The timeline for steps toward development of the tax bill that Republicans want to pass under the budget reconciliation process is becoming clearer. Senate Majority Leader John Thune (R-SD) said March 26 he wants the Senate to vote on a compromise budget resolution as soon as next week (March 31-April 4). He said a determination from the Senate parliamentarian regarding whether the use of a current policy baseline that doesn't require paying for Tax Cuts & Jobs Act (TCJA) extensions will be allowed under reconciliation will be needed before the vote. Punchbowl News said a joint meeting with the parliamentarian and Republican and Democratic aides, who have been making the case for and against a current policy baseline separately, has yet to be scheduled but could be followed quickly by a decision on the issue.

But the tough decisions separating the House and Senate on the forthcoming tax bill may not be made in the context of the budget resolution, which is expected to add reconciliation instructions for Senate committees — the House resolution didn't include them, and the Senate previously processed a much narrower budget devoid of tax plans — but won't change the instructions to House committees. The House reconciliation instruction to Ways & Means is for a $4.5 trillion net deficit increase to cover TCJA extensions for up to 10 years, but that is reduced if other committees don't achieve $2 trillion in spending cuts. The Energy & Commerce instruction for $880 billion in mandatory spending cuts, which some members fear will target Medicaid, won't be mirrored in the Senate version. "It will be a different instruction in the Senate," Leader Thune said in a Politico story. Speaker Mike Johnson (R-LA) confirmed: "It's not going to align perfectly with the House's … But each side will have their own instructions, and they'll merge it all together."

Bloomberg reported Senate Budget Committee Chairman Lindsey Graham (R-SC) as saying March 27 he is not planning to dictate explicit spending cut levels in the budget resolution he is writing like the House budget does, and other sources as saying the Senate budget plan could include relatively small levels of minimum cuts, such as $1 billion to each committee involved with the bill. That would mirror the Senate-passed FY2025 resolution — which was intended for a narrower border-focused bill, with tax to come later under a different resolution — that required a $1 billion deficit reduction floor from each of five Senate committees.

Another factor potentially making the timeline clearer for a tax bill is the March 26 Congressional Budget Office (CBO) estimate that if the debt limit remains unchanged, the government's ability to borrow using extraordinary measures will probably be exhausted in August or September 2025. That estimate aligns with the Bipartisan Policy Center's March 24 estimate that the debt limit X Date, when Treasury will no longer be able to meet its financial obligations in full and on time, will likely arrive between mid-July and early October. Before this week, there were only suggestions that extraordinary measures would be exhausted and congressional action on the debt limit would be required sometime around midyear, and these ranges likely will narrow further after the April 15 individual tax return filing due date. The House budget provides for a debt limit increase and Leader Thune said he hopes to address the issue in a tax bill. The new estimate could mean that a tax bill with a debt limit increase would need to be finished by the August recess.

International tax — On March 27, Rep. Ron Estes (R-KS) and every Ways & Means Republican reintroduced the Unfair Tax Prevention Act (H.R. 2423) to ensure that if a country moves forward with an Undertaxed Profits Rule (UTPR) under Pillar 2 of the OECD-led tax agreement, the United States will impose a reciprocal tax measure. The bill strengthens anti-avoidance rules in the base erosion and anti-abuse tax (BEAT), revokes the ability of foreign-owned extraterritorial tax regime (FETR) entities to disregard certain service payments and payments subject to withholding taxes, and treats 50% of cost of goods sold as a base erosion tax benefit.

Trade — In a March 26 proclamation, President Trump announced 25% tariffs on imported automobiles, effective April 3, and auto parts no later than May 3. "In recent years, American-owned automotive manufacturers have experienced numerous supply chain challenges, including material and parts input shortages, labor shortages and strikes, and electrical-component shortages," the proclamation stated. "Meanwhile, foreign automotive industries, propelled by unfair subsidies and aggressive industrial policies, have grown substantially."

An EY Tax Alert, "US President Trump announces 25% additional tariff on imported automobiles and automobile parts," is available here.

President Trump said during a news conference, "This is very modest. And what we're going to be doing is a 25% tariff on all cars that are not made in the United States. If they're made in the United States, there's absolutely no tariff." He also rekindled an earlier proposal for auto loan interest deductibility: "We're trying to get approved, if we can, if you borrow money to buy a car, you're allowed to deduct interest payments for purposes of income tax. But only if the car's made in America. So, if the car's made in America, you get a loan, you can deduct the interest." By way of history, auto loan interest (as well as personal interest generally) was deductible prior to the Tax Reform Act of 1986.

Congress — The Senate March 26 confirmed Michael Faulkender to be Deputy Secretary of the Treasury, in a party-line 53-43 vote with four Democrats not voting.

President Trump withdrew the nomination of Rep. Elise Stefanik (R-NY) to be US ambassador to the United Nations in a move seen motivated by an interest in keeping her seat in Republican hands, with the expectation she could join the Administration later. The President posted on social media, in part: "I have asked Elise, as one of my biggest Allies, to remain in Congress to help me deliver Historic Tax Cuts, GREAT Jobs, Record Economic Growth, a Secure Border, Energy Dominance, Peace Through Strength, and much more, so we can MAKE AMERICA GREAT AGAIN. With a very tight Majority, I don't want to take a chance on anyone else running for Elise's seat."

There are two special elections in Florida next week, to replace Rep. Matt Gaetz (R-FL), who resigned effective November 13, 2024, and did not take the oath of office for the 119th Congress, and Rep. Mike Waltz (R-FL), who joined the Administration as National Security Advisor. A March 26 Wall Street Journal story said the race to replace Waltz is more competitive than expected. The current House ratio is 218-213 with four vacancies.

Crypto — The Senate easily voted on March 26 to repeal an IRS regulation that would have required increased tax reporting for cryptocurrency brokers. The measure (H.J. Res. 25), sponsored by Sen. Ted Cruz (R-TX) and Rep. Mike Carey (R-OH), passed 70-27, with 14 Democrats in support. The House passed the resolution — affecting decentralized finance, or "DeFi" platforms — on March 11 by a vote 292-132, with 76 Democrats and all Republicans voting in support. The bill now heads to President Trump for his signature. The digital asset industry had pushed back on the new requirement, which was enacted as a pay-for in the 2021 infrastructure bill, saying it would be burdensome and prevent innovation in the digital asset space. The resolution represented the first time a tax regulation has been overturned using the Congressional Review Act, which allows Congress to repeal new federal regulations with a simple majority in the Senate. Furthermore, enactment of the resolution means that Treasury and IRS will be prohibited from ever reissuing "substantially similar" regulations under the 2021 reporting requirement.

Overdraft fees — On March 27, the Senate also passed, 52-48, another CRA resolution overturning a Consumer Financial Protection Bureau (CFPB) rule that capped overdraft fees charged by banks at $5 per overdraft. The measure (S.J. Res. 18) was sponsored by Banking Committee Chairman Tim Scott (R-SC), who said in remarks on the Senate floor, "Overturning the Biden CFPB's overdraft fee structure is good for consumers." The overdraft rule barred banks and credit unions with more than $10 billion in assets from charging overdraft fees above $5, unless they could prove higher fees were necessary to cover the costs of honoring overdrafts. The average overdraft charge at U.S. banks is $35. Sen. Josh Hawley (R-MO) joined with all Democrats in voting against the resolution, which has not yet come before the House.