There is currently no clarity on how Congress may act to extend government funding that expires after September 30. Democratic support will be necessary because appropriations bills require 60 Senate votes in the 53-47 chamber, and cooperation from the minority party is threatened by their opposition to the July rescissions package and August pocket rescission of $5 billion in foreign aid. Some Democratic members want "One Big Beautiful Bill Act" (OBBBA) Medicaid cuts restored and enhanced premium credits extended in exchange for their votes. But as members returned to Washington this week, there are also divisions over how Republicans want to approach funding.

It has been common for a continuing resolution (CR) to extend funding until close to the end of the year, when an omnibus appropriations bill that may also carry tax and health priorities could be one of the last acts of Congress before the holidays, or, failing that, another CR into 2026. Congressional GOP leaders are considering a CR until November or December, but some members and the Administration want a longer patch to avert year-end shutdown chances and a pre-holiday omnibus with unrelated provisions.

As Punchbowl News reported September 3, the White House wants this next CR to last into early 2026 to "avoid repeated shutdown deadline dramas," though that could also increase chances for funding through the entirety of FY2026 to be covered by a full-year CR, which appropriators in the House and Senate want to avoid. The Hill newspaper reported September 3, "Some hard-line conservatives, nervous about the prospect of being jammed with a massive, end-of-year omnibus and hoping to avoid negotiating with Democrats on spending increases, have been agitating for another full-year continuing resolution (CR)."

Politico reported September 4 that House and Senate Appropriations Chairs Rep. Tom Cole (R-OK) and Senator Susan Collins (R-ME) want Congress to enact the three bills passed by the Senate before the August recess — Military Construction-Veterans Affairs, Agriculture (which includes the Food and Drug Administration), and Legislative Branch — and a CR for the nine remaining bills.

It will be difficult to reconcile the competing versions. House appropriations bills call for deep spending cuts, while Senate versions of the bill, which are generally developed on a bipartisan basis, include modest increases over current spending levels. The House Appropriations Committee September 3 approved the FY26 Financial Services and General Government bill with a 7.9% cut from the FY25 enacted discretionary appropriation and reduces Treasury and IRS funding by more than 20%. The Labor-HHS bill that is awaiting Appropriations Committee consideration would provide appropriations at 7% below the FY25 enacted level.

Health care — Extension of enhanced Affordable Care Act (ACA) premium tax credits that expire at the end of the year is increasingly becoming an issue for government funding efforts. Some Senate Democrats have said they won't back a CR without addressing an extension of the premium tax credit enhancements, House Democratic leaders are saying the same, and a group of House members led by Rep. Jen Kiggans (R-VA) introduced the Bipartisan Premium Tax Credit Extension Act to extend the enhanced credits for one year.

The Senate Finance Committee September 4 held a hearing on "The President's 2026 Health Care Agenda" with Robert F. Kennedy, Jr., Secretary of the Department of Health and Human Services. The Secretary cited the nation's experience with COVID in saying, "That's why we need new blood at CDC. That's also why it's imperative that we remove officials with conflicts of interest and catastrophically bad judgment and political agendas." His appearance followed the publishing of a Wall Street Journal opinion piece by Susan Monarez regarding her departure as director of the Centers for Disease Control and Prevention.

Chairman Mike Crapo (R-ID) asked about the OBBBA's rural health transformation program. Sec. Kennedy said: "They are often the largest employer. They are the highest-paying jobs, and they are the centerpiece for those communities. So, when they die, the communities collapse. And President Trump promised to do something about that, and he has delivered on that promise." Senator Grassley said the Rural Community Hospital Demonstration program under Medicare was underutilized but that is changing.

Sec. Kennedy was confronted by members over his views on vaccines. Ranking Member Ron Wyden (D-OR) said, "I have made it clear I think that Secretary Kennedy is dead set on making it harder for children to get vaccines … " Republican Senator Bill Cassidy (R-LA) also questioned the cancelling of vaccine contracts.

Tax - The Senate Finance Committee has planned a hearing for Wednesday, September 10 (at 10 a.m.) on the nomination of Donald Korb to be IRS Chief Counsel. He was Chief Counsel in the George W. Bush administration during a period when IRS was very active in targeting abusive tax shelters. The Committee will also consider the nomination of Jonathan Greenstein to be a Deputy Under Secretary of the Treasury.

The Finance Committee held votes on USTR and HHS nominations September 4 but not on the nomination of Derek Theurer, now Counselor to the Secretary of the Treasury, to be Deputy Under Secretary of the Treasury for Legislative Affairs. The Committee did approve 15-12 the nomination of Bryan Switzer to be Deputy United States Trade Representative (Asia, Textiles, Investment, Services, and Intellectual Property).

Prior to the August recess, Senate Finance Committee member Chuck Grassley (R-IA) placed a hold on three Treasury nominees, citing concerns that "begin construction" rules and regulations implementing the phase-out of wind and solar credits adhere to the law and congressional intent. A July 7 Executive Order called on Treasury to ensure that policies concerning the beginning of construction are not circumvented for wind and solar facilities. Notice 2025-42, issued on August 15, updated the rule for determining when wind and solar projects have begun construction for the IRC Section 45Y production credit and the IRC Section 48E investment credit.

The September 4 Bloomberg Daily Tax Report said Senator Grassley was joined in the holds by Senator John Curtis (R-UT) and cited Senator Grassley as saying the holds will remain for the time being. Sen. Thom Tillis (R-NC) was cited as saying that, as lawmakers seek additional guidance from the Trump administration, the Finance Committee will probably delay a vote on Theurer's nomination.

Meanwhile, House Ways and Means Committee Republicans are set to meet next week with Treasury Assistant Secretary for Tax Policy Ken Kies regarding the Administration's implementation of tax provisions included in the OBBBA.

An EY Tax Alert, "Treasury releases preliminary list of occupations that will qualify for the tip deduction," is available here.

Financial services — The Senate Banking Committee on Thursday, September 4, held a confirmation hearing for five nominees. The focus of the hearing, for the most part, was the nomination of Stephen Miran to serve out the remaining months of the term of Federal Reserve Board Governor Adriana Kugler, who stepped down from the Fed Board on August 8. Kugler's term expires in January 2026. In their questions to Miran, several senators on both sides of the aisle focused on the issue of the Fed's traditional independence from the executive branch, as well as the economic effects of the administration's tariff polices. Democrats also focused on President Trump's attempts to fire Fed Governor Lisa Cook.