The House is returning to session for the first time since July 23 and Republican leaders are faced with decisions about Senate-passed measures. A continuing resolution (CR, H.R. 6500) that would fund the government beyond the end of the current fiscal year on September 30 and through December 11 — and also address highway funding, health policy extenders, and the African Growth and Opportunity Act (AGOA) and Haiti Economic Lift Program trade programs — was approved by the Senate on a 90-6 vote on August 8. The Senate is scheduled to remain out of session until September 14.

Punchbowl reported August 20 that House Speaker Mike Johnson (R-LA) said he plans to put the CR on the floor "as soon as" the House comes back from recess and expects "it will probably pass early, but we've got some work to do." The House in July approved a different CR through December 4, 220-205. The House intends to consider the Senate CR under the expedited suspension calendar, which requires a two-thirds vote for approval, as soon as Tuesday.

On Fox News "Sunday Morning Futures" August 30, House Majority Whip Tom Emmer (R-MN) said of the agenda that the "number one thing [is] the short-term funding bill that was sent over by the Senate, the continuing resolution that would fund the government through December 11. That will be a priority over in the House, because we get things done … "

One major difference from the House-passed CR is the Senate's inclusion of language that, as Appropriations Chair Susan Collins (R-ME) described, "prevents the Office of Management and Budget from implementing a proposed rule regarding federal financial assistance from taking effect for the coming months," which she said has the "potential to politicize the grant-making process and harm small rural communities, our university colleges, and nonprofit laboratories, our hospitals, our families, and biomedical research in general."

Tax — There remains the question of how outstanding tax issues can be addressed, which is viewed as tied to the outcome of the elections. One option is a bipartisan bill, which could include tax extenders — including the Work Opportunity Tax Credit (WOTC), a seven-year recovery period for motorsports complexes, expensing rules for film, television, and theater, and the Advanced Manufacturing Investment Credit (CHIPS ITC) that expires at the end of the year — and potentially other issues like US-Taiwan tax relief and tax administration proposals. That would likely have to wait until the lame-duck session of Congress and potentially be attached to a longer-term government funding measure.

Some see under-the-radar movement on narrow tax and trade proposals as proof that bipartisan progress on the issues is possible. Senate Finance Committee Ranking Member Ron Wyden (D-OR) on August 7 received unanimous consent for the Senate to pass H.R. 5366, the Doug LaMalfa Federal Disaster Tax Relief Certainty Act, under which "qualified net disaster losses" would be deductible to the extent they exceed $500 per casualty and without regard to whether aggregate net personal casualty losses exceed 10% of a taxpayer's adjusted gross income. The bill was introduced by Ways and Means member Rep. Greg Steube (R-FL), and was approved by the House, also by UC, on April 27.

The Supporting Early Childhood Educators' Deductions (SEED) Act (H.R. 5334), Ways and Means Committee member Rep. Jimmy Panetta's (D-CA) bill to allow early-childhood educators to deduct classroom expenses from their taxable income, was attached to the Senate-passed sanctions bill. The House approved the Panetta bill by UC on April 27. The Senate-passed CR includes extensions of the AGOA and Haiti trade programs, and the legislative vehicle for the Senate CR is the House-passed AGOA Extension Act (H.R. 6500).

An August 13 Punchbowl News story, "Is there a new path for a tax bill?," said government funding challenges "may be raising the pressure to move bipartisan tax and trade items whatever way they can move. It's a trend to watch as tax writers enter a fraught lame-duck session with a lot of unfinished business to wrap up."

Another option for moving tax legislation is a third or fourth reconciliation bill. The House on July 22 approved a FY2027 budget resolution (H. Con. Res. 113), providing for a $95 billion GOP-only bill focused on defense funding and with some voter ID and farm aid provisions, and reconciliation instructions are not provided to the Ways and Means Committee. That seemed to preclude tax issues from being addressed in the next reconciliation bill, even as Republican Senators wanted to expand the scope of the bill.

Senate Budget Committee Chairman Ron Johnson (R-WI) released a Fiscal Year 2027 budget resolution August 7 with budget reconciliation instructions to several but not to the tax-writing Finance Committee. The Budget Committee has not scheduled any markup of the resolution and support among Republican Senators for the resolution as released wasn't immediately clear as they prepared to leave for the recess.

Earlier, House Republican leaders mentioned the prospect for a Reconciliation 4.0 process to include priorities likely to be omitted from the Reconciliation 3.0 bill currently being prepped, like additional tax proposals and social program integrity provisions, but plans aren't clear. If Republicans lose one or both chambers in the elections, that could provide an impetus to consider a reconciliation bill to enact GOP priorities that might not be possible under divided government.

Trade — Another issue entwined with the midterm elections is the additional ad valorem duties of 50% on certain Canadian goods that took effect on August 22 as negotiations between the United States and Canada broke down. "States that depend on international trade, including Maine, Michigan and Iowa, are among those at the forefront of the midterm battleground map," said a story, "Canada trade fight could cost the GOP," in the August 26 Washington Post. "Some Republicans in those states have urged Trump to pull back, including Sen. Susan Collins (Maine), who is locked in a tight reelection battle."

"The on-again/off-again trade talks between the U.S. and Canada lead to higher costs, risk, and uncertainty for Maine businesses," Senator Collins said August 22. "If the Administration proceeds with these tariffs, they will increase costs for Maine families, as most businesses will have no choice but to pass on the tariffs to their customers through higher prices."

An August 25 Wall Street Journal (WSJ) story, "Canada Hits Back at Trump with New Tariffs," noted that retaliatory tariffs from Canada "targeted products made in states with hotly contested congressional elections, including processed cheese from Wisconsin, seafood from Maine, and washers and dryers from Kentucky … "

An EY Tax Alert, "Canada announces counter-tariffs in response to new US tariffs," is available here.

Democrats continue to highlight the detrimental effects of the tariffs. On August 27, Rep. Brad Schneider (D-IL), a member of the House Ways and Means Trade Subcommittee, and Senators Kirsten Gillibrand (D-NY) and Peter Welch (D-VT), introduced the Banning Antiquated Duties and Delivering Equitable American Levies (BAD DEAL) Act to repeal Section 338 and refund duties.

IRS — There was guidance on several topics during the congressional break, including the following.

Hearings — On September 2 at 10 a.m. is the House Ways and Means Committee hearing, "Strategic Partnerships to Secure Critical Resources and Supply Chains." An advisory said the hearing will have a particular focus on partnerships in Central Asia and Africa.

The United States Trade Representative (USTR) is working on a plurilateral critical minerals agreement.

President Trump on June 23 sent to the Senate the nomination of James Gadwood, a tax controversy lawyer, to be IRS Chief Counsel. A Senate Finance Committee nomination hearing has not been announced.

Budget deficit — The public debt increasing to $40 trillion was the latest milestone demonstrating the breadth of the nation's debt and deficit situation, following the February Congressional Budget Office (CBO) projections of federal debt held by the public at 100% of GDP and rising, annual deficits of roughly $2 trillion, and the Social Security program's trustees June estimate that 100% of scheduled benefits can be paid only until Q4 of 2032, one year earlier than projected last year.

Treasury Secretary Scott Bessent said on CNBC August 20, "There's nothing magic about the $40 trillion number. And we can grow our way out of that. But what we do want to signal is, I think that there's been a lot of misinformation in terms of what's going on with the deficit, what's going on with the deficit to GDP." Vice President JD Vance subsequently said, "He [Bessent] has had … plan, of course, supported by the president … to get the United States to a point where our economy is growing faster than our debt."

An August 24 Bloomberg story, "Bessent's Murky Deficit Plan Faces Grim Prospects in Congress," said Secretary Bessent's aspirations will meet "a stark reality: there is no sign the Republican-controlled Congress is going to make any net budget cuts" this year. "House leaders have said once elections are behind them they will propose legislation targeting what they call fraud in Medicaid health insurance for the poor and disabled and other entitlement programs to save money, which could reap some $200 billion," the story said, referring to a potential post-election reconciliation bill. "But their plans for new defense spending by an additional $350 billion would swamp even those anticipated savings. And passage of that proposal is in doubt if Democrats win the midterms and dispirited Republicans prove hard to rally in December."

During the week prior to the August recess, the Senate Finance Committee on August 5 held a hearing focused on Senator Bill Cassidy's (R-LA) Protecting Retirement Opportunities and Maintaining Income Security for Everyone (PROMISE) Act (S. 4979), a bipartisan bill that requires the Social Security Advisory Board to present options to congressional tax-writing committees to be voted on under a schedule. Ranking Member Wyden opposed what he said would be "an unaccountable 'commission' that will rubber-stamp benefit cuts like increasing the retirement age." He wants the Finance Committee to do the work.

Some off-Committee Senate Democrats support the bill: retiring Senator Dick Durbin (D-IL) and Senators Tim Kaine (D-VA) and Chris Coons (D-DE). In the House, Appropriations Chairman Tom Cole (R-OK) and Ways and Means member Tom Suozzi (D-NY) in June introduced the Bipartisan Social Security Commission Act (H.R. 9187), which would create a bicameral and bipartisan commission entrusted with the task of saving Social Security modeled after the 1983 commission.

Finance Committee members Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) have separate proposals to lift the Social Security payroll tax cap of $184,500, and Warren was joined in her rollout by Senator Bernie Moreno (R-OH). There isn't necessarily consensus, however.

An August 30 WSJ story, "Congress Is Finally Talking About Saving Social Security," said "Oregon Sen. Ron Wyden, the top Finance Committee Democrat, said he is focused on eliminating disparities between middle-class workers and high-income people, including taxing billionaires' unrealized capital gains. He demurred when asked about payroll tax changes. 'At the beginning of this, you don't go negotiating with yourself,' he said." The story noted that Republicans "lack a unified position on Social Security," with some having previously backed a higher retirement age, slower cost-of-living increases, and partial privatization plan.