With House control still in doubt, optimistic House Republicans officially launched an aggressive tax code rewrite, raising questions about cost, length, breadth, and what President-elect Trump will want.
House Speaker Mike Johnson, R-La., expressed confidence in a GOP sweep in a November 6 “Dear Colleague” letter. He listed promoting “investment and opportunity through the tax code” among the priorities for his caucus in the next Congress, in addition to working alongside Senate Republicans and Trump.
House Majority Leader Steve Scalise, R-La., used his postelection “Dear Colleague” letter to place extending the Tax Cuts and Jobs Act at the top of the party’s 100-day agenda in 2025, detailing ongoing preparations to draft and score a reconciliation package, coordinating with Senate GOP partners, and planning listening sessions to hear from members of his conference.
“We will lock in the Trump Tax Cuts to drive economic growth to protect struggling families from an unprecedented tax hike,” Scalise wrote. “Though there are Senate rules limiting what we can fit in budget reconciliation, I want us to be bold and creative so we can include as many reforms in this package as possible.”
But questions remain on the details of an early 2025 reconciliation package, particularly regarding how much needs to be paid for, the involvement of non-TCJA tax provisions, and reaching party unity on a number of tax issues that divide the caucus. Most importantly, if Republicans keep control of the House, what will their margin be, and will they be able to put a disruptive 118th Congress in their rearview mirror?
Hold Your Horses
There has been talk for months of quick action from the House in the first 100 days should Republicans sweep the November 5 election, even though the terms “quick action” and “Congress” don’t typically go together.
Count Marc Gerson, former House Ways and Means Committee tax counsel, among the skeptics.
First, there could be a giant bill with immigration, budget cuts, the debt limit, and the TCJA. Then there’s Trump, who Gerson expects to receive a “hat tip” in the form of a minimum inclusion of his campaign tax proposals in the bill. And then there’s the Senate.
“‘We’re going to do reconciliation early,’” Gerson said, impersonating House Republicans. “I’m like, ‘Maybe.’”
There are plenty of non-TCJA tax provisions set to expire at the end of 2025, including the controlled foreign corporation look-through rule, the work opportunity tax credit, the new markets tax credit, the Affordable Care Act premium marketplace tax credits, and the paid family and medical leave employer tax credit, to name a few. They’ll each have their advocates.
Gerson pointed to this year’s holdup of the House-passed tax package (H.R. 7024) by Sen. Mike Crapo, R-Idaho, who will take the reins as Senate Finance Committee chair in 2025. The House passed the bill on a 357-70 vote and expected the Senate to quickly take up legislation coauthored by House Ways and Means Committee Chair Jason Smith, R-Mo.
But Crapo exited negotiations on the bill in late 2023 over a number of issues, and when Senate Democrats declined to hold a markup, Crapo and Senate GOP leadership blocked a vote to even consider a floor debate for six months and then quashed the bill before the August recess.
“I know there’s talk of preparing a reconciliation bill and doing it sooner rather than later, but you have to look at what happened with the 2024 bill,” said Gerson, now with Miller & Chevalier Chtd.
“They thought they would roll the Senate,” Gerson said, adding that he would expect Crapo to take a similarly deliberate approach at being handed a big House reconciliation bill.
Budget Resolution Comes First
At this stage, House and Senate Republicans are making similar public statements. Outgoing Senate Minority Leader Mitch McConnell, R-Ky., told reporters November 6 that the Senate Republican caucus is largely on the same page about extending the TCJA.
“Well, I can speak for most Senate Republicans . . . We thought it was a huge success,” McConnell said of the 2017 tax code overhaul. “It produced more revenue than less, and I’m sure virtually all of us would like to see most of that extended.”
Dustin Stamper of Grant Thornton LLP, noting that a reconciliation bill would start in the House, said the first step of the process is for the House and the Senate to pass identical budget resolutions. There must be an agreement on the maximum amount a reconciliation bill could add to deficits and specific budget instructions for each committee, particularly the Senate Finance and House Ways and Means committees, which would likely have the biggest chunks.
“You have to get a budget agreement first,” Stamper said. “That really does have to be a bicameral exercise.”
But preparations have been going on for months in anticipation of a Republican sweep.
“Jason Smith has made no secret that he’s having regular conversations with the [incoming Trump] administration. I’m sure Smith and Crapo are constantly talking as well,” Stamper said.
Regarding the public statements from House leaders about moving quickly, Stamper said, “They’re already going to be trying to align, but the House may consider it prudent to just get out in front and lay a marker down pretty early.”
If Dems Take the House
Republicans appear confident that the Trump wave will carry them to a majority in the House, but Democrats still think their friends across the aisle may be in for a disappointment.
“The path to take back the majority now runs through too close to call pick-up opportunities in Arizona, Oregon, and Iowa — along with several Democratic-leaning districts in Southern California and the Central Valley,” House Minority Leader Hakeem S. Jeffries, D-N.Y., said in a November 6 statement. “The party that will hold the majority in the House of Representatives in January 2025 has yet to be determined. We must count every vote.”
A House Ways and Means Committee led by ranking member Richard E. Neal, D-Mass., would be unshackled from having to frame the impact of each and every tax policy in terms of its potential effects on households making more or less than $400,000 a year, Gerson said.
“The Biden $400,000 threshold is kind of off the table,” Gerson said. “If Democrats can keep the House, then those things come back to a negotiation.”
“Thematically, if Democrats are part of negotiations, there would have to be some increased taxation on the wealthy and the largest corporations,” Gerson said, referring to Democrats’ mantra of making those groups pay their “fair share.”
“It completely changes the ball game if Democrats somehow hold on to the House,” said Stamper, who added that he doesn’t think Democrats “are running scared” when it comes to tax issues.
“I think they continue to think it’s potentially a winning issue for them, so they would dig in” and use the leverage of a Republican tax bill expiring to boost their bargaining position, Stamper said.
And, of Course, SALT
It was a group of moderate Republicans, mainly from New York, who blocked a broad tax bill from Ways and Means GOP members because it didn’t loosen the state and local tax deduction cap.
While House Republican support for letting the SALT cap expire with the rest of the TCJA may be suffering “from some loss of momentum” because some of those New York Republicans haven’t been reelected, the movement picked up a big ally, according to Jeffrey A. Friedman of Eversheds Sutherland US LLP.
“I believe Trump has shown some sympathy,” Friedman said, referring to Trump’s call in September to lift the $10,000 cap.
The future of the SALT cap — letting it expire, leaving it as is, or raising it — will likely depend on how it interplays with the other big-ticket items in the upcoming tax bill, such as a potential cut to the corporate income tax rate, Friedman said.
“It’s anyone’s guess as to what’s going to happen to the SALT cap. It’s a political issue as well as a fiscal one,” Friedman said.
There’s also talk of the tax bill having a provision to nix the SALT cap workarounds that three dozen states have passed, Friedman said. That could be a tempting pay-for as the Urban-Brookings Tax Policy Center estimated that those workarounds conservatively cost Treasury at least $10 billion a year.
“You could even envision a situation where the SALT cap goes up but the workarounds go away,” Friedman said.
While the Congressional Budget Office has estimated that a full TCJA extension would cost $4.6 trillion, that number includes the increased tax revenues that would come from extending the SALT cap, said Stamper. “Suddenly you add a trillion dollars” if the SALT cap is allowed to expire, he said.
The Search for Party Unity
After a congressional session marred by chaos and frequent pushback from small groups of caucus members, House Republicans are hoping for more party unity on major decisions, including tax extensions.
The House GOP began the 118th Congress with a two-week fight over the speakership that ended with a gavel for former Rep. Kevin McCarthy that was stripped from him months later. Protracted disagreements on appropriations for fiscal 2024 over policy riders pushed by small factions withholding their votes dragged the funding process into March of this year.
Holdups continued when Republican members of the SALT Caucus traded promises for their vote in the three-week speaker’s race in October 2023 and later nearly tanked a rule vote on the floor ahead of the eventual passage of H.R. 7024 in the House.
Senate Republicans may have more problems with their moderates. With a four-seat majority, Crapo will have at least the same majority that former Finance Committee Chair Orrin Hatch had in 2017, when the budget resolution process was slowed, in part, over pay-for concerns.
“I think the four-seat majority allows them to avoid the sort of Manchin-Sinema dynamic,” Gerson postulated, referencing Sens. Joe Manchin III of West Virginia and Kyrsten Sinema of Arizona, who blocked and forced substantial rewrites of Democrats’ 2021-22 reconciliation bill. The key, Gerson said, will be Senate Republican moderates who could hold up the bill over deficit concerns.
Congressional Republican leadership taking the reins on tax policy has been a growing trend in recent years, suggesting that non-taxwriters may take more of a guiding role than they did previously, according to Karishma Shah Page of K&L Gates LLP — a shift that reflects the influence of all members in a chamber with thin margins.
“One of the things that we have seen is leadership taking a very strong role in the directionality of tax policies, particularly when it has been Republican led on the House and Senate side,” Page said at an October 30 K&L Gates webinar.
“As there has been a widening out of the Republican perspective, especially as it relates to tax policy that underlies economic policy, one of the reasons leadership really needs to get involved is because there needs to be a way to sort of be able to negotiate where the party ought to be,” Page said.