Even with the House Budget Committee last week advancing an FY2025 budget resolution to unlock the reconciliation process for extending Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025, the debate with the Senate regarding one bill vs. two bills for GOP priorities remains unsettled. And the deep spending cuts envisioned by the House resolution to appease conservatives on the Committee are raising concerns from more moderate members that may imperil a floor vote planned for next week.

President Trump did weigh in on the debate, posting on social media this morning, "The House and Senate are doing a SPECTACULAR job of working together as one unified, and unbeatable, TEAM, however, unlike the Lindsey Graham version of the very important Legislation currently being discussed, the House Resolution implements my FULL America First Agenda, EVERYTHING, not just parts of it! We need both Chambers to pass the House Budget to 'kickstart' the Reconciliation process, and move all of our priorities to the concept of, 'ONE BIG BEAUTIFUL BILL.' It will, without question, MAKE AMERICA GREAT AGAIN!"

The Senate FY2025 budget set for consideration this week reflects the two-bill plan that would provide for $300 billion in border security funding first and push tax decisions until later, in a second bill. The House budget provides for a comparable amount for border security plus much more, including an instruction allowing the Ways & Means Committee to increase the deficit $4.5 trillion/10 years to accommodate TCJA extensions. The House budget requires other committees to achieve $1.5 trillion in mandatory spending savings — Social Security and discretionary spending can't be considered in reconciliation — and really requires $2 trillion in spending cuts to avoid the tax cut number being reduced to as low as $4 trillion.

Among House committees' spending cut instructions, Energy and Commerce, which has jurisdiction over Medicaid, is instructed to lower the deficit by no less than $880 billion over the budget window. On Fox News February 18, President Trump suggested the spending cuts sought by Republicans would not reduce benefits from programs for deserving beneficiaries, but target waste, fraud, abuse. "Social Security won't be touched, other than if there's fraud or something," he said. "We're going to find it. It's going to be strengthened, but it won't be touched. Medicare, Medicaid, none of that stuff is going to be touched."

Other mandatory spending programs include the Supplemental Nutrition Assistance Program (SNAP), the Temporary Assistance for Needy Families (TANF) program, some veterans' programs, etc. Politico reported, "The vulnerable incumbents wary of slashing Medicaid services include Reps. David Valadao of California, Nicole Malliotakis of New York, Don Bacon of Nebraska, Rob Bresnahan of Pennsylvania and others from redder districts. They were generally blindsided by the deeper level of proposed cuts … "

Tax — House Budget Committee Chairman Jodey Arrington (R-TX) has said the $4.5 trillion net instruction will cover a 10-year extension of expiring TCJA provisions, and that other tax proposals, including those put forward by President Trump, could be paid for with other revenue offsets like paring back Inflation Reduction Act energy tax credits. In early January, there were reports about a presentation by Arrington highlighting as revenue sources repeal of IRA energy credits and a state and local tax (SALT) deduction cap for corporations. Politico reported February 18 that the Ways & Means Committee "is looking at limiting corporate state and local tax deductions as one way to offset the costs of a large party-line tax bill," along with work requirements for TANF and repealing a nursing home staffing mandate.

The Congressional Budget Office (CBO) said in May 2024 that a 10-year extension of expiring TCJA tax provisions would cost $4 trillion over 10 years, irrespective of interest costs. Addressing TCJA pre-cliffs, or already expired provisions, on five-year R&D amortization rather than expensing, reducing the base calculation for interest expense deductions from 30% of Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) to EBIT, and phasing out bonus depreciation would add significantly to those costs.

A February 17 New York Times story on TCJA costs said, "there's a coveted business tax break for research and development — which, in an example of the zigzag of tax policy in Washington, Republicans wound down in 2017 and now want to revive. That would be another $150 billion. Allowing companies to once again deduct more of the interest on their debt is another $50 billion. Those changes are the table stakes. They essentially amount to preserving the status quo." The story also raised the issue of increasing the $10,000 SALT deduction cap, as Republicans from high-tax states insist: "Repealing the cap entirely could cost $1 trillion over a decade. More modest proposals to increase the limit would still dramatically add to the cost of the legislation. (Just doubling it to $20,000 for married couples would cost $170 billion.) Republicans pushing to lift the cap acknowledge the headache they are helping create for [Chairman] Jason Smith … "

The American Investment in Manufacturing Act (S. 559), 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., EBITDA), was reintroduced February 13 by Senator Shelley Moore Capito (R-WV). Rep Adrian Smith (R-NE) is the House sponsor.

Trade - Asked on Face the Nation February 16 about the Administration memo on reciprocal tariffs and the President saying he may want them to apply to value-added taxes, National Economic Council Director Kevin Hassett said: "Here's the way I would like to think about it, that, right now, US companies are paying foreign governments about $370 billion a year in tax, and foreign companies are paying the US government about $57 billion in tax. And a lot of it is because of the VAT. But if we didn't have to pay the foreign governments tax, over 10 years, it'd be about $5 trillion of tax that US citizens don't have to pay. That would more than pay for the tax cuts that we're debating right now."

An EY Tax Alert on the reciprocal tariff examination is available here.

Meanwhile, President Trump suggested February 18 that auto and semiconductor chip tariffs are forthcoming. Asked what the auto tariff rate should be, President Trump said, "I probably will tell you that on April 2nd, but it'll be in the neighborhood of 25%." Asked about semiconductors and pharmaceuticals, the President said, "It'll be 25% and higher, and it'll go very substantially higher over a course of a year. But we want to give them time to come in because, as you know, when they come into the United States and they have their plant or factory here, there is no tariff. So, we want to give them a little bit of a chance."

Bill intros — Bills of interest introduced February 14-17 include:

• H.R. 1367, to repeal the credit for new clean vehicles, House Budget Committee Chairman Arrington
• H.R. 1378, to extend the temporary increase in limitation on the cover over of distilled spirits taxes to Puerto Rico and the Virgin Islands, Rep. Ron Estes (R-KS)
• H.R. 1396, to establish the generic drugs and biosimilars production credit, Rep, Claudia Tenney (R-NY)
• S. 615, to repeal excise taxes on taxable chemicals and taxable substances, Senator Ted Cruz (R-TX)

Congress — The Senate took a procedural vote February 18 toward consideration of the FY2025 budget resolution this week, with debate to be capped with a vote-a-rama rapid-fire consideration of amendments. The effort to establish reconciliation instructions for the first of two bills under the process, on border security, energy, and defense issues — with tax envisioned to move in a second bill, under a FY2026 budget resolution — would give President Trump an option for moving his agenda and a backup plan if House efforts for one bill falter. Top Senators continue to suggest the two-bill strategy may be necessary given questions about the ability of the House to act on a tax bill fast. "A lot of questions need to be resolved in terms of: What can the House do?" Senate Finance Committee Chair Mike Crapo (R-ID) said in Semafor. "And until we see some of those answers, I don't think we'll be able to move quickly."

The Senate yesterday confirmed, 51-45, Howard Lutnick to be Secretary of Commerce. Today (February 19) is the Senate HELP Committee hearing on the nomination of Lori Chavez-DeRemer to serve as Secretary of Labor.

Friday, February 21 (12:00 p.m. ET) is the EY Webcast, Tax in a time of transition: legislative, economic, regulatory and IRS developments.