This Week (May 5 — May 9)

Congress: The House and Senate are in session.

The Senate Finance Committee has set a hearing to consider the nominations of James O'Neill to be Deputy Secretary of Health and Human Services and Gary Andres to be an Assistant Secretary of Health and Human Services for Tuesday, May 6 (at 10 a.m.).

Last Week (April 28 - May 2)

Budget reconciliation: Following House and Senate passage of a final FY2025 budget resolution and then a two-week recess, some House committees this week began drafting their respective parts of a budget reconciliation bill to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025, provide border security funding, and cut mandatory spending. However, the two committees with jurisdiction over taxes and key spending cuts, the House Ways and Means Committee and Energy and Commerce Committee, aren't expected to hold their markups of reconciliation legislation until the week beginning May 12, rather than next week, as some issues remain unsettled, and more information is awaited from congressional scorekeepers. Ways & Means is responsible for the centerpiece TCJA extensions plus President Trump's tax cut proposals and potential tax increases that would pay for some or all of those tax cuts. Energy and Commerce is charged with coming up with $880 billion of the $2 trillion in total deficit reduction required as a condition for a full $4.5 trillion deficit increase for tax cuts under the Ways & Means instruction. The work of the two committees involves some of the most controversial decisions in the reconciliation process, which House Republicans must negotiate among themselves and with Senate Republicans. There has long been the dynamic that some Republicans want deep spending cuts in exchange for tax cut extensions, while some members are wary of deep cuts in mandatory spending programs, especially as they relate to Medicaid benefits. The parameters of the Ways and Means product depend on the work of other committees, and Committee Republicans must know the level of savings from other committees, including E&C, to determine the level of tax cuts and the need for additional offsets. "I don't know the schedule yet for Ways and Means in terms of a markup, but just the way the House instructions are designed, you've got to have a number to mark up to, and so I think it just makes sense it has to come after … most of the work's done," said Ways & Means member Lloyd Smucker (R-PA) in Tax Notes this week. "We need to know the number, essentially, I think, before we can do our markup."

Unresolved issues related to the reconciliation bill include relief from the $10,000 state and local tax (SALT) deduction cap and how to meet the Energy and Commerce deficit reduction requirement that presents the potential for Medicaid cuts. Those issues were up for discussion during a May 1 White House meeting with President Trump, House Speaker Mike Johnson (R-LA), and others. There are also questions about how the current policy baseline adopted by the Senate, which wouldn't count the cost of tax cut extensions and provides the best opportunity for permanency of the TCJA tax cuts, will eventually be reconciled with the current law baseline approach in the House. The current policy baseline effectively allows the Finance Committee to ignore the cost of making TCJA tax cuts permanent, and their instruction also provides for an additional $1.5 trillion in tax cuts over 10 years, potentially eliminating the need for significant tax increases. Prior to the recess, House Budget Chair Jodey Arrington (R-TX) said a current policy baseline is a non-starter for many members. Punchbowl News reported May 2 that "huge disagreements over key policy issues remain," especially on Medicaid, and "The Ways and Means Committee is waiting on budgetary scores from the Joint Committee on Taxation on a host of its policies." Treasury Secretary Scott Bessent is eyeing Independence Day for the bill's completion. On Fox News, he said Memorial Day is when "Speaker Johnson expects to have the House portion complete and then pass it over to the Senate. And what I am hoping for is that we will have a signed, sealed, and delivered tax bill by July 4."

Add-ons: The Senate portion of the budget resolution sets a current policy baseline that won't count the $4 trillion cost of TCJA extensions and provides the Finance Committee an instruction for up to a $1.5 trillion deficit increase for additional tax cuts. Chairman Mike Crapo (R-ID) has said a tax bill may include Child Tax Credit changes and Trump tax proposals, which include no tax on tips, overtime, and Social Security benefits, cutting taxes on "domestic production and all manufacturing" and an extension of 100% expensing retroactive to January 20, 2025. It's been reported that a four-year duration of Trump tax proposals is being considered. Treasury Secretary Bessent has also proposed accelerated depreciation breaks for the construction of factories. Axios reported April 29 that during the Monday Big Six meeting — with Speaker Johnson and Senate Majority Leader John Thune (R-SD), Chairman Mike Crapo and Ways & Means Chairman Jason Smith (R-MO), and Secretary Bessent and National Economic Council Director Kevin Hassett — the Administration made a push for deeper corporate tax benefits than those previously under discussion. Secretary Bessent previously proposed accelerated depreciation breaks for the construction of factories. The Administration wants "deductibility for auto loans for American-made cars, and immediate expensing, 100% expensing for equipment," Bessent said after the meeting. "And we are going to add factory structures for that also." The report said the benefits are already raising cost concerns among some Republicans. Senator Thom Tillis (R-NC), who previously questioned finding funds for additional tax cut proposals and therefore making extending the TCJA more complicated, said in the report, "Everything here comes down to, how do you pay for it and how does it fit into our other priorities? When we're having such a difficult time getting 'pay fors' for the other policies in the bill. We've got to have that discussion about timing and priority." In a May 2 New York Times story, Senator Ron Johnson (R-WI) said of the additional proposals, "My beef with what's being proposed right now, there's no guiding principle other than, 'well, this is what President Trump promised on the campaign,'" adding that the tax code should be kept simple.

SALT: Speaker Johnson met April 30 with high-tax state Republicans concerned with providing SALT cap relief. Apparently, a $25,000 per individual cap and ending the current marriage penalty was discussed but there were no apparent breakthroughs on an issue seen as essential to delivering the requisite votes for a GOP-only reconciliation bill with the slim 220-213 House majority. Representative Nick LaLota (R-NY) said following the meeting, "We are still far away from each other," according to the Daily Tax Report. LaLota and Reps. Mike Lawler (R-NY), Andrew Garbarino (R-NY), Tom Kean (R-NJ), and Young Kim (R-CA) have threatened to reject any tax package that does not raise the SALT cap sufficiently, the report said. A separate report said Ways and Means members have considered limiting relief from the cap to those earning $400,000 or less. Rep. Nicole Malliotakis (R-NY) said members on Thursday discussed the overall cap level, how many years to extend it and if there should be income limits, she said. "It needs to be adjusted in a reasonable manner where it is targeted to the middle class," she said.

Energy tax: Potential revenue offsets that Ways & Means may include aren't clear, but there is increased attention on some proposals, including rolling back Inflation Reduction Act (IRA) energy tax credits and expanding the IRC Section 162(m) deduction limitation for employee compensation over $1 million for publicly held corporations. Politico reported May 2, "Congressional Republicans are struggling to strike an agreement over cuts to the Biden administration's clean energy tax credits," and that the "intraparty squabble over the Inflation Reduction Act has emerged as a critical sticking point for Republicans in both chambers" as they piece a reconciliation bill together. "Nothing is decided on the IRA," said Rep. Vern Buchanan (R-FL). "The chips are on the table and a lot of that is going to happen next week."

Executive compensation: The TCJA eliminated the performance-based compensation and commissions exceptions to IRC Section 162(m) and expanded the definition of covered employee to include the CFO. The American Rescue Plan Act (ARPA) included a provision to deny the deduction for compensation over $1 million for the eight highest paid employees, plus the CEO and CFO, at publicly traded companies, effective beginning in 2027. Last year's Biden budget proposed expanding the deduction disallowance to have IRC Section 162(m) apply to all C corporations — publicly held and privately held — and to all compensation paid by the corporation over $1 million to any employee, which was estimated to raise nearly $272 billion.

"House Republicans are seriously considering proposals to further limit tax deductions that companies can take for their highest-paid workers' compensation, expanding restrictions that now apply only to a handful of current or former executives making more than $1 million … " said a story in the May 1 Wall Street Journal. "Discussions on this idea and other tax provisions are still fluid, and lawmakers haven't settled on details that would determine which employees and employers would be affected."

Administration: President Trump's initial FY2026 budget proposal, referred to as the "skinny budget," was released May 2. The budget will begin the FY2026 appropriations process but doesn't present tax policy proposals. Politico reported, "A more detailed budget request is expected to be sent later this month."

Treasury: The Senate Finance Committee April 29 approved the nomination of Ken Kies to be Assistant Treasury Secretary for Tax Policy. The vote was 14-13 along party lines. Questions for the record submitted pursuant to the April 10 nomination hearing are at

IRS: On April 29, President Trump nominated Donald Korb to be Chief Counsel for the Internal Revenue Service. He was previously Chief Counsel during the George W. Bush administration.

Bill intros: On April 17, Rep. Aaron Bean (R-FL) introduced the Maritime Fuel Tax Parity Act (H.R. 2925), which would equalize the excise tax treatment of maritime shipping fuels. A press release said the bill would "correct an outdated tax code provision by exempting alternative fuels, including liquefied natural gas (LNG), for marine vessels from paying Federal Highway Trust Fund excise taxes."

Ways and Means member Greg Murphy (R-NC) April 28 announced the introduction of the No Handouts for Drug Advertisements Act, to prohibit the tax deduction for expenses related to direct-to-consumer advertising of prescription and compounded drugs. The bill would eliminate the tax deduction companies can claim for pharmaceutical marketing and promotional expenses related to advertising on television, radio, social media, and other common platforms.

On April 29, Senate Finance Committee members Todd Young (R-IN) and Maria Cantwell (D-WA) introduced a bill (S. 1515) to reform the low-income housing credit. The bill would increase the number of credits available to states by 50% for the next two years and make the temporary 12.5% increase secured in 2018 permanent.

Senate Finance Chairman Crapo and Ranking Member Ron Wyden (D-OR) introduced a bill (S. 1532) to modify the railroad track maintenance credit.

On May 1, Ways and Means member Mike Carey (R-OH) introduced a bill (H.R. 3137) to extend the biodiesel fuels credit and the biodiesel mixture credit.

OECD: The Trump Treasury Department is telegraphing that the Administration intends to remain engaged in Pillar 2 negotiations and to argue that, instead of requiring changes to bring GILTI into compliance with the Model Rules, the US tax system, including the US Global Intangible Low-Taxed Income (GILTI) regime, Subpart F and current taxation of foreign branches of US MNEs, should operate as a parallel system alongside Pillar 2 and should not be integrated into Pillar Two. Counselor to the Secretary of the Treasury Derek Theurer told attendees of the Pacific Rim Tax Conference April 18 that the OECD's minimum tax under BEPS Pillar Two must coexist with the US GILTI regime. "GILTI's been in place for eight years. It was in place before Pillar Two, it's in place today, and will continue to be in place," Theurer said, adding that it would be challenging for companies to be subject to multiple regimes.

President Trump issued an Executive Order upon taking office on January 20 that stated that the OECD Global Tax Deal has no force and effect in the United States and required the Treasury Secretary to develop options for responding to foreign countries' extraterritorial tax rules. Multiple observers have said the Treasury "parallel system" argument would likely require ensuring the UTPR doesn't apply to US income and the foreign earnings of US companies and permitting pushdown, at the election of individual countries, of US taxes like GILTI and Subpart F when a US MNE calculates any top-up tax under a country's qualified domestic minimum top-up tax, among other changes. The Treasury plan would also exempt US operations of foreign headquartered companies from Pillar 2. Numerous press reports indicated that EU member countries are keen to develop compromise solutions that address US concerns.