In this episode of Tax Notes Talk, Tax Notes Capitol Hill reporters Cady Stanton and Katie Lobosco outline Congress’s progress on drafting the tax-focused reconciliation bill and the obstacles still remaining.
Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: The bill is due.
With many of the Tax Cuts and Jobs Act provisions scheduled to sunset at the end of 2025, all eyes have been on Congress’s progress toward a tax bill. But before they could focus on the contents of that bill, legislators had to get something else squared away: the budget framework.
So how did the votes shake out on the framework, and what hurdles still remain on the path to a finished tax bill?
Joining me now to walk through all of this are Tax Notes Capitol Hill reporters Cady Stanton and Katie Lobosco. Katie, Cady, welcome to the podcast.
Cady Stanton: Thanks for having us.
Katie Lobosco: Yeah, glad to be here.
David D. Stewart: So let’s start with you, Katie. What is the latest that we’ve heard on this issue?
Katie Lobosco: So before Congress left on a two-week recess, the House passed the Senate-amended budget on April 10. Now, this unlocks the reconciliation process and paves the way for one bill that addresses much of President Trump’s agenda, including the extension of the expiring provisions of the TCJA.
Now, this budget resolution has taken up a lot of the legislative calendar so far this year. The House and the Senate both passed their own versions of the budget back in February, but both chambers must pass an identical budget resolution to be allowed to use reconciliation. And this is a process that lets the Senate pass a bill with a simple majority, and in this case, the GOP can pass it without Democratic votes. So the Senate amended the House’s budget on April 5, sent it back to the House, and this is where we saw some drama.
So in the days leading up to the House vote, many deficit hawks in the House and many Freedom Caucus members told us they were going to vote ‘no’ on this. There was no changing their mind. The issue was that the Senate-amended version doesn’t go nearly as far in demanding spending cuts that the House wanted. So an hour or so before the vote was scheduled, we see a lot of these supposed ‘no’ votes marching into Senate Majority Leader John Thune’s office. They’re seeking assurances that there will be more spending cuts that are aligned with the House version.
And overnight, most of those ‘no’ votes had flipped, citing assurances that they got from Republican leadership and the White House about spending cuts. In the end, there were just two ‘no’ votes: Tom Massie of Kentucky and Victoria Spartz of Indiana, both who were concerned about deficit issues.
Now, it’s worth noting there was no change in the text of the bill guaranteeing more spending cuts. Basically at a press conference the morning of the vote, Thune said that there were a lot of senators that really believed that there should be more spending cuts, but he didn’t make a formal assurance about this.
David D. Stewart: What can we expect in a reconciliation bill around the tax issues?
Cady Stanton: So this reconciliation bill is expected to be pretty large, and it’s going to cover a variety of policy areas, but tax is a top priority in this bill because it has a really important upcoming deadline, as you mentioned.
The main aim of the tax portions of the reconciliation bill will be to extend the expiring provisions from the TCJA. That includes individual income tax rates, expanded child tax credit, the SALT cap, estate tax changes, things like that. They’re all scheduled to sunset at the end of 2025. Not everything in the TCJA was temporary — obviously the corporate tax rate, international tax reform were permanent — but as a result of the deadline at the end of 2025, those expiring provisions are likely going to be the primary focus of this year’s reconciliation bill.
Beyond that, there are a lot of additional provisions that could definitely be included and are being discussed as being on the table right now. Some talk has included a hike in the SALT cap; no tax on tips, which was one of President Trump’s promises on the campaign trail and one that he’s talked about since he has taken up the White House; the expanded child tax credit has been mentioned; tax relief for seniors; changes to the low-income housing tax credit — all of those are part of the conversation here. But while they’re all on the table as possibilities, it’s going to be dependent on how much lawmakers want to impact the deficit and include possible other pay-fors in what’s going to be part of the larger bill in the end.
David D. Stewart: What sort of things did we see in this budget resolution that we can expect to see in the final bills?
Katie Lobosco: Well, so the budget is very important to unlocking this process, but at the end of the day, it’s just a blueprint. It’s not law; it doesn’t have policy specifications. What it does, basically, is provide instructions to the House and Senate committees setting spending and revenue targets.
But here’s where things get a little complicated: This budget resolution provides different instructions to the House than it does for the Senate. For example, the Senate instructions mandate a floor of $4 billion in spending cuts across the federal government, while the House section requires $1.5 trillion in cuts.
And when it comes to taxes, there’s another big difference. The Senate Finance Committee is given $1.5 trillion for new tax proposals, but also scores the extension of the existing tax cuts as costing nothing. The House Ways and Means Committee, on the other hand, gets $4.5 trillion for both new tax proposals and the extensions.
There is a caveat there: If the House doesn’t achieve $2 trillion in spending cuts, that $4.5 trillion for tax cuts could go down as low as $500 billion. Basically, this gives us a range for the tax cuts, is the way I like to think about it. Bipartisan Policy Center’s Andrew Watts told me that he puts this range between $4 trillion and $5.3 trillion.
David D. Stewart: So I know there’s been some drama around how this is all going to get scored. So what is happening with budget scoring?
Cady Stanton: So you may have heard the phrase, especially in the news and by lawmakers lately, of a current-policy baseline, and it’s definitely in the weeds on the technical parts of scoring, but it’s important for thinking about how many tax cuts might be passed in this package.
So one of the major points of tension in this year’s reconciliation bill, particularly as it pertains to tax, is around that scoring cost we’ve been talking about. So the main goal of this bill, as I said, is to extend the TCJA provisions that are set to expire at the end of the year. But that move is estimated to cost $4.6 trillion over 10 years, according to the Congressional Budget Office. So obviously very expensive.
Now, Republican senators led by Senate Finance Committee Chair Mike Crapo have pushed for using something called a current-policy baseline to score those extensions. Like I said, it’s pretty in the weeds, but the basis of it is that a current-policy baseline scores extending policy already in place as costing zero, as opposed to a current-law baseline, which scores based on what’s actually written into the law.
Now, Democrats have called this method “magic math,” and they aren’t the only ones who are pretty skeptical of it. Quite a few Republicans in the House, such as Ways and Means Committee members David Schweikert and Lloyd Smucker, have also criticized the measure and said they’re not so sure it’s the right way to go about it.
But for lawmakers who are attempting to balance deficit reduction, often at the demands of members of their caucus who are really worried about the deficit with this expensive tax bill, it’s seen by some as the only way to make the TCJA extensions permanent, especially when other provisions that we talked about, like no tax on tips or the SALT cap, will really only increase the tally and the overall cost of this bill.
David D. Stewart: So what is next for this reconciliation bill?
Cady Stanton: So the House and Senate return to the Hill the week of April 28, and that’s when the different committees will start writing up the actual bill text. The budget resolution gives committees until May 9, but it’s not really a binding deadline. House Speaker Mike Johnson wants to move fast, and he wants to have a bill to the president’s desk by Memorial Day.
Now, plenty of people will tell you that this is possibly a bit optimistic. For context, we can look back to 2017, when Congress also used the reconciliation process to pass the TCJA. All told, it took about two months after the budget resolution was passed to get the TCJA signed into law.
Now, one thing that could throw a wrench into this timeline is if Republican leaders want to use the reconciliation process to also raise the debt ceiling. Right now, the government is expected to run out of money in August or September, if Congress doesn’t act before then, but as this year’s tax revenue comes in, that date could change. And if it comes earlier, it may pressure lawmakers to move even faster on this bill. Of course, they could also just deal with the debt ceiling in a separate piece of legislation.
David D. Stewart: What hurdles are we expecting to getting final passage of this reconciliation bill?
Cady Stanton: So there’s obviously a lot of obstacles that could come up between now and when they finally pass the bill, but I can focus on three pretty big ones right here. The first one is having to do with energy. So one possible pay-for would be either a partial or a complete rollback of the clean energy credits from the Inflation Reduction Act. Some members of the Republican caucus, like Congressman Chip Roy has said he wants a full rescission of those credits.
But a number of Republicans in states that benefited from IRA investments are cautioning against using a sledgehammer against the IRA rather than a scalpel. A group of senators and a group of House members have respectively written to the leaders of their caucus cautioning against that full repeal because of the impact in their districts should that happen. There’s also a question of how much revenue a full or partial rescission would bring in reality, given that the bill became law more than two years ago, and estimates vary on how much money that might bring in.
A second area to focus in on has to do with Medicaid. So as Katie mentioned, the budget resolution includes pretty specific instructions for spending cuts, and among them is $880 billion in cuts to be made by the House Energy and Commerce Committee. Given the budget that that committee has, a big chunk of it is Medicare and Medicaid, and Republicans really don’t want to touch Medicare — it near guarantees there’s going to have to be some cuts to Medicaid.
Moderates are pretty upset about this requirement, and even withheld their vote briefly over it. We watched the floor during the budget resolution debate, and there were some centrist members who went up to Mike Johnson and tried to really get some reassurances from him on a limit to those Medicaid cuts, or even no Medicaid cuts at all. So that’s definitely something to watch because it impacts a lot of especially low- to middle-income constituents of these moderate members.
Now the third area is the SALT cap, and this is something I’ve found comes up with just about any tax bill that we discuss. This year, I think as Katie mentioned, the House has very thin margins for all of these votes, and what that basically means is any small group can attempt to leverage their numbers to get what they want on this bill. That includes members of the state and local tax, or SALT, caucus. Now, Ways and Means Committee Chair Jason Smith and others have acknowledged that because of those numbers, raising the SALT cap is now a near guarantee. It would be otherwise pretty much impossible to pass the bill without their votes.
The tricky part here is how high that new cap could be. A $25,000 cap has been floated recently, but members of the SALT Caucus have shot that down pretty quickly, and a separate proposal would put a cap on the corporate SALT deductions — some people refer to it as C-SALT — as a pay-for for SALT or for other provisions, but that idea has also received a pretty chilly reception. So basically what to watch for is there will likely be a change in the SALT cap, but what that new number might look like is pretty up in the air right now.
David D. Stewart: Now, one of the issues that’s been dominating politics lately has been the issue of tariffs. What are we hearing from Congress on them?
Katie Lobosco: Yes. We’ve all heard a lot about tariffs lately, and there are some Republicans that have pushed back on the president’s tariffs. Chuck Grassley and six other Republican senators, along with Don Bacon of Nebraska in the House, have introduced bipartisan bills that would rein in the president’s authority when it comes to tariffs. This bill would require the White House to notify Congress and justify the tariffs, and unless Congress passes a joint resolution approving them, they would expire after 60 days.
And Senator Rand Paul, a Kentucky Republican, is another one who’s voiced some opposition. He joined a group of Democrats introducing a bill that would repeal Trump’s 10 percent across-the-board tariffs. But there’s been no real indication that either of these bills would end up passing either chamber.
These tariffs may come up later as we get a full reconciliation package. Now, they won’t be included in the bill, but I could see some Republican lawmakers pointing to the revenue from the tariffs as an offset for government spending — some of these members that are really concerned about the deficit. But I think it’s worth noting that the official score of the package will not consider the tariffs because they came from the executive branch.
David D. Stewart: One other issue I want to touch on: the potential expansion of existing credits like the child tax credit and the earned income tax credit in the Senate. What’s happening there?
Cady Stanton: I think that’s going to be one of the most interesting debates — specifically on the child tax credit — this year. So just for some context, the child tax credit was doubled from $1,000 to $2,000 in the Tax Cuts and Jobs Act, but that provision is set to expire at the end of the year. Now, CTC expansion historically has received bipartisan support. Democrats expanded it to the highest level it’s ever been in the American Rescue Plan Act, though that eventually phased back. And a bipartisan bill last year that we covered extensively that passed the House but stalled in the Senate included CTC expansion alongside retroactive restoration of expired business provisions from the TCJA. So those were paired together.
Now, there’s debate over how to expand the CTC within the Republican caucus. So some have pushed, for example, for some enhanced work requirements for the credit or raising the qualified income level. There’s definitely going to be a lot of back-and-forth as to how to tweak the dials on the credit. The idea of CTC expansion most recently came up in the past week or two, when Senator Chuck Grassley, who’s on the Senate Finance Committee, said that one of the proposals Republicans are considering is raising the top marginal income tax rate to pre-TCJA levels as an offset to CTC expansion.
Now, we should be really clear here that many Republicans have objected to the idea of changing that rate for the highest earners, but Senator Grassley discussing this shows that CTC expansion and how to pay for it is going to be part of discussions in the coming weeks and months.
Now, turning to the earned income tax credit, which you also mentioned, I feel like that’s a different ballgame here. Changes to that might be a little less likely. I wrote a few weeks back about how advocates both for expansion of the EITC or for pared-back reform of the credit have both been pushing for legislative change for many years, and really upped that push a few weeks ago ahead of the 50th anniversary of the credit.
But unfortunately, there’s really little to no appetite in Congress for a real full overhaul as both groups have been pushing for. So we may see some modest changes to the EITC, but the primary focus in terms of reform to those two credits will likely be on the child tax credit.
David D. Stewart: Well, I guess the one thing that we can be sure of is you’re going to have a lot to do over the next few months, and I thank you so much for helping us understand all that’s gone on so far. Cady, Katie, thank you for being here.
Cady Stanton: Thanks so much for having us.
Katie Lobosco: Thank you.
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