This week (February 17-21)

Congress: The Senate is in session beginning Tuesday, February 18. The House is out of session. Senate floor consideration of an FY2025 budget resolution focused on unlocking budget reconciliation for border issues, but not tax, is possible this week.

Last week (February 10-14)

The big picture: House Republicans have provided inklings of a roadmap for the process of extending Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025, if their all-in-one approach for budget reconciliation prevails over the Senate's preference for two separate bills. The House Budget Committee February 13 approved an FY2025 budget resolution that provides reconciliation instructions to the Ways & Means Committee for up to a $4.5 trillion net increase in the deficit over 10 years to accommodate TCJA extensions and requires other committees to achieve $1.5 trillion in spending savings. Committee action on reconciliation legislation, including for Ways & Means, is required by March 27 under this version of the budget resolution. Conservatives, whose support for the budget in committee was in question prior to the Budget Committee markup, voted in favor of the resolution after adoption of an amendment to codify and enforce a stated goal in the budget to cut mandatory spending by $2 trillion and reduce the Ways & Means Committee's level of tax cut extensions to the extent to which that spending cut target is not reached by other committees. Still, advancing the resolution isn't assured when the full House considers the budget as soon as the week of February 24, after a recess next week, given the narrow 218-215 House majority. Among other committees' spending cut instructions, the Energy and Commerce Committee, which has jurisdiction over the Medicaid program, is instructed to lower the deficit by no less than $880 billion over the budget window. The deep spending cuts envisioned to appease conservatives may concern more moderate members in swing districts.

Unlocking the budget reconciliation process that would allow a tax bill to pass with Republican-only votes — including by a simple majority in the 53-47 GOP-led Senate, rather than being required to meet the 60-vote filibuster threshold — requires the House and Senate to eventually approve identical budget resolutions. Getting to an agreement is made more complicated by the fact that the Senate is moving forward with a two-bill plan that would provide funds for border security funding only, and contemplating a second budget resolution later this year that would set the stage for the tax committees to write the tax bill. So eventually, these differences will have to be resolved.

Budget: The party-line 21-16 House Budget Committee vote completed at 10 p.m. February 13 capped a 12-hour markup of an FY2025 budget resolution that Chairman Jodey Arrington (R-TX) called "the only comprehensive deal Congress has on the table to get the job done" in terms of cutting spending and extending TCJA provisions. The ability to address tax provisions beyond TCJA extensions in a reconciliation bill had been a point of contention among Republicans. Tax Notes reported that Ways & Means Chairman Jason Smith (R-MO), who was concerned about the level of his committee's instruction prior to release of the budget, as saying, "Four and a half does not allow us to do what the president has requested, but it's a good first step." The $4.5 trillion is a net instruction, and spending cuts or revenue offsets could come from Ways & Means to offset some additional tax cuts. During an inquiry at the markup about President Trump's proposal to exempt tip income from tax, Chairman Arrington clarified that $4.5 trillion is sufficient to extend the TCJA for 10 years. He said there is additional potential savings in the code, including paring back Inflation Reduction Act energy tax credits that are now scored at $750 billion, to pay for other tax cuts. "That's one example, hundreds of billions of dollars that are there, [and] will be debated by our conference as to which [provisions] stay, if any, and how much those savings can be put against presumably any of the other tax provisions, whether they are the promises made by the President or just any other tax provisions," Chairman Arrington said. He said the tax code "is riddled with special interest giveaways" that should be debated and could provide real savings toward better tax policy. Rep. Lloyd Smucker (R-PA) offered the amendment, negotiated with conservatives, to formalize the $2 trillion spending cut requirement and reduce the Ways & Means level for tax cuts under reconciliation if it isn't met. He said the budget's instructions for $1.5 trillion in deficit reduction, instead of $2 trillion, reflect the fact that committees don't yet know how much savings they can achieve. "When we decided we believed we could achieve $2 trillion, we could not have the floor of each of the committees add up to that number," he said.

Duration and baseline: Compared to the House, less is known about how the Senate will approach tax issues in their budget and how Republicans there could align with the House in any negotiations toward a compromise. The duration of TCJA provisions remains in question in the process overall, and some members want a permanent rather than temporary extension. A February 13 letter from nine Republican members of the Senate Finance Committee (Daines, Thune, Crapo, Barrasso, Lankford, Johnson, Marshall, Blackburn, Tillis) said they won't support a package that extends TCJA provisions on a temporary basis. "A temporary extension of these pro-growth and pro-family policies is a missed opportunity. Businesses need certainty … " they said. (SFC Republicans not signing the letter: Grassley, Cornyn, Cassidy, Scott, Young.)

Senate leaders have called for a current policy baseline that wouldn't require extensions of TCJA provisions to be paid for. Morning Tax February 14 called a current policy baseline "the easiest answer for a permanent extension," in a report that also said, "The House GOP is currently using a current law baseline, which means it will cost them in the neighborhood of $4 trillion to extend the expiring parts of the Trump tax cuts within the budget window."

Reciprocal tariffs: President Trump February 13 signed a memorandum directing the Administration to conduct a review to calculate and ultimately impose reciprocal tariffs on a country-by-country basis, accounting for both tariff rates and non-tariff barriers. Any new tariffs under the memo could be months away. The review is to involve the United States Trade Representative, the Secretary of the Treasury, the Secretary of Commerce, the Senior Counselor to the President for Trade and Manufacturing, and others, beginning after submission of the specified agency reports due under the America First Trade Policy Memorandum, for which submissions are to be compiled by April 1. The memo described a "Fair and Reciprocal Plan" to counter non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with foreign trading partners through an examination of:

• tariffs imposed on US products
• unfair, discriminatory, or extraterritorial taxes, "including a value-added tax"
• costs to US businesses, workers, and consumers from nontariff barriers and unfair policies, including subsidies and burdensome regulatory requirements on US businesses operating overseas in other countries
• policies and practices that cause exchange rates to deviate from their market value
• any other practice that imposes any unfair limitation on market access or any structural impediment to fair competition

The Office of Management and Budget Director is to assess impacts to the government and public within 180 days of issuance of the memo.

Metal tariffs: President Trump February 10 signed an Executive Order on steel/aluminum tariffs. Key points:

• The tariffs are scheduled to go into effect on March 12.
• President Trump relied on his authority under Section 232 and the Commerce Department's 2018 investigation into the national security impact of steel and aluminum imports.
• The EO eliminates the country-specific exemptions and partial relief from steel and aluminum tariffs negotiated during the first Trump Administration and expanded by the Biden Administration — including Canada, Mexico, the EU, and others.
• Specifically, the EO states, "In my judgment, the arrangements with these countries have failed to provide effective, long-term alternative means to address these countries' contribution to the threatened impairment to the national security by restraining steel articles exports to the United States from each of them, limiting transshipment and surges and distorted pricing, and discouraging excess steel capacity and excess steel production."

Tax administration: On February 12, the Ways & Means Committee approved:

• H.R. 997, the National Taxpayer Advocate Enhancement Act of 2025 on a 43-0 vote
• H.R. 998, the Internal Revenue Service Math and Taxpayer Help Act on a 43-0 vote
• H.R. 1152, the Electronic Filing and Payment Fairness Act on a 41-0 vote
• H.R. 1155, the Recovery of Stolen Checks Act on a 41-0 vote

During the February 11 House Ways and Means Oversight Subcommittee hearing on "IRS Return on Investment and the Need for Modernization," former National Taxpayer Advocate Nina Olson lauded service improvements from increased funding and suggested that experienced employees are needed. "Through 2024, using IRA funding, there has been significant improvements to taxpayer service on the phones and online account, to the fairness of the tax system by focusing on areas of complex noncompliance, and to efficiency and effectiveness through digitalization," she said. "Digitalization requires both the retention of employees who have institutional knowledge and hands-on experience in tax administration, and the hiring of new employees who bring new skills and outside the agency experience." Further, "The balance between seasoned employees and those with new skill sets will not be achieved if government services are vilified and current IRS employees are painted as inept or even worse, corrupt." Pete Sepp of the National Taxpayers Union called for greater accountability. "If modernization is going to succeed, we have to have more itemized spending plans for the IRS going forward beyond the hundred-odd page budget justification that members of Congress see," he said.

Bill introductions of interest this week:

• S. 492/H.R. 1177, the Improve and Enhance the Work Opportunity Tax Credit Act, to enhance WOTC to encourage longer-service employment and modernize the credit to make it more effective as a hiring incentive, Senators Bill Cassidy (R-LA) and Maggie Hassan (D-NH)/Rep. Lloyd Smucker (R-PA)
• S. 536/H.R. 1253, to establish a tax on the sale of electric vehicles and batteries, Senator Deb Fischer (R-NE)/Rep. Dusty Johnson (R-SD)
• S. 541, to repeal the credit for new clean vehicles, Senator John Barrasso (R-WY)
• S. 559, American Investment in Manufacturing Act, to permanently extend the allowance for depreciation, amortization, or depletion for purposes of determining the income limitation on the deduction for business interest (i.e., reinstate Earnings Before Interest, Tax, Depreciation, and Amortization, or EBITDA), Senator Shelley Moore Capito (R-WV)
• S. 587/H.R. 1301, Death Tax Repeal Act, to repeal estate and generation-skipping transfer taxes, Senator John Thune (R-SD)/Rep. Randy Feenstra (R-IA)