It could be a pivotal week for Republican plans to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025 in a budget reconciliation bill that can pass Congress with GOP-only votes. The House FY2025 budget resolution, which requires at least $2 trillion in deficit reduction from other committees to avail the Ways & Means Committee a full $4.5 trillion net deficit increase for tax cuts, is set for a vote as soon as Tuesday, amid member concerns about potential spending cuts. Meanwhile, the Administration's scrutiny of spending and the federal workforce through the Department of Government Efficiency (DOGE) is posing a threat to Democratic support that will likely be necessary to extend government funding beyond March 14.

Regarding the House budget, last week's letter from Congressional Hispanic Conference Chairman Rep. Tony Gonzales (R-TX), Ways & Means member Nicole Malliotakis (R-NY), and others representing districts that could be heavily hit by health, education, and nutrition program cuts has gained a lot of attention, and they are set to meet with Speaker Mike Johnson (R-LA) ahead of the vote. Medicaid changes that may result from the $880 billion in savings required from the Energy & Commerce Committee are a main concern.

Punchbowl News, which last week cited Johnson as saying he was waiting on a revenue score of tariffs and DOGE savings, cited Rep. Malliotakis as saying, "Why are we looking to Medicaid when there's hundreds of billions of dollars in potential savings from the DOGE efficiencies that are being found?" The report also said, "there are also moderate Republicans on edge about where the budget blueprint leaves tax priorities" and some remain insistent that the $10,000 state and local tax (SALT) deduction cap be increased.

By way of review, on the numbers associated with the House FY2025 budget resolution:

• According to the Congressional Budget Office (CBO), a 10-year extension of expiring TCJA tax provisions would cost $4 trillion over 10 years, not including interest costs.
• Bonus depreciation is included in that figure but addressing TCJA pre-cliffs on five-year R&D amortization and the calculation for interest expense deductions (EBITDA to EBIT) could be $200 billion more, leaving little room for other tax cuts.
• The reconciliation instruction to Ways & Means is for a $4.5 trillion net deficit increase to cover the TCJA for 10 years; revenue offsets in the Committee's jurisdiction could fit a higher level of tax cuts.
• Instructions to other committees add up to a floor of $1.5 trillion in spending cuts, but if they don't achieve $2 trillion in spending cuts, the leeway for tax cuts could be reduced to $4 trillion.

A February 22 New York Times story, "Businesses Are Betting on a Tax Cut Extension," said "the arithmetic remains tenuous" for TCJA extensions, as the spending cut ambitions of some Republicans conflict with President Trump's comments that Social Security, Medicare and Medicaid programs "that many in his political base rely upon" shouldn't be cut, aside from addressing fraud. Senator Josh Hawley (R-MO) has expressed concerns about Medicaid cuts, in addition to the group of House members wary of spending cuts. "Business community groups have argued for decades that federal budget deficits can and should be addressed through reduced spending, rather than greater tax revenue," the story said. "What's new is that as the population ages, mandatory spending on old-age insurance has soared. The military budget and federal interest payments to bondholders also continue to grow."

A February 23 Wall Street Journal story, "GOP Split on Medicaid Imperils Trump's Tax-Cut Plans," said, "House Republicans are deeply divided on Medicaid, split between spending hard-liners who want big savings and pragmatists who warn against angering voters," and reported President Trump as having told GOP leaders that he is OK with adding work requirements to Medicaid but not impacting health care quality. Work requirements would save only an estimated $120 billion over 10 years, the story said, adding, "Some House Republicans say keeping Medicaid intact is essential if they want to hold the House majority in 2026. Some are privately warning party leadership that there are scores of members — including some in safe GOP districts — who oppose deep cuts. Healthcare groups are aggressively lobbying members' offices … "

Government funding — The Administration's steps to constrain spending and scrutinize federal workers are threatening Democratic support for a government funding bill as the March 14 deadline nears. Government funding and the debt limit are complicated for Republicans in the narrow 218-215 GOP-led House because some Republicans won't vote in favor of such bills as a matter of principle and goodwill with Democrats, who backed bills put to a vote by Speaker Johnson in the past, is evaporating with the recent developments.

Ahead of consideration of the Senate FY2025 budget resolution last week, Senate Appropriations Committee Ranking Member Patty Murray (D-WA) said, "Trump is tossing our bipartisan funding law to the shredder and Elon is decimating agencies with really zero concept of what our federal workers actually do." On February 20, Senator Murray said a full-year continuing resolution is a nonstarter that could allow the "administration to adjust spending priorities and potentially eliminate longstanding programs."

An analysis in the Washington Post, "Congress ignores looming shutdown to focus on tax cuts, agency layoffs," said, "many Democrats have grown so livid about Trump and Musk's dismantling of agencies such as [USAID] — ignoring laws approved by Congress and signed by previous presidents — that many Democrats say they will oppose a new round of government funding without guarantees that Trump and Musk will abide by these laws." The report cited Appropriations Chair Susan Collins (R-ME) as saying negotiators are at an impasse on government funding, and Sen. Mike Rounds (R-SD) as saying there is general agreement on funding levels that mirror a deal worked out in 2023. However, the story said, "Democrats are demanding an agreement written into the package to require Trump to abide by these spending bill outlines."

Politico reported February 21, "there's no clear strategy to break the logjam, and House Republican leaders privately acknowledge that contingency plans need to be drawn up in case the impasse continues ahead of the March 14 deadline." The story cited Senator Murray as saying Democrats are seeking "assurance that if there's going to be Democratic votes, that the president and Elon Musk will follow the law, and they won't just take our bill that we've worked really hard on and rip it up and it doesn't matter."

Digital services taxes (DSTs) — President Trump late February 21 signed a memorandum that could set the stage for US retaliation against countries that have enacted digital services taxes (DSTs) that could be imposed on US companies. Among other things, the memorandum directs:

• the US Trade Representative to determine "whether to renew investigations … of the DSTs of France, Austria, Italy, Spain, Turkey, and the United Kingdom, which were initiated under my Administration on July 16, 2019, and June 5, 2020," and "take all appropriate and feasible action"
• the USTR to determine whether to investigate the DST of any other country and, in consultation with Treasury, "whether to pursue a panel under the United States-Mexico-Canada Agreement on the DST imposed by Canada and whether to investigate Canada's DST under section 302(b)"
• Treasury, Commerce, and the USTR to investigate "whether any act, policy, or practice of any country in the European Union or the United Kingdom has the effect of requiring or incentivizing the use or development of United States companies' products or services in ways that undermine freedom of speech and political engagement or otherwise moderate content"

The memorandum includes no timeline for these actions, but there are several upcoming trade deadlines:

• March 4: end of postponement of 25% tariffs on Mexico, Canada (10% for Canada energy resources)
• March 12: steel and aluminum tariffs set to take effect
• March 21: findings and recommendations from Treasury pursuant to OECD executive order (due within 60 days of January 20 order)
• April 1: "America First Trade Policy" reviews, investigations to be sent to the President
• April 2: auto and semiconductor chip tariffs may be announced
• April 2 and later: reviews for reciprocal tariffs to begin, after America First memo reviews conclude

Like the America First Trade Policy memo, the DST memo references Section 891, which allows for the doubling of rates of tax on citizens and corporations of foreign countries if the President finds that US citizens or corporations are being subjected to discriminatory or extraterritorial taxes. "What they're doing to us in other countries is terrible with digital," President Trump said Friday.

Congress — The Senate is back in today and at 5:30 p.m. will hold a procedural vote on the nomination of Daniel Driscoll to be Secretary of the Army. The House is also back in today with suspension votes on bills under the jurisdiction of the Small Business Committee.

The House Ways & Means Trade Subcommittee is holding a hearing on American Trade Enforcement Priorities on Tuesday, February 25 (10 a.m.).

The Joint Committee on Taxation will hold an organizational meeting on Wednesday, February 26.