Starting on Tuesday, May 13 at 2 p.m., the House Ways and Means Committee and the Energy and Commerce Committee are expected to hold their markups of key portions of a budget reconciliation bill to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025 and make mandatory spending cuts. A "skinny" version of Chairman Jason Smith's (R-MO) mark of the Ways and Means portion could be released as soon as today and may mostly encompass only TCJA extensions, with other provisions and revenue offsets likely detailed in a substitute amendment later.

Issues remain unresolved even with markups on the schedule, and expectations for the size of the bill are being scaled back, reflecting the long-running dynamic among Republicans that some conservatives want deep spending cuts in exchange for tax cut extensions, while more moderate members are wary of such spending cuts, especially if they reduce Medicaid benefits. Deficit reduction from House committees totaling $2 trillion is required for a full $4.5 trillion deficit increase for tax cuts in Ways and Means under the budget resolution. That is reduced to $4 trillion if only the $1.5 trillion savings floor is met. The focus is now on a package at the bottom end of that range, given the difficulty Republicans are having in agreeing to a deeper level of spending cuts. The bill will rely exclusively on GOP votes, and only three votes can be lost in the 220-213 House.

House Speaker Mike Johnson (R-LA) told members May 7 that leaders are targeting a smaller package of $1.5 trillion in spending cuts for $4 trillion in tax cuts, which followed House Budget Committee Chairman Jodey Arrington (R-TX) saying May 8 that tax cut plans may need to be scaled back without the requisite amount of savings, and therefore some policies may need to be temporary. Chairman Smith is set to meet with President Trump today to discuss a pared-back package that still delivers on GOP priorities.

"Fiscal hawks" have been emphasizing that they won't back a bill without sufficient savings. More than 30 members of the House Republican Conference, led by Ways and Means member Lloyd Smucker (R-PA), said in a May 7 letter to leadership that the reconciliation bill "must include at least $2 trillion in verifiable savings either through spending reductions or scaling back the size of the tax package" or the Ways and Means instruction "must be lowered dollar-for-dollar to keep the reconciliation bill within the agreed limits."

The narrow House majority puts the focus on individual members. A story in the May 8 Wall Street Journal, "Tax Bill Imperiled by Trump's Loud Republican Critic," said Rep. Don Bacon (R-NE), a Nebraska centrist in a competitive district who has criticized President Trump's actions, "is warning that House GOP leaders are putting battleground members like him in a particularly precarious political position — and imperiling the GOP majority in the next elections — if they opt to make deep cuts to Medicaid to help pay for the president's 'big, beautiful' bill that extends 2017 tax cuts and add new breaks."

A main lever for reducing the cost of a tax package is the duration of its provisions. A May 7 Politico story cited Ways and Means member Ron Estes (R-KS) as saying Republicans could end up with a greater number of temporary tax policies, while making permanent provisions for "tax breaks for things like business research and investment expenses." Estes said, "At the end of the day, I believe we'll have some provisions that are permanent and a bunch that will be temporary — you know, four years, six years, eight years."

Republicans from high-tax Democratic states have been seeking relief from the $10,000 state and local tax (SALT) deduction cap since it was enacted in the TCJA, and say they are serious about not letting a tax bill pass without significant change to the provision. There was some discussion May 8 of increasing the cap to $30,000, which Rep. Nick LaLota (R-NY) said wouldn't pass the House (he and other members issued a more forceful rejection of that number in a later statement). LaLota has said Republican leaders won't offer up a number for the cap increase, and there is some difference of opinion over who should be making the opening bid. Punchbowl News reported May 7 that Chairman Smith told members concerned about the issue that it isn't his job to propose a solution. It has also been noted that Ways and Means can get through its markup without a SALT cap deal, but the issue will need to be resolved by an amendment in the Rules Committee or on the floor. Rep. Nicole Malliotakis (R-NY), who has suggested an income threshold to steer benefits toward middle-income taxpayers, called the issue one of "the stickiest points" of the GOP agenda.

Additionally, late entries from President Trump were complicating the task of House leaders nailing down a tax package to take into the markup. Bloomberg reported Ways and Means member Kevin Hern (R-OK) as saying that, in addition to the SALT cap, there is no resolution yet on the top individual tax rate and carried interest, both of which President Trump reportedly pushed Speaker Johnson to include on Wednesday. The President previously said he was wary of the political consequences of increasing the top rate. He is now proposing a 39.6% tax bracket for individuals earning $2.5 million or more, and $5 million for couples. Senate Finance Committee Chairman Mike Crapo (R-ID) said on the Hugh Hewitt show that he is not excited by the proposal, but other members are, and it may be under consideration given the President's support.

The President posted on social media this morning of a tax increase on high-income taxpayers, "Republicans should probably not do it, but I'm OK if they do!!!"

The Energy and Commerce Committee, which is tasked with finding $880 billion in savings, is still working to determine how to approach potential Medicaid cuts. On Thursday, House Speaker Johnson took Medicaid FMAP changes off the table but suggested per capita caps may still be under consideration.

Trade — On May 8, President Trump announced a trade framework with the UK. Details of the trade framework are intended to be finalized in the upcoming weeks and the deal is intended to be a step toward a comprehensive free trade agreement, which would be broader scope and require approval from Congress.

Based on remarks during an Oval Office announcement, the deal includes:

• Reduced sectoral tariffs on UK steel, aluminum, autos
• Expanded market access for US exports of ethanol, machinery, beef and other agricultural products
• Reduced market barriers for UK engines and plane parts, and additional purchasing commitments for US aircrafts
• Fast-tracked UK customs process for certain American goods

The specifics of the policy changes remain unclear, with the US and UK releasing contradictory statements on some of the updated tariff structures. Notably, the framework agreement does not remove the 10% blanket tariffs announced by President Trump on April 2. Since the US has a trade surplus with the UK, the UK was not subject to a higher country-specific tariff rate as part of the April 2 tariff regime and the ongoing 90-day pause.

President Trump said: "The final details are being written up. In the coming weeks, we'll have it all very conclusive. But the actual deal is a very conclusive one. We think just about everything's been approved. It's so good for both countries. And we'll also receive new market access for American chemicals, machinery and many other industrial products that weren't allowed, and they'll end up getting products that they'll be able to price, and if they like them better — and we make great products — they'll be buying those products. But they were not available in the U.K. Furthermore, in a historic step, the deal includes plans that will bring the United Kingdom into the economic security alignment with the United States."

Bill intros — On May 7, Senate Finance Committee members Todd Young (R-IN) and Maggie Hassan (D-NH) introduced the American Innovation and Jobs Act (S. 1639), to restore R&D expensing by repealing the change made by the TCJA to IRS Section 174 and expanding the R&D credit as it applies to startups.

Finance Committee members Marsha Blackburn (R-TN), Michael Bennet (D-CO) and Thom Tillis (R-NC) introduced the Strengthening Essential Manufacturing and Industrial (SEMI) Investment Act (S. 1642), to expand the IRC Section 48D advanced manufacturing investment credit to include upstream materials suppliers.

Senator Bernie Moreno (R-OH) introduced S. 1653, to allow a deduction for qualified automobile interest.

On May 8, Senator John Barrasso (R-WY) introduced the Growing America's Small Businesses and Manufacturing Act (S. 1688), to permanently extend the allowance for depreciation, amortization, or depletion for purposes of determining the income limitation on the deduction for business interest. "The bill revises the limitation from 30% of a business's Earnings Before Interest and Taxes (EBIT), back to 30% of Earnings Before Interest, Taxes, Depreciation, Amortization, and depletion (EBITDA)" and expands IRC Section 179 small business expensing, said a news release.

Senator Young introduced S. 1686, to establish a tax credit for neighborhood revitalization, and S. 1687, to provide an exception to the percentage of completion method of accounting for certain residential construction contracts. The Neighborhood Homes Investment Act (NHIA) creates a federal tax credit that covers the cost between building or renovating a home in these areas and the price at which they can be sold.