman of the Securities and Exchange Commission (SEC). Atkins, a conservative lawyer who served as a Republican SEC commissioner from 2002 to 2008 during the George W. Bush administration, is a skeptic of regulations and a supporter of digital assets, who is expected to impose lower penalties for violations and curb the SEC's enforcement division. Bloomberg said the choice suggested "four years of relaxed policy and enforcement for crypto firms to hedge funds," and the price of Bitcoin on Thursday (12/5) topped $100,000 for the first time. Atkins leads a consulting firm, Patomak Global Partners, whose clients include banks, public companies and digital asset firms.

Citing sources, the WSJ reported that Atkins and others who were considered for the position were asked to provide ideas for restructuring the agency, "in line with the incoming administration's promise to … rein in the size of federal agencies." Gensler has presided over an aggressive SEC rulemaking and enforcement agenda, but Atkins is seen as likely to revisit much of what the agency did during Gensler's tenure. His top priorities are likely to include rolling back the SEC's climate risk disclosure rule, which is currently tied up in court.

Atkins was an early critic of the use of environmental, social and governance (ESG) standards by fund managers and proxy advisers. He voted in the minority in 2004 when the SEC, under Chairman William H. Donaldson, adopted Regulation NMS, a landmark rule that created a national electronic market for stock trading. Atkins has also been a critic of the post-financial crisis Dodd-Frank Act, frequently testifying at the Financial Services Committee on the law, often arguing that it granted too much authority to financial regulators. Atkins has also testified on how to restructure the SEC's operations and reduce what he called duplicative or burdensome regulations. On Truth Social, Trump posted, "Paul is a proven leader for common sense regulations. He also recognizes that digital assets & other innovations are crucial to Making America Greater than Ever Before."

On Thursday, December 6, Trump's transition announced that he would nominate David O. Sacks, a Silicon Valley investor close to Elon Musk, as the White House's policy chief for artificial intelligence and cryptocurrency. Sacks worked at one of Musk's early projects, PayPal, starting in 1999; the company was acquired by eBay in 2002 for $1.5 billion. Sacks later founded the software firm Yammer, which was purchased by Microsoft in 2012, and started the venture capital firm Craft Ventures, which has invested in crypto and AI startups. The WSJ said the choice signaled "the growing influence of tech leaders and loyalists in the new administration."

Sacks, who hosts the popular "All-In" podcast, hosted a fundraiser for Trump in San Francisco in June that raised more than $12 million for Trump's campaign. "In this important role, David will guide policy for the Administration in Artificial Intelligence and Cryptocurrency, two areas critical to the future of American competitiveness," Trump posted on Truth Social. Trump said Sacks "will work on a legal framework so the Crypto industry has the clarity it has been asking for, and can thrive in the U.S."