Congress advances toward significant tax bill, but much work remains
Over the final eight days of February, the House and Senate each took significant steps toward advancing the Republican Party’s goal to extend the Tax Cuts and Jobs Act’s individual provisions, which are scheduled to expire at the end of 2025.
Below is a summary of what happened and where things stand.
House action: The House on Feb. 25, 2025, approved a fiscal year 2025 budget resolution by a vote of 217 to 215. This resolution directs the House Ways and Means Committee to approve net tax cuts of $4.5 trillion over 10 years.
The resolution, however, mandates other House committees to reduce federal spending by at least $1.5 trillion, with the full $4.5 trillion in tax cuts contingent on achieving $2 trillion in spending cuts.
Should the House ultimately produce less than $2 trillion in spending cuts, the $4.5 trillion for tax cuts would be reduced by the amount of the shortfall. For example, if the House can only produce spending cuts of $1.5 trillion, the tax cuts cannot exceed $4 trillion.
Additionally, the resolution proposes a $4 trillion increase in the federal debt limit, raising it to $40.1 trillion.
Senate action: The Senate on Feb. 21, 2025, approved a narrower fiscal 2025 budget resolution by a vote of 52 to 48. This resolution includes budget reconciliation instructions related to border and defense spending, domestic energy production, and unspecified spending cuts—but it does not authorize any tax cuts.
The Senate plan is to address tax cuts and additional spending reductions in a second budget reconciliation under a fiscal 2026 budget resolution sometime later in 2025.
Next steps toward a significant tax bill
Since the House and Senate passed different budget resolutions, they now must reconcile their differences—a formidable task—and agree to a single, unified budget resolution before the budget reconciliation process can move forward.
At this stage, no specific tax policies have been put forth by either the House or the Senate; rather, the respective budget resolutions present a framework within which tax writers will draft legislative text to carry out the reconciliation instructions. The budget reconciliation process allows each chamber to pass a bill by a simple majority vote, and there are several procedural requirements that must be adhered to throughout the process
While the president’s signature is not required for the final budget resolution, President Donald Trump has expressed his desire for a single bill, as opposed to the two-bill approach the Senate is pursuing. It is difficult to tell when the differences between the two resolutions will be resolved, but expect the White House to be actively involved in the discussion and to push for a swift agreement.
Businesses and individual taxpayers should act now to prepare for tax changes
Congress’ progress toward a tax bill underscores the urgency for businesses and individuals to ensure they are ready for tax legislation that addresses expiring TCJA provisions and other tax issues.
Although the approved budget resolutions do not contain specific tax policies, policymakers are circulating various tax proposals that could affect your business’ tax profile. Focus areas include:
- Entity choice and business structure
- Return on investments
- Business debt
- Research and development
- Capital expenditures
- Tax accounting methods
- Clean energy investments
- Global footprint and supply chain
For individuals, tax changes could affect:
- Estate planning
- Personal income tax
- Pass-through business ownership
- Itemized deductions
- Transition planning
- Retirement savings
Proactive planning will be crucial to navigating tax changes and optimizing tax positions. Your tax advisor can help you prepare by modeling how various tax proposals would affect your business. Your advisor also can make sense of unpredictable and complicated tax policy processes, helping you make informed decisions at the appropriate time.
