Congressional negotiators last night released a continuing resolution (CR) to extend government funding beyond December 20 and through March 14, 2025, plus roughly $100 billion in disaster relief, an extension of farm bill agricultural provisions, and full funding for rebuilding the Key Bridge in Baltimore. There is little in the CR from a tax perspective, with a US-Taiwan double tax relief and unlocking of frozen IRS enforcement funds left out, along with pension technical corrections. On trade, there are modifications to the special rules for Haiti under the Caribbean Basin Economic Recovery Act and an extension of preferential duty treatment program for Haiti.

The IRS issue resulted from the current CR (through December 20, 2024) being only 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). That language was retained in the September 2024 CR, freezing the money until an omnibus appropriations measure is agreed to. The omission of the US-Taiwan bill complicates the outlook for the measure because tax items are expected to move in 2025 through the budget reconciliation process that requires proposals to have a measurable revenue impact, which the Taiwan package does not have.

There are several health items in the CR, including an extension of Medicare telehealth flexibilities through December 31, 2026, and provisions intended to rein in pharmacy benefit managers.

More broadly, Democratic support had always been expected to be required to pass the measure, with some conservatives opposed to disaster relief spending and to CRs generally. There was some grumbling among Republicans yesterday about the addition of items, some of which reflect Democratic demands, as well as over some omissions. Punchbowl News reported December 17, "Nerves are raw with Ways and Means members after Johnson included the Haiti trade program in the stopgap without also including a renewal of the African Growth and Opportunity Act, which helps the economies of sub-Saharan African countries." Congress processing the bill over the coming days should allow members to break for the holidays.

It has been widely suggested the dissatisfaction of some members with the bipartisan bill loaded with year-end priorities portends the difficulty the party could have next year with narrow Republican margins in Congress. House Republicans will be required to first re-elect Rep. Mike Johnson (R-LA) as Speaker; process an FY2025 budget resolution unlocking the reconciliation process (with another package available for FY2026 later); settle on an appropriations omnibus or CR to fund the government between March 14 and September 30; and address the debt limit by sometime midyear. The party ratio is 220-215 for 2025, but likely to drop to 217-215 early in the year because of Trump nomination-related vacancies.

In the current Congress, Republicans could only lose the votes of a few of their members if relying only on GOP support. The House ratio, which would be 221-214 if vacant seats stayed in the same party, has already changed because of the elections. It is now 219-211 because Rep. Adam Schiff (D-CA) resigned effective 12/08/2024 and Rep. Andy Kim (D-NJ) resigned effective 12/09/2024 to take their Senate seats, with placeholder Senators Laphonza Butler (D-CA) and George Helmy (D-NJ) resigning to give Schiff and Kim additional seniority. Rep. Kelly Armstrong (R-ND) resigned effective 12/14/2024 to become ND governor.

Outbound investment — Notably, the CR included legislation allowing the president to impose sanctions and other restrictions blocking US capital flows to certain foreign adversaries. Previous versions of the Comprehensive Outbound Investment National Security (COINS) Act had made such sanctions mandatory, but the negotiated language included in the CR would give the president discretion on whether to enforce the measures. Other changes to the outbound investment language gave federal agencies more time to finalize guidance on the outbound rules and removed a provision creating new authority for the SEC. The language would also require U.S. companies to disclose their investments in certain sectors deemed critical, a feature that Sens. John Cornyn (R-TX) and Robert Casey (D-PA) have been pressing for months. The legislation largely codifies a Biden administration executive order from October.

The outbound investment legislation was a priority for Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Johnson but had been opposed by House Financial Services Committee Chairman Patrick McHenry (R-NC), who has favored strengthening the U.S. sanctions regime to address violations instead of mechanisms that would scrutinize U.S. foreign investment before it happens. McHenry has been lined up against members like House Foreign Affairs Committee Chairman Michael McCaul (R-TX) on the issue for most of this Congress and had blocked outbound investment language from being included in other must-pass vehicles this year, including the recent defense authorization bill (NDAA). McCaul on Tuesday told Politico that "the Speaker has really taken this on and really wants it to move forward." In the end, the language was reportedly negotiated by senior Financial Services Committee member Andy Barr (R-KY), who lost out to French Hill (R-AR) for the committee's chairmanship last week, and Senate Banking Committee Ranking Member Tim Scott (R-SC).

The CR also includes a provision sought by small businesses that would extend for two more years the deadline for compliance with the 2021 Corporate Transparency Act, which aims to reduce the number of "shell companies" by requiring most U.S. businesses to report their beneficial owners to a database managed by Treasury's Financial Crimes Enforcement Network (FinCEN).

Tax — Meanwhile, in a December 16 news conference, his first since the election, President-elect Trump restated his proposal for a corporate rate reduction: "I'll keep my promise to pass historic tax cuts for American families, workers, and businesses that create jobs in America. As you know, we're giving tax cuts if they do it here. We brought it down from 44%, 42%; in some cases, it was 39. We brought it all the way down to 21%. And now we're bringing it down to 15, but only if they make their product — their car, or whatever they're doing in the United States and the U.S. And people are thrilled … "

"Between that and our taxing and tariff policies, we're going to have business like nobody's ever seen in this country before … And I'll keep my promise to pass historic tax cuts for families, workers, and businesses that create jobs in America. Any business that invests $1 billion or more in the United States will be eligible for fully expedited permits and approvals, including environmental approvals, from the federal government."

Regarding tariffs, President-elect Trump said, "Reciprocal. If they tax us, we tax them the same amount. If they tax us … Forgetting just for a second about the word 'tariff.' They tax us, we tax them, and they tax us — almost in all cases, they're taxing us, and we haven't been taxing them … We're going to make great deals, and we have all the cards … We're going to be treating people very fairly. But the word 'reciprocal' is important, because if somebody charges us … If they want to charge us that's fine, but we're going to charge them the same thing."

While the focus has been on sequencing of Republican budget reconciliation bills in 2025 - incoming Senate Majority Leader John Thune (R-SD) wants border and energy issues addressed in a first budget reconciliation bill and extension of expiring Tax Cuts & Jobs Act (TCJA) provisions in a second reconciliation bill later in the year, a view apparently shared by the incoming Trump administration, while Ways and Means Committee Chairman Jason Smith (R-MO) wants tax to go in a first, big bill — a December 16 Wall Street Journal story contemplated the view shared by Smith and incoming Senate Finance Committee Chairman Mike Crapo (R-ID) that existing tax policy needn't be offset.

"'It is in the DNA of a Republican to say, 'Cut taxes.' And I support that, generally speaking,' said Rep. Chip Roy (R., Texas), who said that he won't blindly support tax bills without a clear path to reducing budget deficits and that spending too much is morally reprehensible. 'A majority of Republicans' impulse is to spend money we don't have, and I would dare anybody to prove otherwise.' The fight is still in its first rounds," the story said. "Top Republican lawmakers haven't set fiscal parameters for next year's tax bill, which they can advance through Congress without Democrats. They may offset some tax cuts by limiting clean-energy tax credits and cutting spending outside Social Security and Medicare."

The WSJ story said, "because of their slim margins in the House and Senate, Republicans need near-unanimity to enact a new tax law. So even a handful of ardent deficit hawks, particularly in the House, can insist on attaching spending cuts to tax cuts and pull the party in their direction."

On December 16, Senate Finance Committee Chair Ron Wyden (D-OR) released draft legislation addressing the use of private placement life insurance (PPLI) contracts that are "designed to mimic hedge funds and other vehicles for the benefit of sophisticated investors." The Protecting Proper Life Insurance from Abuse Act would protect the preferential tax treatment of traditional life insurance, separating PPLI policies, and deeming them Private Placement Contracts.