This week (December 9-13)

Congress: The House and Senate are in session with two weeks to go before the planned holiday break and an agenda that includes an extension of government funding beyond the current December 20 expiration, the National Defense Authorization Act (NDAA), and, potentially, disaster relief. The two paths available to lawmakers for government funding are a continuing resolution (CR) to carry government funding likely through sometime in March, or a "clear-the-decks" omnibus spending bill through the end of the fiscal year (September 30, 2025). A CR seems more likely given the dwindling time remaining.

Last week (December 2-6)

Reconciliation in 2025: It has been known since before the elections that a Republican trifecta of control in Washington in 2025 would allow GOP lawmakers the opportunity for two separate reconciliation packages next year — using the FY2025 budget resolution, because the current Congress did not process one, then another for FY2026 — but there haven't been clear signals about what priorities would go in each. Conflicting plans among Senate and House Republican leaders spilled out into the open this week after incoming Senate Majority Leader John Thune (R-SD) told his members he wants a quick-hit reconciliation bill early next year on spending related to 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. Ways & Means Committee Chairman Jason Smith (R-MO) and other House Republicans expressed opposition to that approach. Chairman Smith said at the CNBC CFO Council Summit December 4 that 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." House Speaker Mike Johnson (R-LA), who has been communicating for months with his Senate counterparts and spoke at the policy retreat where incoming Leader Thune announced his plans, downplayed the differences but nonetheless continued to express a preference for attending to all pressing priorities early in 2025. On Fox News December 4, Speaker Johnson said, "These are all big priorities. We have to do them all early 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 isn't unusual for one 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).

Revenue: On another moving piece of reconciliation — how much of a tax package to pay for — Ways & Means Chairman 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 summit. 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 assuming a current law baseline. 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.

Tax yet in 2024: 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 would allow those who were subjected to damages from hurricanes and other federally declared disasters to claim such losses without itemizing such deductions, and such losses would not have to exceed 10% of a claimant's adjusted gross income to qualify, according to a press release from House sponsor Rep. Greg Steube (R-FL). Additionally, the 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 and also excludes relief payments for losses resulting from the East Palestine, OH, train derailment.

It remains to be seen if the Taiwan tax piece of the broader tax bill can move separately. More than 100 House members called on House and Senate leadership to act on US-Taiwan tax legislation before the end of this Congress, in a letter circulating since November by Congressional Taiwan Caucus leaders Ami Bera (D-Calif.) and Andy Barr (R-Ky.) and reported by the Bloomberg Daily Tax Report.

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."