This week (March 31-April 4)

Congress: The House and Senate are in session. The Senate could vote on an FY2025 budget resolution that provides for tax legislation under the reconciliation process.

There are two special elections in Florida April 1, 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. The current House ratio is 218-213 with four vacancies.

Last week (March 24-28)

Budget reconciliation: There was a "Big Six" meeting March 25 — the top Republican leaders in each chamber, tax committee chairmen, Treasury Secretary Scott Bessent, and National Economic Council Director Kevin Hassett — on issues surrounding the budget reconciliation process and the tax bill that Republicans want to pass. Senate Majority Leader John Thune (R-SD) said he wants the Senate to vote on a compromise budget resolution prior to the start of the next congressional recess on April 11, aligning with other reporting that meetings with the Senate parliamentarian are underway to get at least an informal read on whether the use of a current policy baseline is a viable option. Thune's comments also align with the wishes of House leaders for the two chambers to get on the same page quickly. Speaker Mike Johnson (R-LA) and others issued a statement March 24 calling on the Senate to act as quickly as possible on a budget resolution that can unlock the reconciliation process for "one big, beautiful bill" with tax cut extensions, but stopping short of demanding the other chamber pass the House version as-is. Both the House and Senate will need to pass the same budget resolution to use reconciliation. Whether a current policy baseline that doesn't require paying for tax cut extensions will be permitted under reconciliation rules is probably the biggest tax issue standing in the way of a unified resolution right now. Senate Finance Committee member Bill Cassidy (R-LA) reiterated his concerns with the approach during Tuesday's party lunch. On the House side, Ways & Means members Dave Schweikert (R-AZ) and Greg Murphy (R-NC) are skeptical of a current policy baseline and are pushing for revenue offsets. There are also concerns from House and Senate Republicans that mandatory spending cuts required under the House budget resolution will target Medicaid.

Leaders were upbeat after the Big Six meeting. Speaker Johnson said, "it sounds like we will not be far apart, and that's a good thing, so we'll be able to move," according to the Bloomberg Daily Tax Report. Secretary Bessent said the "meeting gives me confidence that a swift timeframe is achievable." Leader Thune 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, hadn't been scheduled but could be followed quickly by a decision on the issue.

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 addresses top line numbers and is expected to add reconciliation instructions for Senate committees but may not 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 Johnson 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 a $1 billion minimum 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.

An updated WCEY Alert, "Pathways to budget reconciliation in 2025," is available here. A PDF version is available here.

Debt limit: 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 the reconciliation bill. The new estimate could mean that a reconciliation bill with a debt limit increase would need to be finished by the August recess.

Business SALT cap: Even under a current policy baseline, revenue offsets will be required for tax cuts beyond TCJA extensions. A Wall Street Journal story said, "Congressional Republicans may consider capping corporations' ability to deduct state and local taxes from federal taxable income, and business lobbyists are rallying to fight the potential change, which would raise hundreds of billions of dollars over a decade." The story said, "An income-tax deduction limit would be less far-reaching than one that also applies to property taxes," and also, "Congress would also need to consider state taxes on particular industries, such as severance taxes on oil, gas and mineral extraction and premium taxes on insurance policies." Politico Morning Tax said March 27, "A 2025 tax bill is likely to hike the $10,000 SALT cap for individuals, and some Republicans have floated the idea of offsetting that cost through limits on corporate SALT deductions, which currently are uncapped. There is a certain symmetry to that, but business advocates say that such a move would also be a de facto hike in the 21 percent corporate rate … "

International tax: On March 27, Rep. Ron Estes (R-KS) and every Ways and 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 newly identified 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.

Treasury: 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.