Congressional Republicans Struggle To Pass Tax Cuts Amid Growing Economic Uncertainty
President Donald Trump and Congressional Republicans have spent much of 2025 trying to create a plan to extend the Tax Cuts and Jobs Act and to implement other income tax cuts. Progress has been slow. Deadlines have been pushed back, and the process has mostly stalled. This is the sixth article I’ve written on the topic — and Congress still hasn’t made meaningful headway.
The stakes are getting higher. Tariffs, rising economic worries, and a growing fear of recession — now estimated at a 30% to 40% chance — have made tax reform even more urgent for Republicans.
A Warning Sign From Indiana
Take my home state of Indiana as an example. In December 2024, state officials expected $800 million more in revenue for the 2026–2027 budget. But by April 2025, a new forecast showed a sharp reversal — a $2.4 billion drop.
This change was blamed mostly on tariffs and economic uncertainty, which are expected to cause more unemployment and lower profits for Indiana businesses. Indiana, a Republican-led state, is reacting by tripling cigarette taxes to $3 per pack starting July 1, 2025. Taxes on vapes, e-cigarettes, and chewing tobacco will also rise significantly.
Division Among Republicans In Congress
At the federal level, Republicans can’t agree on how to move forward. Tariffs and trade troubles are making things even harder. The House and Senate are following different strategies, and there’s no consensus on whether tax cuts should be temporary or permanent.
Because the Republican majority is razor-thin, leadership can’t afford to lose more than three votes in the House or four in the Senate. Right now, the House has delayed its next big vote to the week of May 19. Their likely plan would cut federal spending by $1.5 to $2 trillion over 10 years — about $150 to $200 billion per year.
Tax Cut Ideas On The Table
President Trump and Congressional leaders have floated a number of tax cut ideas, including:
- Extending The Tax Cuts and Jobs Act: Keeping the 2017 tax cuts would cost about $4.6 trillion.
- Exempting Overtime Pay From Taxes: Workers wouldn’t pay taxes on overtime, costing about $300 billion.
- Exempting Tips From Taxes: Service workers’ tips would be tax-free, costing about $200 billion.
- Lowering Corporate Taxes For U.S. Manufacturers: Rewarding companies that make goods in America, costing about $150 billion.
- Removing The State and Local Tax Deduction Cap: Ending the $10,000 SALT cap would cost around $1.2 trillion.
- Ending Taxes On Social Security Benefits: Retirees would no longer pay taxes on Social Security income, costing about $1.5 trillion.
- Eliminating The Estate Tax: Repealing the so-called “death tax” would cost about $300 billion.
There are more than 250 other proposals in discussion. Surprisingly, there’s even talk — though still unlikely — of raising taxes on the wealthy to offset some of the cuts. There is also talk of removing the SALT tax work around that 36 states implemented that allow pass through businesses to get around the Federal SALT limit and using that is a revenue raiser. Note this would have a large effect on many businesses in the 36 states that have this work around that allows certain businesses to pay less in Federal income taxes.
Senate Republicans’ Risky Strategy
The Senate is taking a very different approach. Since 1974, Congress has used a “current law” baseline for budgeting, which counts the cost of extending temporary tax cuts. But Senate Republicans now want to use a “current policy” baseline. This change would assume that laws like the 2017 tax cuts stay in place forever — effectively making new cuts seem less costly on paper.
While this move would make it easier to pass deeper tax cuts, it would almost certainly add to the national debt. It would also be highly controversial. Senate Parliamentarian Elizabeth MacDonough could reject this approach during the reconciliation process.
Originally, Senate leaders planned to ask her opinion ahead of time. Now, they’re moving forward without asking — hoping to deal with problems if they arise. This strategy could cost them votes, especially from fiscally conservative Republicans in both the House and Senate.
Final Thoughts
With tariffs and economic uncertainty weighing heavily on the economy, it’s more important than ever for Republicans to unite behind a plan to cut taxes. But unless President Trump steps in forcefully to guide the process, Congress may struggle to pass a major tax cut bill in 2025.
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