This week (January 13 - 17)

Congress: The House and Senate are in session. This weekend, President-elect Trump is set to convene groups of Republican members at his Mar-a-Lago resort, including the Freedom Caucus conservative group, House committee chairs and representatives of high-tax states concerned about continuing the $10,000 SALT deduction cap.

The House is set to vote next week on the United States-Taiwan Expedited Double-Tax Relief Act (H.R. 33) introduced by House Ways & Means Chairman Jason Smith (R-MO) and Ranking Member Richard Neal (D-MA). The bill, to be considered under an expedited process provided for under the House rules package, would provide special rules for the taxation of certain residents of Taiwan with income from sources within the United States.

Nomination hearings for President-elect Trump's cabinet nominees are set to get underway next week, with a Senate Finance Committee hearing on the nomination of Scott Bessent to be Treasury Secretary set for Thursday, January 16 at 10:30 a.m.

The House Ways & Means Committee has scheduled a hearing on "The Need to Make Permanent the Trump Tax Cuts for Working Families," for Tuesday, January 14 at 10 a.m.

Last week (January 6 - 10)

Tax reconciliation bill: The weeks-long suspense over President-elect Trump's preference for how the Republican-controlled Congress approaches their priority issues through the budget reconciliation process hasn't abated. The budget reconciliation process will allow for GOP-only enactment with a simple-majority vote in the Senate. Senators want two separate packages, headlined by enhancing border security first and extensions of Tax Cuts & Jobs Act (TCJA) provisions later (two reconciliation packages are possible under the FY2025 and FY2026 budgets), while House Republicans favor an all-in-one approach with tax moving in a first, big bill. President-elect Trump's January 5 social media post calling for a single reconciliation bill with tax and other priorities, rather than leading with border issues and addressing TCJA expiring provisions in a second bill, wasn't the final word on the matter, as he went on to say he is open to a two-bill approach:

• "I favor one bill. I also want to get everything passed. And you know, there are some people that don't necessarily agree with it. So I'm open to that, also. My preference is one big — as I say, one big, beautiful bill," President-elect Trump said on the Hugh Hewitt Show January 6. "Now to do that takes longer. You know, to submit it takes longer, actually. But, so it's a longer process. I would say I'd live with that. I believe we'd get — I don't know, to me, it just is a cleaner, it's cleaner. It's nicer."
• During a January 7 news conference, Trump praised Senate Majority Leader John Thune (R-SD) but said a tax bill "goes through the House first, and the question is whether or not we do the two bills or one bill. And you know, we'll have a look. I can live either way. I like the idea of the one big bill, but I can live either way."
• President-elect Trump met with Republican Senators Wednesday night on Capitol Hill and his message seemed to be that a tax bill is going to get done and the process makes no difference. In remarks following the meeting, Trump said, "Whether it's one bill or two bills, it's going to get done one way or the other. I think there's a lot of talk about two and there's a lot of talk about one, but it doesn't matter. The end result is the same. We're going to get something done that's going to be reducing taxes and creating a lot of jobs … "

Semafor reported of the Wednesday meeting, "Trump made a 'big pitch' for a single border and tax bill, but said he remains open to senators' pitches to notch a quick border win and then move onto tax policy. There's also discussion of starting with one bill and potentially splitting it in two … " Punchbowl News reported, "Near the end of the meeting, [Majority Leader] Thune asked Trump if he'd consider splitting his agenda into two bills if significant roadblocks emerge with one mega-bill. Trump said yes but maintained that he wants Republicans to aim for one comprehensive bill."

While there were indications that Republicans hoped to settle on a way forward this week, congressional leaders have suggested one bill is the House plan for now and the House and Senate may continue along separate paths that meet up at some point, as is required under the reconciliation rules (both the House and Senate must pass the same budget resolution to unlock the process). Punchbowl News reported House Speaker Mike Johnson (R-LA) as saying January 6, "The plan in the House has been one bill … We met for two days over the weekend, two full days of discussion and strategizing with that in mind. And so that's our assumption right now." The Speaker had told members during a weekend retreat that Trump was for one bill, after weeks of suspense and Johnson himself largely staying neutral. Reports suggested Johnson was swayed toward a one-bill approach by the difficult December 2024 process of approving a government funding continuing resolution (CR) exposing how congressional plans could be dashed by the objections of just a few Republicans and the power of social media, as well as the desire of some to seek deep spending cuts; then Johnson facing opposition in the speakership vote rooted in his CR negotiations with Democrats.

Politico reported that Senate Republicans led by Budget Committee Chairman Lindsey Graham (R-SC) are discussing plans to move forward with drafting a budget reflecting their preferred two-bill approach to reconciliation that may end up being a back-up plan if House one-bill efforts falter. "We are proceeding in a way that it keeps optionality," Majority Leader Thune said. "Obviously in the end, we want to get a result and we want to walk closely with our House counterparts … but we've got some folks who are itching to go and, I think, a good proposal out there." Senator Graham has continued to express support for a two-bill approach, and January 5 said he worries both about the effects of not putting border first and not getting it done, as well as about how long a tax bill will take. "As we negotiate tax cuts, [there are] tax-cutting people — and I'm one of them — that won't vote for border until they get all their taxes." Some members said the process to act on GOP priorities really comes down to the art of the possible. Senator Markwayne Mullin (R-OK), a Trump ally and a former House member, suggested what can be passed in the more narrowly divided House may be operative. "Whatever they can send to us, we can pass … I think it's going to be very difficult for the House to deliver two things, though. But if they can, wonderful."

A WCEY Alert, "WCEY guide to Washington in 2025," is available here.

Timeline: The Bloomberg Daily Tax Report (DTR) January 7 said House Republicans could take the first procedural vote in the reconciliation process by the end of next month, which isn't far off from Speaker Johnson's stated timeline. "Our goal is to do it very quickly, and potentially as early as the last week in February," House Budget Committee Chair Jodey Arrington (R-TX) said. "That's breaking news." Speaker Johnson said on Fox News on Sunday that he wants to pass a budget resolution with reconciliation instructions in early February, pass the reconciliation bill in the House in early April, and have it on Trump's desk "certainly by May" or "in a worst-case scenario, Memorial Day." (For historical reference the President George W. Bush EGTRRA tax cut bill was approved by Congress in May 2001. The TCJA was late-year 2017 after Republicans first focused on Affordable Care Act repeal.) Punchbowl News reported, "This was the big point in favor of Thune's two-bill plan. He didn't want to wait that long to score a big legislative victory." Republicans in charge of Congress will also have to oversee the appropriations process to extend government funding beyond March 14, 2025.

Debt limit: While the focus has been on tax, the federal debt limit that must be addressed by midyear could play a role in a reconciliation bill. Speaker Johnson said of the prospects for raising or eliminating the debt ceiling as part of that big bill, "I think we're going to have to do it in that bill … If you do it in reconciliation, you can do it just with the Republican party." The current debt limit suspension ended January 1, 2025, and extraordinary measures are expected to be used by the Treasury Department from mid-January through sometime midyear to pay the nation's bills. Addressing the debt limit is allowed under reconciliation rules, but Congress rarely uses the process to increase the debt limit, because for political reasons the majority party will typically want the minority party to join in supporting a debt limit increase or further suspension. Chairman Arrington was cited by the Washington Post this week as calling for the debt limit to be addressed in a reconciliation bill. "With all that we're doing to restore fiscal health and prosperity, we ought to put the debt ceiling in there, as well, because those are the fiscal reforms that I think should be required to do it," he said. "Trump's committed to it, we're committed to it, I don't know why we wouldn't do it."

Revenue baseline and offsets: On Face the Nation January 5, Senator Thune seemed to downplay the need for revenue offsets for TCJA extensions, saying the $4 trillion in tax provisions that expire is "current policy" and, "I'm a big believer in pro-growth tax policy. I believe you get a lot of that back through growth and additional revenue. Every 1% increase in GDP and economic growth, we're told, generates about $3 trillion in additional tax revenue. So, you're going to get some back in terms of a growth dividend, and there will be spending cuts." That tracks with the approach advocated by Senate Finance Committee Chairman Mike Crapo (R-ID) and House Ways & Means Chairman Jason Smith (R-MO) calling for a current policy baseline under which extensions of current tax provisions don't need to be offset. Punchbowl News January 10 reported on an Arrington presentation on examples of ways to raise revenue in the tax code, including rolling back Inflation Reduction Act (IRA) green energy tax credits and a state and local tax (SALT) deduction cap for corporations.

Spending cuts: Speaker Johnson and Leader Thune have both promised spending cuts. There isn't exact clarity on how the formulation of a big reconciliation bill would work — "You have to build the plane while it's in the air — that's what you're about to see," Rep. Byron Donalds (R-FL) said last weekend — but spending cuts have seemed entwined with tax legislation and the debt limit at least since the CR negotiations in December. House Republicans at that time reportedly discussed an agreement to increase the debt limit by $1.5 trillion alongside a promise to cut $2.5 trillion in "net mandatory spending in the reconciliation process." And in a December letter to Republican leaders, conservatives from both the House and Senate called for dynamic scoring of a tax bill and said it should reduce the deficit through spending reforms and cuts like rolling back green energy credits and "the estimated $2.5 trillion worth of cuts that the Department of Government Efficiency will identify as necessary to restore the fiscal health of the nation." House Budget Chairman Arrington has long been eyeing spending cuts. The Punchbowl News report said, "There's some frustration in GOP circles brewing with Arrington over his ambitious plans for cost savings, which include ideas under other committees' jurisdictions … " the story said. "Beyond the tax arena, Arrington is pushing for trillions of dollars in cuts to Medicaid and discretionary spending over the next decade, as well as controversial changes to food stamps and federal welfare programs." DTR said January 10, "House Budget Committee Republicans are circulating a menu of policy options including clawing back clean energy tax credits and making changes to programs like Medicare that would yield savings totaling $5.3 trillion to $5.7 trillion over 10 years." The roster of potential changes is mostly compiled from proposals included in recent House budget resolutions "and identifies $2.8 trillion over a decade in Medicaid and Medicare policy changes, like shifting to a per capita cap financing model on reimbursements. It also sets out hundreds of billions in potential savings with what it calls a 'reimagining' of the Affordable Care Act."

Tariffs: President-elect Trump's January 5 post calling for one bill said, "IT WILL ALL BE MADE UP WITH TARIFFS, AND MUCH MORE, FROM COUNTRIES THAT HAVE TAKEN ADVANTAGE OF THE U.S. FOR YEARS." Senator Rand Paul (R-KY) cited Trump as saying this week that revenue for the reconciliation package would come from tariffs, which is consistent with comments made by Chairman Smith about the President-elect's plans. Chairman Smith was cited in a Politico report as saying tariffs will be used to offset some of the cost of GOP tax policies but won't necessarily be included in budget reconciliation legislation. "Tariffs will pay for it. [Trump] didn't say it was going to be in the bill," Smith said. "Revenues coming into the country are revenues coming into the country." However, some lawmakers seem to be putting some distance between themselves and tariffs. "The tariff matter will largely be in the executive branch," Speaker Mike Johnson said in Semafor, adding, "I don't know how much of it would be codified or expected to be codified." In a December letter to Senate Democratic leaders, the Congressional Budget Office (CBO) said a uniform increase in tariffs of 10% of the value of goods would decrease deficits by over $2 trillion.

SALT: Ahead of a planned Saturday meeting hosted by President-elect Trump at his Mar-a-Lago resort with representatives of high-tax states concerned about continuing the $10,000 SALT deduction cap, Rep. Mike Lawler (R-NY) January 7 introduced his bill (H.R. 232) to increase the limitation on the amount individuals can deduct for certain state and local taxes to $100,000 for single filers and, by way of eliminating the marriage penalty, up to $200,000 for married couples.

Committee assignments: House Democrats have added Budget Committee ranking member Brendan Boyle (D-PA) and Reps. Stacey Plaskett (D-VI) and Tom Suozzi (D-NY) back to Ways & Means Committee roster for the 119th Congress. They all previously served on the Committee but not in the last Congress, as the Democratic side was winnowed when they lost control of the House. Rep. Suozzi left Congress after a bid for NY governor, then won a special election to replace George Santos.

Expiring provisions: The staff of the Joint Committee on Taxation has prepared a document listing Federal tax provisions that expired in 2024 or are scheduled to expire in the future.

DCL regulations: Treasury and IRS January 10 issued final regulations (TD 10026) regarding certain disregarded payments that give rise to deductions for foreign tax purposes and avoid the application of the dual consolidated loss (DCL) rules. The new regulations finalize certain rules from the 2024 proposed regulations that relate to disregarded payment losses (DPLs), including portions that are also relevant for DCLs, such as the anti-avoidance rule and the deemed ordering rule, IRS said. The document also announces additional transition relief for the application of the DCL rules to foreign taxes that are based on the GloBE Model Rules. The Treasury Department and the IRS said they intend to finalize, in future guidance, the remaining rules from the 2024 proposed regulations.

Energy tax: IRS January 7 issued 428-page final regulations (TD 10042) regarding the technology-neutral IRC Section 45Y clean electricity production credit and the IRC Section 48E clean electricity investment credit established by the IRA. The existing IRC Section 45 Production Tax Credit and IRC Section 48 Investment Tax Credit are available to projects that began construction before 2025, while projects placed in service after December 31, 2024, will be eligible for the new Clean Electricity Credits. A Treasury news release said the final regulations largely maintain the rules as proposed. "The final rules also confirm that future changes to the list of zero-emissions technologies or the designation of a lifecycle analysis model that may be used to determine emissions rates will need to be accompanied by an analysis prepared by the U.S. Department of Energy's National Labs, in consultation with interagency and other experts," the release said.

The IRS and Treasury Department on January 8 released final regulations (TD 10025) on the Clean Electricity Low-Income Communities Bonus Credit Program under IRC Section 48E(h), which increases investment tax credits for certain facilities placed in service in eligible communities in calendar year 2025 and later. The final regulations adopt the proposed regulations with some modifications. The IRS also released procedural guidance (Revenue Procedure 2025-11) on how taxpayers can apply for an allocation of capacity limitation as part of the program.

On January 10, IRS issued proposed regulations on the Qualified Commercial Clean Vehicles (IRC Section 45W) credit.

Also on January 10, IRS issued two notices (Notice 2025-11; Notice 2025-10) on the clean fuel production credit under IRC Section 45Z. Treasury said that one notice states an intention to propose regulations on the credit and another provides the annual emissions rate table for IRC Section 45Z, which refers taxpayers to the appropriate methodologies for determining the lifecycle GHG emissions of their fuel. In conjunction, the Department of Energy will release the 45ZCF-GREET model for use in determining emissions rates for IRC Section 45Z in the coming days.