As the House moves ahead on with “one big, beautiful bill” to address expiring Tax Cuts and Jobs Act (TCJA, P.L. 115-97) provisions and more, there are a number of hurdles it will need to overcome.
Last week, the House Budget Committee advanced a budget resolution on party lines, setting the stage for floor consideration when the House returns to Washington next week. The resolution provides the House’s taxwriting committee, Ways and Means, with $4.5 trillion for tax cuts. It also requires several other committees to come up with at least $2 trillion in savings as offsets.
If the resolution is approved, the House could then turn to nailing down the details of tax reform in a reconciliation measure. However, that’s a big “if” — there are many obstacles House Republicans could face as they push ahead.
Ernst & Young’s Adam Francis told Checkpoint that he doesn’t see these as stoppers exactly, rather they are “complications.”
A competing Senate approach.
An initial complication will be whether Senate Republicans are willing to go along with the House’s “one-bill” approach. The Senate, which is in session this week, could make the next move and consider its budget resolution focused on defense, the border, and energy. Senate Republicans would save tax reform for a second reconciliation bill later this year.
On Tuesday, Senate Majority Leader John Thune (R-SD) indicated he still prefers to push ahead with a two-bill approach.
But beyond the “one-bill, two-bill” conflict, some Senate Republicans are also pushing for permanency in any tax reform. A letter signed by several Senate Finance Committee Republicans urged President Donald Trump to “provide lasting tax relief.” The lawmakers, including Thune and Senate Finance Committee Chair Mike Crapo (R-ID) said they “will not support a tax package that only provides temporary relief from tax hikes.”
Francis explained that in their letter, Senate Republicans “were very clear that they want lasting, permanent extensions and tax policy to provide certainty.” However, he added, “that is not aligned with the current House Budget resolution.”
The push toward permanency and certainty “also reflects the position of a number of House Republicans,” Francis said. So, one thing to watch as tax reform efforts progress is “this issue of permanence” and “how important is it in the context of this entire exercise.”
What’s in, what’s out.
Assuming the House approach is a go, another major complication, said Francis, is what the Ways and Means Committee can “produce within the budget parameters.”
Treasury’s Office of Tax Analysis calculated that extending the TCJA’s expiring individual and estate tax provisions alone would cost $4.2 trillion over a 10-year budget window. Reversing scheduled business tax increases and extending a phasing-out business tax cut would add $1.3 trillion to the total cost.
The “$4.5 trillion target” in the House budget resolution is “not enough to make these TCJA extensions permanent,” Francis said.
But Trump has promised much more than just extending the TCJA. Among his promises are cutting taxes on tips, overtime income, and Social Security benefits; adjusting the state and local tax (SALT) deduction cap; and cutting taxes for domestic production. The Committee for a Responsible Federal Budget (CRFB) puts the cost of these additional tax promises — along with extending TCJA expiring provisions — at $5 trillion to $11.2 trillion over 10 years.
So, if Congress moves forward with a one-bill approach and has $4.5 trillion available for tax reform, “challenge number one” will be “what can they fit within that parameter,” explained Francis.
According to George Callas of Arnold Ventures, “there’s enough several times over in policy options.” Arnold Ventures recently released a list of 20 spending cuts and tax loopholes for Congress to consider.
Other groups have also piped in with potential offsets for tax cuts. CRFB identifies billions in deficit reducers in its budget offsets bank. And the Bipartisan Policy Center has an in-depth series on offset options — including broad proposals that would adjust income tax rates and thresholds or limit the exclusion for employer-sponsored health insurance.
“Tax committees are well underway in considering the pieces in the puzzle,” said Francis on a February 18 Ernst and Young webinar. He anticipates more will become public about the process “as things go along.”
Baseline.
Another challenge, Francis told Checkpoint, is identifying the baseline from which the cost of extending the TCJA and other tax reform is calculated.
Two options are being tossed around to evaluate the cost of tax cut extensions — a “current law” baseline and a “current policy” baseline.
The Congressional Budget Office’s (CBO) typical approach is to use a current law baseline — looking at current law through its applicable date to project the costs of any new legislation. For the many tax cuts under the TCJA set to expire at the end of 2025, extending those provisions scores as a cost when using current law baseline.
However, some Republicans — and newly confirmed Treasury Secretary Scott Bessent — are calling for the use of a current policy baseline. That approach assumes that current law will be extended, even if it is slated to expire. Using this starting point, extending the expiring TCJA tax cuts score as zero cost.
“There’s continued discussion around use of a current policy baseline and using that to create more headroom,” Francis explained.
Specific provisions.
Beyond these broad concerns, Francis said there will be a lot of debate on “more discrete issues.”
Namely, “what to do on the SALT cap has been front and center as a potential hang up in this process,” Francis said. “I think those discussions are going to continue.”
A number of SALT proposals have been bounced around, so it’s unclear what the end result will be. It will come down to how much “headroom” the Ways and Means Committee has with the TCJA extensions, explained Francis. Less headroom will impact “how they can address SALT to the satisfaction of some Republican members that want a more generous cap going forward.”
Another issue to watch is the Child Tax Credit (CTC). “The CTC is conservative policy,” explained Niskanen Center’s Kodiak Hill-Davis at a February 13 Punchbowl event. She noted that it was the Republicans’ TCJA that in 2017 increased the credit from $1,000 to $2,000 per child.
Hill-Davis added that she “would encourage lawmakers, especially Republican lawmakers, as they’re balancing all of these other challenging considerations, to really think about the value” of the CTC. To her, the TCJA-level CTC — or even a slightly bumped up credit — “is not going to disincentivize families out of the workforce.”
And despite the emphasis on extending and implementing tax cuts, Francis said “we can’t count out the potential for tax increases.” Speaking on an Ernst and Young webinar, Francis said business leaders should “be prepared to be surprised.”
On the eventual outcome of 2025 tax reform, “the crystal ball is a little bit cloudy at the moment, but certainly the motivation is clear,” Francis told Checkpoint. “Republicans, notwithstanding any differences about specific provisions or process that they might have” aim to “to address the TCJA cliff and do tax this year.”
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