The focus this week is on negotiations among House Republicans as they seek agreement on a budget reconciliation bill to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025 with only three votes to spare given their narrow 220-213 majority and a host of outstanding issues, including relief from the $10,000 state and local tax (SALT) deduction cap, potential tax revenue offsets, and Medicaid changes. But whatever may eventually pass the House is likely to be modified in the Senate, raising questions about how differences will be resolved and whether House members could be voting on some policies that won't ultimately be enacted.

The two House committees with jurisdiction over taxes and key spending cuts, the House Ways and Means Committee and the Energy and Commerce Committee, are expected to hold their reconciliation markups next week (the week of May 12). "And Chairman Arrington then and his team will take that and merge it all together and we'll have the one big, beautiful bill ready to go," House Speaker Johnson (R-LA) said during a May 6 news conference. "We can pass that by Memorial Day … "

Senate Majority Leader John Thune (R-SD) said on Fox Business on Monday that "the Speaker has a lot of different people who have different equities in this, and then we have the same thing in the Senate." He further said of the range of opinions in his chamber, "We've got people who want more spending cuts, people who want slightly different things when it comes to taxes … [I]t's a chess match of some sort, but we will get this done. And I think in the end, hopefully it will be by the middle of the summer, because I think … businesses [are] looking for economic certainty, and we want to give them that … "

A May 5 Semafor story cited Senator Bernie Moreno (R-OH) as calling the emerging House bill a "sandstorm of bad ideas," and saying Congress should focus on permanent extensions of the 2017 tax cuts, restoration of R&D expensing, and President Trump's tax proposals for tips, overtime and Social Security, rather than the broader range of proposals being considered in the House. On process: "The House is planning, for now at least, to send its legislation through congressional committees. The Senate has no current plans to do that; they'll assemble their own bill or tweak whatever the House sends over. That could lead to a leadership-negotiated Senate bill that amends the House's work and tees up a final deal. 'There could be a world in which the House passes their bill, and then, you know, we're here,' said Senator John Cornyn, R-Texas. He said one possibility is to 'tweak it, and then send it back to them, and then they pass it.'"

There has long been the dynamic that some Republicans want deep spending cuts in exchange for tax cut extensions, while other members are wary of cuts, especially as they relate to Medicaid benefits, and some members in both chambers are wary of repealing Inflation Reduction Act (IRA) energy tax credits. On Bloomberg Television, House Budget Committee Chairman Jodey Arrington (R-TX) said a big challenge for the bill will be ensuring the Senate agrees to the House spending cuts. Bloomberg Government on May 6 reported Speaker Johnson as saying House Republicans are likely to repeal the electric vehicle (EV) credit: "I think there is a better chance we kill it than save it."

Regarding SALT cap relief, Politico Morning Tax reported that while members like Reps. Andrew Garbarino (R-NY), Nick LaLota (R-NY) and Mike Lawler (R-NY) represent "a large number of residents at the top of the income scale," the district of Rep. Nicole Malliotakis (R-NY) includes taxpayers that are affluent but not necessarily at the very top of the income scale. She has previously suggested targeting relief from the SALT cap to the middle class, under $400,000 or $500,000 in annual income, but some of the other members oppose such an income cap.

Regarding negotiations over Medicaid changes, Politico reported May 6, "The plan is centered around work requirements for beneficiaries, more frequent eligibility checks in the program and cracking down on coverage for noncitizens," while "some controversial changes the moderates had blanched at appear to be omitted from the latest plan: cutting the federal share of funding for states that expanded Medicaid under the Affordable Care Act and capping federal payments to those expansion states."

In addition to members with concerns over IRA energy credits, SALT deduction cap relief and Medicaid cuts, there are groups of House members with concerns over other issues, such as:

• "Fiscal hawks" wary of the deficit impact of the bill, including many Freedom Caucus members
• The Senate's intention to use a current policy baseline that won't count the costs of TCJA extensions, a baseline that Chairman Arrington said can't pass the House
• The Senate Finance Committee's instruction for $1.5 trillion in additional tax cuts, for a total of $5.3 trillion, as opposed to the current law baseline and $4.5 trillion limit in the House bill
• Agriculture Committee instructions that could cut the Supplemental Nutrition Assistance Program (SNAP) by $230 billion

In the Senate:

• Senators Thom Tillis (R-NC) and Ron Johnson (R-WI) are concerned about including President Trump's additional tax cut proposals (no tax on tips, overtime, etc.), and Senator Johnson wants a return to 2019 spending levels
• Senator Rick Scott (R-FL) is opposed to any EV fee increases
• Senator Rand Paul (R-KY) opposes a debt limit increase of the $5 trillion magnitude provided for under the budget resolution

A May 5 Wall Street Journal story said: "As Republican lawmakers hammer out a 'big, beautiful bill' to enact President Donald Trump's policy plans, they're running into a problem: their colleagues' growing list of red lines. Some House Republicans say they won't vote for a bill that cuts Medicaid. Others have refused to support the legislation unless it lets their constituents deduct more of their state and local taxes. Last week, one Senate Republican ruled out voting for any bill unless it pares back spending to the level before the pandemic — which would require massive additional cuts. The growing list of policy 'no-gos' will make it even harder for [Speaker Johnson] and [Leader Thune] to draft a bill that can pass their narrowly divided chambers."

International tax — Punchbowl News reported May 5 that tax proposals for the reconciliation package advocated by the Trump administration last week included a lower tax rate for Foreign Derived Intangible Income (FDII).

Senator Thom Tillis (R-NC) May 6 introduced the International Competition for American Jobs Act (S. 1605), previously sponsored by former Senator Rob Portman (R-OH), which includes provisions to make permanent the CFC look-through rule that expires at the end of 2025; maintain the 37.5% deduction for FDII, 50% deduction for Global Intangible Low-Taxed Income (GILTI) and 10% rate for the Base Erosion and Anti-Abuse Tax (BEAT); make various changes to those provisions and foreign tax credit limitation baskets; eliminate downward attribution from foreign persons to U.S. entities for CFC purposes; and repeal the foreign tax credit haircut for GILTI.

Tax — On May 6, Senator Roger Marshall (R-KS) introduced the Overtime Wages Tax Relief Act (S. 1606), to address President Trump's proposal by providing a tax deduction for overtime wages — up to $10,000 for individuals and $20,000 for married couples — with a phase-out beginning when income reaches $100,000 for individuals or $200,000 for married couples and reduced by $50 for every $1,000 in income above the threshold, similar to the Child Tax Credit. It defines overtime to include workers such as law enforcement officers, nurses, trade workers and factory employees.

On May 5, Ways and Means member Claudia Tenney (R-NY) introduced the Building Advanced Semiconductors Investment Credit (BASIC) Act (H.R. 3204) to increase the advanced manufacturing investment credit from 25% to 35% and extend its availability through December 31, 2030.