02 February 2025

This Week in Tax Policy for February 3

This week (February 3-7)

Congress: The House and Senate are in session. After the Senate Budget Committee's January 30 approval of Russell Vought's nomination to be OMB Director 11-0 — Democrats boycotted the vote, likely in protest of Vought's role in advocating for deep spending cuts and other policies — the full Senate will hold a procedural vote at 5:30 p.m. on Monday. That is to be followed by a vote on confirmation of Christopher Wright to be Secretary of Energy, as confirmation of President Trump's cabinet nominees continues at a rapid pace.

The Senate Finance Committee will hold a nomination hearing on Thursday, February 6, at 10 a.m. to consider Jamieson Greer to be United States Trade Representative (USTR).

When Congress returns, the House Budget Committee is expected to begin marking up an FY2025 budget resolution. Punchbowl News reported House Majority Leader Steve Scalise's (R-LA) date targets as:

  • Budget resolution consideration in February
  • Reconciliation in committee in March
  • Reconciliation on the House floor the first weeks of April
  • FY2026 appropriations in May
  • Debt ceiling in June

On February 6 is a Bloomberg Tax event , "Tax Policy Perspectives in 2025," featuring Lisa Wolski, Managing Director, Washington Council Ernst & Young, and others.

Last week (January 27-31)

Federal assistance freeze: There has been continued confusion over the January 27 White House Office of Management and Budget (OMB) memorandum directing federal agencies to pause activities related to obligation or disbursement of all Federal financial assistance, even after it was rescinded January 29. The order required a review to identify programs, projects, and activities implicated by any of the President's executive orders, and potentially other factors. An accompanying Administration spreadsheet prescribed a top-to-bottom review of whether tax provisions and many other programs across the government provide funding related to illegal immigration, activities overseas, climate plan, burden on domestic energy resources including through the Inflation Reduction Act and Infrastructure Investment and Jobs Act, DEI, environmental justice, equity-related grants, etc. Treasury items listed for review include not only a host of recently enacted energy-related and other credits, but the entire list of congressionally enacted — and in many cases longstanding — tax expenditures, such as the mortgage interest deduction, the IRC Section 199A pass-through deduction (which was enacted in the Tax Cuts and Jobs Act), the deduction for foreign derived intangible income (FDII, also enacted in the TCJA), expensing of research and experimentation expenditures (which already was repealed in the TCJA), and the R&D Credit. All agencies that provide Federal financial assistance were to be required to complete the spreadsheet and submit it to OMB by February 7.

The funding freeze was scheduled to take effect on January 28, but a federal Judge, prior to the rescission, blocked enforcement until 5 p.m. on Monday, February 3. It was unclear whether rescission of the order, via a short memo from OMB January 29, was a policy reversal or workaround in light of the court's action:

  • Semafor cited an official as suggesting that rescinding it let the White House get around the court injunction and resume engaging with agencies on executive orders: "Anything deemed at odds with the President's EO will freeze."
  • The Wall Street Journal (WSJ) January 29 reported, "The White House argued Wednesday that even though its Monday night call for a spending pause was now rescinded, the administration is still reviewing federal programs for ways to cut spending it views as wasteful."
  • Politico said, "The memo's rescission does not rule out a new memo from the White House budget office on another spending freeze, with administration officials arguing that such an action falls within the power of the executive branch."
  • NPR reported that White House Press Secretary Karoline Leavitt said the move was just rescinding the Monday directive and efforts to "end the egregious waste of federal funding" will continue.

In any event, the expressed designs of some within the Administration to scrutinize all funding, whether subject to a freeze order or not, threatened to complicate any bipartisan comity surrounding legislation to extend government funding beyond the next deadline on March 14 and probably other issues. Republicans are expected to need some Democratic support on that issue and the debt limit, at least to get a bill through the House.

Backstory: The original order and continued efforts to further its aims, as well as the plan to offer buyouts to Federal workers, appear to reflect dual goals of dismissing progressive ideology from federal government programs and curbing spending that are being taken very seriously by the Administration. "It became clear the bureaucrats were still trying to funnel unapproved discretionary grants of funds to their pet projects. So, OMB, led by Russ Vought, felt it was necessary to protect taxpayer resources to issue clearer guidance establishing for these discretionary grants of funding that are not directed by Congress that they go through a political approval process at the agency … " Stephen Miller, White House Deputy Chief of Staff for Policy, said on CNN January 28. "The choice here is simple. It is very simple, and I want to state it clearly, either Donald Trump gets political control over this government and ends the waste, abuse, and fraud on the American people, or we let bureaucrats autopilot federal spending." A Washington Post story on the genesis of the order and potential staying power of its intent said that Miller and others asked an OMB team led by Vought "to write guidance for agencies on implementing Trump's executive orders that reviewed and froze funding … Vought was deeply involved even though he has yet to be confirmed by the Senate as OMB director and is not actually employed by the government." The WSJ report said part of the impetus for the order was Trump administration frustration with employees at the Centers for Disease Control and Prevention "who sent money to the World Health Organization after the White House had moved to withdraw the U.S. from it."

Tax bill table setting: Meanwhile, House Republicans are coming off a retreat in Doral, FL, to try to firm up some reconciliation plans before the Budget Committee marks up the requisite FY2025 budget resolution as soon as next week. There were discussions for weeks prior to the retreat about how much each committee can offer up in particular proposals for budget savings. That could lead to a revenue target for the reconciliation bill that is necessary for the budget process to play out, and it's clear a final determination hasn't been made. Discussions have been fluid but one area gaining steam is work requirements for programs like Medicaid, Temporary Assistance for Needy Families (TANF), and the Supplemental Nutrition Assistance Program (SNAP). A January 30 Tax Notes story, "Fast Budget Timeline Faces Reality of Small House GOP Margin," cited House Republican Policy Committee Chair and Ways and Means Committee member Kevin Hern (R-OK) as saying at the close of the retreat January 29 that committee chairs are still finalizing the cost ranges for their panels on reconciliation. "If we're going to meet the timeline that we're trying to meet, we're going to have to probably get this resolution done by the middle of February," Ways and Means and Budget Committee member Blake Moore (R-UT) said. "So we're going to make a call, move forward, and see if we can galvanize the conference to get behind something."

Multiple stories have cited Senate Majority Leader John Thune (R-SD) and Senate Finance Committee Chairman Mike Crapo (R-ID) as saying the Senate plans to be ready with a budget — that will likely reflect a preferred two-bill approach that starts with border issues and other spending priorities and leaves tax cut extensions to a second bill — and tax plans. The thinking has long been that House leaders are focused on a one-bill approach given their narrow majority, and that the border and other priorities may be necessary to sway any tax bill holdouts.

Punchbowl News January 29 cited Chairman Crapo as saying he wants a long extension of the TCJA provisions expiring at the end of 2025 and would prefer permanence. "Crapo said there's been no final decision on how to score the Trump tax cut extension yet. He wants to use a 'current policy baseline' that would make it so the over $4 trillion of tax cut extensions count officially as costing nothing because they're in law right now," the story said. "Crapo confirmed that Republicans would have to make 'some adjustments' to the tax cuts to make them work under this baseline." There has long been the expectation that each of the provisions would need to be modified in some respect to meet the budget reconciliation requirement that proposals have some revenue impact.

The President's plans: In a Monday address at the meeting, President Trump said he is agnostic on structuring of the reconciliation process. "We don't want to get hung up on the budget process. We just want - whether it's one bill, two bills, I don't care. Let these guys — they're going to work it out — they're going to work it out one way or the other. But the bottom line, the end result is going to be the same," he said. "We want to have all of those benefits, and we want to keep people's taxes low and actually make them lower. And that's not just rich people, that's everybody. It's, frankly, proportionately, the lower scale much more so than a higher scale." He also called for action on campaign priorities: "no tax on tips, no tax on Social Security, and no tax on overtime." In his remarks at the retreat, House Speaker Mike Johnson (R-LA) confirmed plans for the House Budget Committee to begin marking up an FY2025 budget resolution. "When we get back, the Budget Committee will be marking up first week of February is the plan, marking up the budget to set the resolution to begin and unlock and open the reconciliation process. That will be where the lion's share of these campaign promises that we made are fulfilled," he said.

A trio of stories discussed members' narrower tax priorities, in addition to extensions of TCJA provisions expiring at the end of 2025, and their view of President Trump's additional proposals.

  • A story in the January 27 WSJ said, "Republicans want big things in their sweeping tax-and-spending legislation this year. But dozens of individual lawmakers are pitching small things, too, further complicating party leaders' policy Jenga as they shape their plans. Because of the narrow House majority, any handful of members insistent on getting something have the power to play hardball, no matter how parochial their issue might seem."
  • Politico reported January 27, "House Republicans are privately wary about the price tag for all of Trump's demands, with some members estimating the entire array could reach $10 trillion. While the border policies in particular have wide support across the conference, Johnson's right flank is demanding any new spending be fully paid for with separate deep spending cuts. Some GOP members are privately dubious about how they're supposed to pay for other Trump demands, including his 'no tax on tips' push."
  • A story in the January 28 New York Times said, "Even as Republicans have coalesced around broad fiscal policies like cutting spending and extending the tax cuts Mr. Trump enacted in 2017, many do not share his enthusiasm for several ideas he has proposed, including implementing broad tariffs and lowering the corporate tax rate. Those disagreements are at the heart of Republican leaders' efforts to piece together legislation carrying the bulk of Mr. Trump's domestic policy agenda — a massive bill cutting taxes, slashing spending and slowing immigration that they plan to fast-track over the objections of Democrats."

Tax administration: Chairman Crapo and Ranking Member Ron Wyden (D-OR) released a discussion draft of the next iteration of bipartisan legislation addressing Internal Revenue Service (IRS) procedure and administration. (The Finance Committee has a long history of bipartisan action on this issue.) According to a Committee release, provisions would:

  • Require the IRS to improve "math error" notices so that taxpayers are better positioned to timely respond
  • Streamline review of offers-in-compromise to facilitate the taxpayers' resolution of tax debts
  • Simplify foreign bank account report (FBAR) compliance
  • Clarify and expand Tax Court jurisdiction
  • Expand the independence of the National Taxpayer Advocate (NTA) from the IRS
  • Increase civil and criminal penalties on tax professionals
  • Expand taxpayer access to the IRS Independent Office of Appeals
  • Extend the so-called "mailbox rule" to electronic submissions
  • Protect taxpayers by adopting reasonable standards and due process for issuing and revoking return preparer identification numbers (PTINs)
  • Strengthen the IRS whistleblower program while protecting confidentiality
  • Protect hostages from unfair tax processes and penalties

Treasury: On Monday, January 27, the Senate confirmed the nomination of Scott Bessent to be Treasury Secretary. The vote was 68-29, with 15 Democrats joining Republicans in support. He was sworn in on Tuesday.

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Contact Information

For additional information concerning this Alert, please contact:

Washington Council Ernst & Young

Document ID: 2025-0383