This week (July 28-August 1)

Congress: The House is out but the Senate is in session. The Senate is expected to continue processing nominations and a three-bill appropriations package: Military Construction-Veterans Affairs, Agriculture, and Legislative Branch.

Field hearings: The Ways and Means Committee is holding two OBBBA-related field hearings on July 25-26, in Las Vegas, NV, and at the Ronald Reagan Presidential Library in Simi Valley, CA. Chairman Jason Smith said at the start of the first hearing: "America's 4 million tipped workers will also benefit from no tax on tips. The One, Big, Beautiful Bill also delivered no tax on overtime and no tax on Social Security. Blue-collar workers, the men and women who put in the long hours earning an hourly wage to get the job done, will get an additional $1,400 tax cut. Seniors will get a $63 billion tax cut to ensure their retirement isn't dragged down by high taxes."

On Tuesday, July 29 is the EY Webcast, "The 'One Big Beautiful Bill Act': key international tax provisions."

With Congress departing for the August recess, This Week in Tax Policy won't be published regularly during August, but other WCEY Alerts will be issued as events warrant.

Last week (July 21-25)

Big picture: The House has already left for the August recess, the Senate is scheduled to be in for another week and, while there is broad interest in congressional action on additional tax and health provisions later in the year, exact plans aren't clear. Since enactment of the "One Big, Beautiful Bill Act" (Public Law 119-21), there has been speculation about a potential follow-on bill addressing outstanding tax and health issues, Medicaid and other changes cut out of the OBBBA to meet reconciliation rules, OBBBA technical corrections, tax extenders like extension of the Work Opportunity Tax Credit (WOTC), and possible retirement items. There are at least two paths Republicans could take to address additional priorities: another reconciliation bill in the fall — with the enactment of OBBBA (using the FY25 budget resolution), they can now turn to the FY26 budget resolution as the vehicle for a second reconciliation bill — or bipartisan legislation, which could potentially be attached to a year-end appropriations bill. House Speaker Mike Johnson (R-LA) confirmed July 23 that Republicans intend to act on another GOP-only reconciliation bill later this year to address items left out of the OBBBA. It's unclear whether bipartisan priorities would, or could, move in a reconciliation bill or separately. When members return from the August recess, there will be a government funding deadline on September 30 right around the corner, and they will almost certainly need to pass a temporary continuing resolution to extend funding given that the appropriations process is not far along. Democrats are still considering the degree to which the rescissions package cleared by Congress and the potential for additional stringent action on spending propelled by the Administration dampens their willingness to cooperate on government funding, given the risk for bipartisan agreements to be rolled back. That dynamic may influence whether other bipartisan legislation is possible later this year.

Second reconciliation bill: In a Bloomberg interview, Speaker Johnson said he hoped to pass a bill "late in the fall" that would address issues cut out of the OBBBA because of reconciliation rules, without naming specific tax provisions. "There are some priorities that did not make it into 'reconciliation one' that are still priorities for people," Johnson said. "A couple of things that didn't survive the Byrd test, and we're looking at other ways, other angles maybe to try to include that." House Budget Committee Chairman Jodey Arrington (R-TX) previously said on July 8, just after OBBBA enactment, that Republicans plan to consider another reconciliation bill in the fall that could tailor Medicaid and other changes to meet reconciliation rules, and this week Arrington said that effort will likely include a measure to bar states from using their own funds to provide Medicaid to illegal immigrants, according to the Bloomberg report.

President Trump continues to put forward tax policy ideas. Asked about consideration of no tax on home sales capital gains — in the wake of enactment of no tax on tips and overtime — the President said July 22, "We're thinking about that, but we'd also unleash [the market] just by lowering the interest rates. If the Fed would lower the rates, we wouldn't even have to do that. But we are thinking about no tax on capital gains on houses … " Currently, an individual taxpayer may exclude from gross income up to $250,000 ($500,000 joint) of gain realized on the sale or exchange of a principal residence.

Bipartisan priorities: At least a portion of what's considered unfinished business in Washington is potentially bipartisan, including tax extenders like the Work Opportunity Tax Credit, retirement provisions and some health care items. It's unclear if those issues would be addressed in a Republican reconciliation bill; whether such a bill could be followed by a bipartisan package addressing outstanding tax and health issues that both parties support; or whether the one-party approach could sour relations to the point of precluding any later cooperation. The interaction between potential reconciliation legislation and any bipartisan bill isn't clear, but members' comments suggest both are possible. A Tax Notes story, "Possible Tax Extenders Bill Could Embrace Offsets," said: "Ways and Means member Kevin Hern, R-Okla., said that if Republicans take a second swing on a reconciliation bill, offsetting its cost will be a top priority. But on a bipartisan bill, the need for pay-fors isn't quite as clear, he said. 'I think in keeping with where we are right now, and paying for the things that we cut, we're going to have to look and see what else we can do,' Hern said."

One issue of bipartisan interest is rolling back the change regarding the deduction for gambling losses. Senator Catherine Cortez Masto (D-NV) July 10 unsuccessfully sought unanimous consent for Senate passage of her bill with Senators Jacky Rosen (D-NV) and Ted Cruz (R-TX) to reinstate the prior rules (S. 2230), which she said is required because the OBBBA "changed the tax code to only allow a 90% deduction on gambling losses." Punchbowl cited House Ways and Means Chairman Jason Smith (R-MO) as saying the Senate change was a "bad decision" that he wants to reverse, possibly in a broader bipartisan package later this year. He said during a July 25 field hearing: "That change was made by the United States Senate. That being said, for those of you concerned about this change, I can tell you that members on both sides of the aisle have heard you and I know that many members on both sides of the aisle are open to working to address it before it goes into effect on January 1."

Regarding prospects for policy priorities, Punchbowl News reported last Sunday: "This year is a weird, complicated one for any sort of bipartisan 'extenders'-based negotiation. Republicans just wrapped up a $4.5 trillion tax package that took most of the expiring tax policies for the year off the board. The government funding process is a tinderbox. But key lawmakers still have ideas brewing about what they'd like to move by December. The question is if there's any pathway." There are tax items members would like to address but the report noted there is probably more talk about health items, and there are also expiring trade preference programs.

OBBBA: A story in the July 22 Wall Street Journal focused on the OBBBA provision for a $1,700 tax credit for contributions to scholarship granting organizations, which would allow a taxpayer to "get that full amount back via a reduction of the same amount in their income taxes, instead of a regular tax deduction for the donation … The SGO would then issue stipends to families for private-school tuition, among other permitted educational expenses." The story said: "Now comes a protracted debate at the state level. Progressives and public-school groups object to funding private schools and say the new program will hurt public education. Supporters say the money will give families options outside of their neighborhood school."

Crypto tax: One new starter with robust bipartisan support that has a chance to be included in a broader package is the taxation of cryptocurrency, which was the subject of a July 16 Ways and Means Oversight hearing. Following his comments from the hearing, Rep. Max Miller (R-OH) has circulated a draft framework for a crypto tax bill that would, without specifying exact details:

• Provide a de minimis reporting exemption to exclude small personal transactions from capital gains reporting
• Modernize wash sale rules to include application for digital assets with clarity
• Offer optional mark-to-market accounting for qualified traders and institutions
• Make staking and mining income changes to clarify when income is realized and how it should be reported
• Update charitable contributions rules for donating appreciated crypto to nonprofits
• Permit digital assets in certain retirement accounts with defined rules

These same issues are addressed in the June 30 crypto tax bill (S. 2207) introduced by Senator Cynthia Lummis (R-WY) that would set a $300 de minimis threshold and $5,000 yearly total cap, provide that digital asset lending agreements are generally not taxable events, revise the wash sale rules as they pertain to digital assets, provide that mining and staking income is not recognized until sale/disposition of produced assets, and exempt charitable contributions from appraisal requirements. Politico reported Miller as saying, "There is a lot of opportunity to build upon the work of the Trump administration and bring innovation back to the United States, especially in next-generation technology … It begins with digital assets but can go so much further." Miller's office told Politico the lawmaker is inviting public and industry feedback on the legislation and is also working with counterparts in both chambers.

Global tax: Rep. Ron Estes (R-KS) said at an American Enterprise Institute international tax event on July 21 that Congress will keep monitoring global tax issues after the June 28 G7 agreement to pull Section 899 out of the OBBBA with the expectation that the G7 and other countries would pull back on some OECD Pillar 2 language. More also needs to be done on digital services taxes (DSTs), he said. Estes said policymakers need to "trust but verify" that other nations are complying. "We took the first step to pull out the 899 and now we've got to continue the process, follow through with the G7 and OECD countries … " he said. "And continue to work on the DST issue. Because that wasn't resolved and that wasn't as much a part of the agreement as the Pillar 2 piece."

Bill introduction: The Small Nonprofit Retirement Security Act (S. 2365/H.R. 4548) introduced on July 21 — by Senate Finance Committee members James Lankford (R-OK) and Catherine Cortez Masto (D-NV) and House Ways and Means Committee members Vern Buchanan (R-FL), Jimmy Panetta (D-CA), Blake Moore (R-UT), and Brad Schneider (D-IL) — would make the credit for small employer pension plan startup costs and the retirement auto-enrollment credit available to tax-exempt eligible small employers. According to a release, the "bill provides up to $5,000 per year in tax credits to help nonprofits launch retirement plans, plus an additional $500 annually for those that adopt automatic enrollment" and "the credits can be applied directly to their payroll tax liability."