After a tumultuous week on Capitol Hill, both chambers of Congress have passed identical versions of a budget resolution. This critical step unlocks the reconciliation process, allowing Republicans to pursue a sweeping party-line tax and spending package.
Senate Majority Leader John Thune (R-SD) and Speaker Mike Johnson (R-LA) both called on President Trump to help wrangle concerned members. While enough Republicans ultimately got on board to pass the framework, the bill’s structure leaves many questions unanswered.
Budget Resolution Framework
The Senate passed their compromise budget resolution in the early hours of April 5. Just days later, on April 10, 2025, the House passed the same bill. The framework allows for an extension of the Tax Cut and Jobs Act’s (TCJA’s) current provisions, many of which are set to expire at the end of 2025, utilizing a current policy baseline. It also provides for an additional $1.5 trillion in net tax cuts.
Though the Senate’s language aspires to $2 trillion in spending cuts “through reconciliation, executive action, or rescissions by Congress and the President,” it only requires a combined $4 billion in reductions in the form of spending cuts from Senate committees.
In an effort to expedite passage, Senate Republicans left the House of Representatives’ legislative text unchanged, resulting in divergent instructions between chambers. Learn more about the contents of the bill in Tracking Tax Reform: Senate Drafts Budget Resolution.
Next Steps in the Reconciliation Process
The drafting process can begin now that both chambers have adopted identical budget resolutions. Committees will be instructed to draft legislation in accordance with the budget resolution and report their recommendations to their respective budget committees for assembly into an omnibus bill. More information on the reconciliation process can be found in Tracking Tax Reform: The Reconciliation Process.
Lingering Concerns
While both the House and Senate passed the same budget framework, many difficult policy decisions have yet to be addressed. The massive variance in the chambers’ instructions reveals the chambers’ disparate visions.
|
Tax Cuts |
Spending Cuts |
Debt Limit Increase |
|
|
House Plan |
$4.5 trillion in total tax cuts, including the cost of extending current TCJA provisions set to expire |
Floor of $1.5 trillion but $2 trillion required to unlock the $4.5 trillion total for tax cuts |
$4 trillion increase |
|
Senate Plan |
Approach assigns $0 cost to extending current TCJA provisions* set to expire and allows for net $1.5 trillion in additional tax cuts |
Floor of $4 billion and aspires to $2 trillion through a myriad of mechanisms |
$5 trillion increase |
*The CBO score for extending the TCJA for 10 years at the time of drafting was a combined $4.6 trillion ($4 trillion for extension of policy and $600 increase in corresponding interest outlays). The latest CBO score is $5.5 trillion for 11 years ($4.6 trillion for extensions of policy and $900 in corresponding interest outlays).
Spending Cuts
Deficit hawks are concerned about the lack of required cuts in the Senate’s instructions. With President Trump's assistance, congressional leaders persuaded skeptical members to vote for the budget resolution by emphasizing they were not voting for policy but to start the drafting process and by promising to support efforts to significantly reduce the deficit.
Meanwhile, some more moderate members remain apprehensive of the level of cuts required by the House instructions. Several policymakers have voiced concerns over potential reductions in Medicaid benefits.
Tax Cuts
The level and composition of tax cuts is another area Republicans have yet to align. The Senate’s use of a current policy baseline with an additional $1.5 trillion in tax reductions provides more room to implement new tax policy than the House’s initial version. What remains unknown is whether deficit hawks will support a higher level of tax cuts if they feel enough government spending has been clawed back.
Regardless of the level ultimately achieved, policymakers will need to decide which tax policies to prioritize as neither instruction provides enough funding to enact all of Trump’s campaign promises.
Republican members of the bipartisan SALT caucus are adding to the pressure by maintaining they won’t sign on to any tax bill without a meaningful increase to the state and local tax (SALT) deduction. Depending on how this change is ultimately structured, it could cost anywhere from $100 billion to over $1 trillion.
Additional Concerns
Some House Republicans have noted their unease over using a current policy baseline — several appear to not support the overall strategy, while a few others have noted concerns about proceeding without any indication from the Senate parliamentarian.
Utilizing this novel strategy does inject a level of risk into the process; should Republicans get to the end of the line and lose a point of order over the current policy baseline, they will be in an extremely problematic situation.
If they run into an issue, Republicans may be faced with a very difficult decision on how to proceed. It is worth noting that Senate leadership appears confident in their approach and neither Thune nor Senate Finance Committee Chair Mike Crapo (R-ID) have been known to be reckless.
Challenges Ahead
Republicans have a diverse conference and slim margins, so finding consensus among them is likely to be challenging. In 2017, 13 House Republicans voted against the TCJA. Currently, Speaker Johnson governs with a 220 – 213 majority, meaning he can’t lose more than three members on a party-line vote.
Speculation on Contents of Reconciliation Bill
Since the 2024 election, speculation over what tax cuts and revenue raisers will be included in the reconciliation bill has run rampant. We expect this theorizing will increase over the coming weeks. Below, we highlight some of the items that seem to have traction on Capitol Hill but urge our clients to remember that reconciliation can be a long, arduous process with many twists and turns along the way.
Tax Cuts
- Republicans are generally aligned in their desire to extend the TCJA provisions set to expire at the end of 2025.
- Thune noted he is planning to use part of the additional $1.5 trillion provided in the Senate to reinstate domestic research or experimental (R&E) expensing, the use of earnings before interest, taxes, depreciation and amortization (EBITDA) in the business interest limitation calculation and bonus depreciation.
- President Trump has stated he would like to eliminate tax on tips and overtime income, eliminate tax on social security income (which reconciliation rules generally prohibit), reduce the corporate rate to 15% for domestic manufacturers, increase the SALT cap, change how Americans living abroad are taxed, and create a deduction for American-made vehicles, among other changes.
- Republicans have recently been discussing the expansion of the Child Tax Credit (CTC).
- Thune is in favor of a full repeal of the estate tax, though it’s too soon to tell if this has much traction with other Republicans.
- Crapo said he has received approximately 200 ideas from his fellow members.
- Crapo has noted he is in favor of changes to the low-income housing tax credit and extending opportunity zone treatment.
Revenue Raisers
- President Trump has voiced support for ending the treatment of carried interest and repealing tax incentives for owners of sports teams.
- Republicans would like to repeal many of the Inflation Reduction Act (IRA) incentives. However, they continue to internally debate specific incentives and how extensive the repeals should be.
- Vice President J.D. Vance has long been a proponent of increasing and broadening the endowment tax on universities.
- There have been discussions among Republicans about instituting a limitation on corporate SALT deductions.
- Most recently, news outlet Bloomberg scooped that Republicans were considering creating a new top tax rate of 39% or 40% (up from the current 37%) for millionaires.
- Republicans may choose to dust off the language from the 2024 bipartisan tax bill that failed to advance in the Senate, retroactively ending the Employee Retention Credit as of January 31, 2024.
- House Budget Committee Chair Jodey Arrington (R-TX) compiled a “menu” of possible items in early 2025 that sent K Street lobbyists reeling. While some of the ideas may find their way into the ultimate reconciliation package, many will not.
Your Guide Forward
As Congress navigates upcoming tax reform, Cherry Bekaert’s tax policy team will monitor the latest developments and insights to bring you updates and insights.
