Budget Reconciliation / Tax Code / and the 119th Congress
Republicans have won 218 seats in the House, giving the party a majority in both chambers of Congress next year. The Republican’s electoral sweep will allow it to use a special “budget reconciliation” process to pass tax, spending, and debt limit legislation in the Senate via a simple majority vote, rather than the 60-vote threshold usually required to move bills through that chamber. This is the same procedure that Congress used to enact the last major overhaul of the tax code, the Tax Cuts and Jobs Act (TCJA), in 2017.
Because Congress has not yet passed a fiscal year 2025 budget resolution, Republicans will have the opportunity to move two budget reconciliation bills next year (one each for fiscal 2025 and fiscal 2026). While the party’s leaders have announced their intention to use one of those to pass a tax package in the first 100 days of the next Congress, it very well could take longer. Enactment of major legislation is rarely easy, even when one party has control. The level of difficulty could be exacerbated by the narrow Republican congressional majorities, particularly in the House and pending special elections to replace members nominated to positions in the new administration. In the 115th Congress, Republicans had a larger majority in the House than they will next year, and yet it took them almost a full year to enact the TCJA.
Extending all of the expiring provisions of the TCJA exactly as originally written would cost an estimated $4.6 trillion over a decade. Any tax bill almost certainly would include additional changes to the Internal Revenue Code. When the new Congress convenes next year, 60 percent of the House and a substantial number of Senators will not have been in Congress when the TCJA was enacted, and many new members of the Republican conference would like to take a different approach to some of the provisions included in that statue. President-elect Trump promised to enact some novel tax law changes when campaigning. Congressional Republicans also will advocate for new provisions that go beyond the scope of what was included in the 2017 bill. New tax cuts could significantly increase the cost of next year’s reconciliation package.
Republicans have yet to decide whether they will pay for the extension of current tax law and to what extent they will want to offset the cost of any new tax cuts. Concerns about further increasing skyrocketing federal deficits will spur a search for revenue-raising offsets.
Republicans are exploring the repeal of some green energy tax incentives enacted by Democrats as part of the Inflation Reduction Act of 2022. Republican members of the House tax committee have floated higher rates on the taxable income of foreign multinationals as retaliation for enforcement by their home jurisdictions of a new global minimum tax included in an OECD tax agreement signed by the Biden administration in 2021. Dramatically increased tariffs also could potentially provide revenue offsets. Other proposals should be forthcoming.
At this early stage, it is impossible to guess what the final bill might include. It would be imprudent to assume that Republicans will legislate according to traditional party orthodoxies; the Republican Party has changed significantly since 2017, and many members of the conference now prefer a more populist approach to tax policy.