17 January 2025 What to expect in Washington (January 17) The focus in Congress remains on setting the stage for the Republican-controlled Congress and Trump White House to enact a budget reconciliation bill (or bills) to extend expiring Tax Cuts & Jobs Act (TCJA) provisions and address other priorities. Decisions will soon be required about a revenue target and if and how tax changes or spending cuts will offset the cost of TCJA extensions, and there is a general effort underway to identify what changes are politically viable and coordinate with Trump executive order plans. There isn't unanimity among Republicans on revenue offsets. Senate Majority Leader John Thune (R-SD), Senate Finance Committee Chairman Mike Crapo (R-ID), and House Ways & Means Chairman Jason Smith (R-MO) have called for a current policy baseline under which extensions of current tax provisions don't need to be offset. However, conservative members have seemingly linked spending reductions to tax cut extensions and called for TCJA provisions to be offset, and House Budget Committee Chair Jodey Arrington (R-TX) says a current policy baseline doesn't change the practical impact of a tax bill unaccompanied by other changes. "I don't get caught up in the CBO accounting," he said in a January 15 Washington Post story. "What I get caught up in is any real impact to the deficit and what we have to do to mitigate that. Either way you do it, even if you assume current policy, there's still an adverse impact to the deficit." Politico reported on House Energy & Commerce Committee meetings this week on potential reconciliation proposals under their jurisdiction, namely health care and energy and environment. Chairman Brett Guthrie (R-KY) said in the report health care will be a "big part" of whatever reconciliation bill Republicans can advance. The story referred to a Budget Committee list of potential revenue sources, which includes "rolling back Biden administration climate programs, slashing welfare, 'reimagining' the Affordable Care Act and recouping an estimated $2.3 trillion in savings from the safety-net insurance program Medicaid." The Budget Committee list that has been circulating since last week cites as areas of potential revenue:
Punchbowl News reported that congressional Republicans are signaling to the incoming Administration to hold off on some executive orders in order to preserve the revenue from certain Biden administration rollbacks, including the so-called EV mandate, or EV tax credit regime, which Trump has pledged to end. "But it is not clear how far Mr. Trump and Congress will go. For one thing, the Republicans have a very small majority in the House, which could make it hard for the party to pass legislation of any kind," according to an EV-focused New York Times story. "Another wild card is Elon Musk, the chief executive of Tesla, which accounts for nearly half of all electric cars sold in the country." There has been speculation that the duration of TCJA extensions could be trimmed to reduce the cost. Punchbowl reported that during a tax briefing to the House Republican Conference January 15, Ways and Means Chairman Smith "laid out how much it would cost to do a four-year extension of the Trump tax cuts in reconciliation versus what it would take to make them permanent." Morning Tax yesterday suggested a current policy baseline that presumes no cost for extension would perhaps offer the only hope for the provisions to be made permanent, though each of the provisions would need to be modified in some respect to meet the budget reconciliation requirement that proposals have some revenue impact. It has been noted previously that reconciliation rules don't typically allow an increase in deficits beyond the budget window. The TCJA relied upon revenue-raising provisions (including some taking effect in the later years of the budget window) to enable permanency of the TCJA corporate rate cut, thus clearing the prohibition on decreasing revenue in years beyond the budget window. There is, of course, a split generally between Senators who want two separate packages, headlined by enhancing border security first and extensions of TCJA provisions later (two reconciliation packages are possible under the FY2025 and FY2026 budgets), and House Republicans who generally favor an all-in-one approach with tax moving in a first, big bill. The Freedom Caucus is an outlier in that distinction. During a January 10 meeting with President-elect Trump, some Freedom Caucus members expressed a preference for two separate bills. The group continued to formalize that preference January 16, while also calling for a debt limit increase to include commitments from leadership for spending cuts. Bessent hearing — The January 16 Senate Finance Committee hearing with Treasury Secretary nominee Scott Bessent largely focused on partisan views on extending expiring TCJA provisions as well as President-elect Trump's intention to implement new tariffs. Bessent gave several arguments in favor of extending TCJA provisions, including that small businesses that are passthroughs need an extension of the IRC Section 199A deduction to grow and hire. He refuted assertions that the benefits of the bill were skewed to the wealthy and the notion that there could or should be an income cutoff for any extension, as there was in the January 1, 2013, extension of the Bush tax cuts. He said tariffs may be useful as a remedy for unfair trade practices by an industry or country, as a revenue raiser, and as a negotiating tool by President-elect Trump. In response to Senator James Lankford's (R-OK) questions regarding Pillar Two of the OECD project and Treasury's message to other countries if they try to implement taxes on US businesses, Bessent said any country that adopts Pillar Two in the near term will find it a "grave mistake," the taxation of US companies is a sovereign issue and authority lies in Congress, and he'll work with members to undo a "terrible policy." Global tax — At the 2025 D.C. Bar Tax Conference yesterday, outgoing Treasury Deputy Assistant Secretary for International Tax Affairs Scott Levine said the US has continued to prioritize one of the key issues still facing Pillar Two, the R&D credit, and has made it clear to negotiating partners that it is very important that the US R&D credit is on equal footing with other, similar credits, regardless of whether they are refundable or nonrefundable. Looking at the big picture of the US involvement in the project, on one hand the US under the new Administration could "walk away from the table and attempt to just dismantle Pillar Two with the threat of retaliatory measures, etc.," making the playing field unlevel again. "Alternatively, and this is what I hope happens, is the incoming Administration can take the baton and negotiate … and they can smooth out the rough edges that still need to be smoothed out … " Levine said. "And, if we can do that, I think this would be a real success story." Taiwan — The House January 15 approved 423-1 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. Rep. Thomas Massie (R-KY) was the only "no" vote for the bill. There is likely only one "no" vote preventing unanimous consent (UC) passage in the Senate — Rand Paul, a longtime privacy hawk who opposes a bulk exchange of data — and it's unclear whether leaders may overcome his objection with some agreement for an amendment vote, as has been the case with his opposition to tax treaties, or otherwise devoting time on the Senate floor. The bill does not incur a revenue cost and scores at $0, so it can't be done in the reconciliation process, which is how most tax business is set to get done this year. Energy tax - The IRS on January 16 in Notice 2025-08 updated the elective safe harbor for the domestic content bonus credit under IRC Sections 45, 45Y, 48 and 48E for qualified facilities, energy projects and energy storage technology that was established in Notice 2024-41. What to Expect in Washington won't be published on Monday, January 20, because of the holiday and the inauguration.
Document ID: 2025-0262 | |||