15 January 2025 What to expect in Washington (January 15) With the Republican-controlled Congress seated and up and running and President-elect Trump returning to the White House next week, the focus is pivoting somewhat from the GOP having the majorities needed to extend expiring Tax Cuts & Jobs Act (TCJA) to the impediments that could prevent those extensions. The debate over the number and sequencing of budget reconciliation bills has garnered significant attention, and on the horizon are decisions about the revenue target and the degree to which revenue proposals or spending cuts are dedicated to offsetting the cost of TCJA extensions, plus what else to add to a bill and how to address the $10,000 state and local tax (SALT) deduction cap and other issues. "The cost of those extensions, other legislative deadlines, and disagreement over legislative format and how to approach some provisions all present factors that could slow the attempt at swift action, even under a Republican trifecta of control in Washington … " Tax Notes reported this morning, after the House Ways & Means Committee got underway with an organizational meeting and tax hearing yesterday. "Early hurdles include disagreement over the number of reconciliation bills, competing priorities from upcoming deadlines on fiscal 2025 government funding and a debt limit 'X' date, a lack of clarity on scoring and offsetting the bill, and — as was showcased January 14 — disagreements within the caucus on tax reform … " Some members suggested January 14 that the makeup of the tax bill is yet to be determined, and not necessarily just a straight date change for TCJA expirations. "This is more than just what we're going to extend in the expiring tax policies. The fact of the matter is the world that we're dealing with today is different than those of us who worked on TCJA in 2017," Rep. Dave Schweikert (R-AZ) said. Rep. Kevin Hern (R-OK) noted that he wasn't in Congress in 2017 and said, "We're getting ready to see the largest tax increase in American history starting in January of '26 if we don't do something and we've got to figure out if it all needs to go through, or if the entire package, or what may need to be fixed, modified, adjusted, added to, so that we have the greatest world for creating jobs." The Bloomberg Daily Tax Report (DTR) reported January 14 that "recalculating a tax cut extension by the alternative 'current policy' approach requires juggling the narrowly divided House, byzantine rules of the Senate, and President-elect Donald Trump's campaign promises of exemptions on some forms of income." In addition to some members having concerns about what a tax package would do to the deficit, "an official score on an assumption of current policy could run into complications in the Senate" where the Byrd Rule governing reconciliation requires any proposals passed under the process to change outlays or revenues. Meanwhile, House Speaker Mike Johnson (R-LA) has shifted his timeline for the reconciliation process back slightly and wants the House to adopt a budget resolution by the end of February and a reconciliation package before Easter on April 20, Punchbowl News reported on January 13. Tax — The House Ways & Means Committee held an hours-long hearing on "The Need to Make Permanent the Trump Tax Cuts for Working Families" January 14 that resumed the relitigating of the TCJA Republicans and Democrats engaged in prior to the election, during hearings last year, and essentially for the entire period since the law was passed at the end of 2017. As during the GOP Tax Teams field hearings last year, Republican witnesses only discussed practical impacts of TCJA provisions expiring, and did not field more technical questions from Democrats. Brendan Duke of the Center for American Progress, the Democratic witness, emphasized that extensions of tax cuts aren't free and working- and middle-class families will pay for them through taxes on imported goods, health care cuts, or deficits. Chairman Jason Smith said if Congress fails to act to extend TCJA provisions expiring at the end of 2025, parents will have their Child Tax Credit slashed in half, farmers will see the estate tax exemption slashed in half, 91% of all taxpayers will see their guaranteed deduction slashed in half, and 26 million small businesses will be hit with a 43.4% top tax rate if the IRC Section 199A 20% passthrough deduction isn't extended. He has made prior comments expressing concern over preserving 199A, and said at the hearing that it impacts decisions about how businesses invest, grow, and hire. If Congress doesn't act soon, businesses will need to navigate uncertainty and tax increases, the Chairman said. Rep. Adrian Smith (R-NE) touted the benefits of the competitive corporate tax rate, saying "We were in a bad spot as a country before the TCJA," alluding to the proliferation of corporate inversions when the corporate rate was 35%. He said if that bill had been corporate-only it would not have been a "good look," thus Congress finds itself staring down the expiration of individual and passthrough provisions. They were widely understood to have been made temporary due to cost constraints imposed by some Republicans upon the measure and the limitations of the budget reconciliation process. Committee Democrats including Ranking Member Richard Neal (D-MA) and Reps. Lloyd Doggett (D-TX) and Mike Thompson (D-CA) criticized the effort among Republicans to use a current policy baseline that avoids paying for tax cut extensions, and also President-elect Trump's promise of increased tariffs and the cost burdens they could impose on US consumers. Rep. Suzan Delbene (D-WA) said "we have spent the last seven years trying to fix the many mistakes that they made," including the switch to 5-year R&D amortization after 2021, "making it more difficult and expensive for businesses to invest in R&D." Later January 14, Chairman Smith, Senate Finance Committee Chairman Mike Crapo (R-ID), and others held a news conference related to a National Association of Manufacturers study conducted by EY that projected that allowing the individual TCJA provisions to expire would result in 5.9 million lost US jobs, $540 billion in foregone wages, and nearly $1.1 trillion in foregone gross domestic product. The NAM report noted that manufacturing-related provisions on R&D, capital investments, and business loans have already been phased out, in addition to the 20% pass-through deduction, individual tax rates, and higher estate tax exemption slated to expire at the end of 2025. SALT — Amid questions about how a tax bill may provide relief from the $10,000 state and local tax (SALT) deduction cap enacted under the TCJA, Ways & Means members Nicole Malliotakis (R-NY) and Tom Suozzi (D-NY) appeared in a joint Fox News interview to call for the return of a more robust deduction. "I think what we need to do is come up with the right number that will protect middle-class families, so this is targeted. It will not be a complete lifting of the cap altogether. I don't think there's an appetite within Congress or the American taxpayer to provide relief for the ultrawealthy," Rep. Malliotakis said. "What we're really trying to do is find that balance where we can provide this relief for our middle-class residents … " Global tax — Also during the Ways & Means hearing, Rep. Ron Estes (R-KS) discussed an op-ed he wrote for The Telegraph expressing concern that the OECD is working very hard to finalize Pillar 2 guidance before the change of administrations next week. "My House Ways and Means colleagues and I have long warned that the Pillar 2 agreement, which mandates a global minimum tax, implements a UTPR provision, and unfairly treats U.S. tax credits, [is] detrimental to our country's tax sovereignty, to American ingenuity, the federal Treasury, and our national economy," he said. "Our allies will be best served by partnering with the incoming administration, not the one halfway out the door." The OECD today released three packages of Administrative Guidance:
Tariffs — Bloomberg reported that members of President-elect Trump's incoming economic team have discussed a steady, month-by-month ramp-up of tariffs, "a gradual approach aimed at boosting negotiating leverage while helping avoid a spike in inflation." Citing sources, Bloomberg reported that one scenario would involve "a schedule of graduated tariffs increasing by about 2% to 5% a month and would rely on executive authorities under the International Emergency Economic Powers Act." The advisers working on the plan include Treasury Secretary-designate Scott Bessent; Kevin Hassett, nominated as director of the National Economic Council; and Stephen Miran, nominated to chair the Council of Economic Advisers. The proposal is reportedly in its early stages and has not yet been presented to Trump. Separately on Tuesday (January 14), President-elect Trump said he plans to create an agency called the External Revenue Service to collect tariffs and other forms of revenue that come from foreign sources. "For far too long, we have relied on taxing our Great People using the Internal Revenue Service (IRS)," Trump said in a post on the Truth Social platform. "Through soft and pathetically weak Trade agreements, the American Economy has delivered growth and prosperity to the World, while taxing ourselves. It is time for that to change. I am today announcing that I will create the EXTERNAL REVENUE SERVICE to collect our Tariffs, Duties, and all Revenue that come from Foreign sources." Politico reported that Trump and some top advisers "have suggested in recent months that tariffs could replace the income tax as the main source of revenue for the United States." Congress — At approximately 1 p.m. today, the House will begin consideration of the United States-Taiwan Expedited Double-Tax Relief Act (H.R. 33), to 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 have gotten underway this week. The Senate Homeland Security and Governmental Affairs Committee will hold a hearing on the Nomination of Russell Vought to be Director, Office of Management and Budget today (Wednesday, January 15) at 1 p.m. A Senate Finance Committee hearing on the nomination of Scott Bessent to be Treasury Secretary is set for Thursday, January 16 at 10:30 a.m. In a January 13 press release, Finance Committee member Elizabeth Warren (D-MA) previewed some of the questions she may pose, including:
IRS — The IRS and Treasury Department on January 14 issued proposed regulations (REG-118988-22) under IRC Section 162(m), concerning the deduction limitation for covered employee compensation in excess of $1m for publicly held corporations. The proposed rules are intended to implement changes made by the American Rescue Plan Act that expand the scope of covered employees. The statutory changes are applicable to tax years beginning after December 31, 2026.
Document ID: 2025-0237 | |||