Tax policy progress: Congress to begin drafting tax legislation
The House of Representatives on April 10 passed a budget resolution mostly along party lines, setting the procedural parameters that allow Congress to move forward on a tax and budget bill. Congress is expected to get to work on drafting the bill as soon as it returns from recess on April 28. If Congress sticks to that timeline, we expect to start seeing details of tax legislation in early May.
The tax legislation is expected to feature extensions of the Tax Cuts and Jobs Act of 2017 (TCJA), significant parts of which are currently scheduled to expire at the end of 2025. It also may address the tax treatment of expenses related to the following:
The bill may also address other business provisions, and it will include increased spending on defense and border security.
The House would like to get a bill on the president’s desk by the end of May by working closely with the Senate and the White House in assembling the legislation. However, the end of May is an aggressive time frame, and the end of June or July—or even beyond—may be more realistic.
What’s next on the path to new tax legislation?
Although the budget resolution sets parameters for how much Congress must cut spending and the trillions of dollars it may add to the federal deficit, the answers to some lingering procedural and political questions will help determine the extent and scope of tax changes in the legislation.
Procedurally, a particularly important open question is whether the cost of permanently extending the TCJA would, for scoring purposes, add to the federal deficit. If the senate parliamentarian rules that the cost of permanently extending the TCJA does not change the deficit because the TCJA is current policy, then the procedural path to permanently extending the TCJA would be much easier.
Politically, meanwhile, the issues of federal spending, deficits and tax changes remain potentially divisive among Republican lawmakers. Tackling those matters is Congress’ next step.
Tax changes coming: Readiness and responsiveness
Time for businesses to prepare for potential tax changes is dwindling, but it has not run out. Businesses should work with their tax advisor to:
- Monitor tax proposals that Congress is including in drafted legislation
- Understand how various proposals could affect their cash flows and tax obligations—and corresponding business strategies.
- Plan for implementing new tax changes.
Individuals, on the other hand, should consider working with their tax advisor to monitor the potential extension of the TCJA and align their wealth goals and estate plan accordingly.
