Congressional Republicans surprised many policy experts by getting their tax and spending package (H.R. 1) across the finish line by July 4th – now the question is what lawmakers’ next tax policy move could be.
“It is not ‘One Big Bill’ is done, therefore there’s nothing to do legislatively on tax for the next several years,” according to EY’s Adam Francis. And the next effort could come in the form of a second reconciliation bill or a bipartisan package. Francis noted on EY’s July 18 webcast that Republicans still have two more “opportunities” to use the reconciliation process between now and midterm elections.
House Ways and Means Chair Jason Smith (R-MO) “has talked a long time about doing a bipartisan end-of-year bill,” Marc Gerson, a tax policy co-lead at Miller & Chevalier, told Checkpoint. Francis said that while he’s skeptical of any bipartisan action at this time, he isn’t “willing to close the door” on that “possibility.”
As far as what might be in a bipartisan bill, Gerson explained that although the recently passed tax act included “a lot of the traditional extenders” – provisions beyond those in the Tax Cuts and Jobs Act that were slated to expire – the act did “leave some things out.”
Still other provisions were dropped from the final version of H.R. 1 because they “didn’t comply with the Senate Byrd rules related to reconciliation” or “due to revenue constraints of the process,” Francis said.
Among those provisions still in need of extension are the Work Opportunity Tax Credit, the premium tax credit, and the deduction for film and television production costs under IRC § 181. And Gerson added that there’s also potential for bipartisan action in other areas, such as “retirement incentives,” Taiwan taxation, the wagering loss deduction, and a tax administration package.
But those bipartisan efforts – or even a Republican-led second reconciliation effort – largely lack the “timing deadline” that H.R. 1 had. “I think it would be really hard to do another reconciliation bill this year,” said Gerson. “It may be really hard to do a bipartisan bill at the end of the year,” he added.
Some “important and bipartisan” provisions are expiring, but Gerson doesn’t see the same momentum to pass extenders now that the tax act has taken care of so many TCJA expiring provisions. “Sometimes this stuff expires and then gets extended retroactively,” he explained.
Government Funding Effort
Congress will next need to take on funding the government – with current appropriations running out September 30.
“September is really going to be focused on funding the government, with a threat of a shutdown,” said Gerson. “I don’t think there’s any chance of a tax bill getting done until after September.”
While a House subcommittee advanced a funding measure for the IRS after a July 21 markup, there’s still a lot to be done before Congress can pass a full funding bill.
Representative Brad Schneider (D-IL) said at a July 21 AEI event that he has “very little confidence” that Congress can pass government funding legislation “without Republicans and Democrats coming together.”
The problem is, I’m not overly confident about bipartisanship – bipartisanship in this current moment,” said Schneider. With the July 4th tax act, “the intention was never to find common ground,” he added. “It was always to create a divide so that there would be no Democrats inclined to support it. Not one of my colleagues had a hard time casting a vote against that.”
And after last week’s rescissions package, Schneider fears Democrats will be wary of bipartisan compromises in a fiscal year 2026 funding bill. “How do we trust those compromises will be honored when rescission says no, we’re just going to disregard them?”
Representative Ron Estes (R-KS), speaking at the same event, said when it comes to IRS funding, specifically, what lawmakers need to do is find “balance.” He explained that Republicans were weary of the $80 billion made available to the IRS via the Inflation Reduction Act – now largely rescinded – because “it’s been sold as one thing and that’s not being delivered.”
To Estes, the focus should be on investing in IRS technology, “which is sorely needed in a lot of areas.” While he acknowledged that “more agents are needed too,” he lauded the United States’ “voluntary tax payment system.” In Estes’ view, “I don’t think any of us want a government big enough to force the code that that we have written up.”
Corrections
One other potential area for congressional action on tax policy this year is corrections to the newly passed act. “We really thought of this as an extender bill and Trump tax relief,” said Gerson, “but there’s a fair amount in it” and “some complicated provisions.”
That’s compounded by the speed at which the legislation advanced. Gerson explained that the tax act didn’t have a Senate Finance Committee markup. There also was no Joint Committee on Taxation explanation, or “pamphlet,” of the Finance draft or the final bill provisions. “We have a Joint Committee pamphlet of what passed the House, essentially, but the bill changed a lot in a relatively short period of time,” Gerson explained.
“There were a lot of tweaks in the end,” Gerson continued, but “we don’t have an explanation of that, we just have the statutory text.” He expects there will be some “unpleasant surprises” once people unpack the bill. Those could include “interactions with other provisions of the code that maybe weren’t intended.”
Some of the unfavorable or unintended changes could be fixed in the guidance process, while others might require legislative changes. But Gerson isn’t sure that any provision requiring a legislative fix will be “that significant that it drives a piece of legislation forward.”
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