Tax policy developments have continued as the calendar switched from March to April. The most prominent of them involved negotiations among Republicans in Congress over the framework for a tax and policy driven bill. The conclusion of this procedural phase will signal the transition to more substantive negotiations over an extension of the Tax Cuts and Jobs Act (TCJA), key tax promises from the campaign trail, and any other tax priorities for the years to come. President Trump also accelerated executive actions related to tariffs, including the imposition of reciprocal tariffs on most countries. The impact of tariffs is still echoing across the economy and will be an area of substantial discussion for months to come. Tariff-related developments may also factor into congressional negotiations over tax legislation over the coming weeks.
Read on for a roundup on some of the most significant recent tax policy developments.
- Congress advances toward tax negotiations
- How process will shape the outcome: A primer on budget reconciliation
- Escalating tariffs and their consequences
- What do recently introduced tax bills tell us about the future?
- Regulatory roundup: Updates on ERC and CTA
Congress advances toward tax negotiations
Republican leaders in Congress balanced competing interests and priorities during the first quarter of 2025. Early, post-election messaging suggested that legislative actions would be taken quickly to advance tax changes and other priorities in conjunction with Trump’s inauguration. However, challenging negotiations over both procedural and substantive aspects of such legislation have resulted in a more deliberate approach. Congress has also contended with government funding deadlines and will soon face consideration of the government debt limitation. Despite the challenges, the path toward a tax bill is becoming clearer as Republican members coalesce around the framework and process.
Government shutdown narrowly averted; debt ceiling awaits in the coming months
Legislation addressing taxes can be sidetracked by other, more pressing issues in Congress. Entering March, consideration of government funding was that type of issue. At that point, there appeared to be a real possibility of a government shutdown given a looming March 14 expiration of government funding. With limited progress on spending legislation, it became apparent that the House and the Senate would be required to pass a stopgap funding measure in the form of a continuing resolution (CR). The House passed the CR on March 11, and the Senate completed its vote on March 14. Consideration of the CR in the Senate wasn’t without challenges since it required 10 Democratic Senators to join with Republicans to clear the procedural step ahead of the final vote. That process highlighted tensions within the chamber that have emerged during the first quarter.
With the government funded through the summer, the other looming challenge will be the debt ceiling. That was previously suspended in early 2023 but was restored on January 2 at a level of $36.1 trillion. A specific date has not yet been established for when the federal government will require additional borrowing authority. However, the Congressional Budget Office (CBO) projects that such threshold will likely be exhausted in August or September. Although such date could shift depending on the balance of incoming revenue and outgoing expenditures over the coming months. If the debt ceiling must be addressed earlier in the year, then it could certainly impact the legislative path of tax legislation.
Where does that leave us with tax legislation?
The House and Senate pursued competing procedural frameworks for legislation during February. The House advanced a budget resolution that would allow tax changes to be pursued along with other Republican policy goals. Separately, the Senate passed a budget resolution that would advance other policy goals while reserving tax changes for future legislation. As February turned to March, it became clear that the House approach — one bill that includes taxes — would be the framework for legislation. However, the looming question was what details would be included in the compromise resolution.
The biggest challenges in finding common ground between the House and Senate center on amount of spending cuts to be included and the amount of revenue losses from tax cuts that would be allowed. The House version would instruct committees to find between $1.5 and $2 trillion in spending cuts while authorizing up to $4.5 trillion in tax cuts. Republicans in the Senate have expressed concerns about specific forms of spending cuts to be included. Accordingly, the Senate modified the House resolution before advancing it by a vote of 51-48 on April 5. Debate in the House again focused on spending cuts but that chamber ultimately passed the budget resolution with Senate amendments by a 216-214 margin.
Passage of the amended budget resolution by both chambers in Congress sets the stage for more substantive negotiations to come. Although the process to get to this stage suggests that there will be many challenges to come as competing views on the scope of tax cuts and spending cuts must be reconciled. For example, the Senate’s plan depends on a current policy baseline, described below, which in practical terms means that there are no budgetary costs associated with extending TCJA. The House portion of the resolution doesn’t use that baseline. There are other differences too: the House portion would raise the debt limit by $4 trillion, whereas the Senate’s portion would raise it by no more than $5 trillion. Those aspects will need to be resolved as deliberations over the coming weeks and months focus on the specific tax proposals and spending cuts that will be included in a final bill.
How process will shape the outcome: A primer on budget reconciliation
Over the past decade, Congress has increasingly relied upon a procedural mechanism, budget reconciliation, to advance significant legislation. Reconciliation is an optional part of the budget process that was first made possible in 1974 through the Congressional Budget Act. It has some recent history, having been used more than 20 times. Republicans used the reconciliation process to pass the Tax Cuts and Jobs Act (TCJA) in 2017, and Democrats used it to pass the Inflation Reduction Act (IRA) in 2022. In effect, reconciliation has become the tool of the majority party in Congress. Republicans in Congress are again utilizing this process for consideration of a new tax bill, which is expected to include an extension of the TCJA. However, reconciliation isn’t without limitations, so a review of the relevant rules does illustrate where challenging negotiations might be expected.
The positive of reconciliation is that it allows a bill to be fast-tracked. It gets expedited consideration, with time limits on debates, and — crucially — there is no filibuster before the bill goes to a vote. The unavailability of the filibuster is crucial now since Republicans currently hold 53 seats in the Senate rather than the 60 required to break a filibuster.
There are limits. Reconciliation bills may deal only with mandatory spending, revenue, and the debt limit. And the Senate can pass only one bill related to each of these three in a given year. The key is that the budgetary aspects of any legislation resulting from the reconciliation process must not be “merely incidental” to the legislation. And the legislation must not impact government revenues outside of a 10-year budget projection window.
What is “merely incidental?” There is no statutory definition of the term, and the answer to the question has to do with the operation of the Byrd Rule. That rule was made in response to Congress’ efforts to accomplish policy goals through the reconciliation process that didn’t reduce the deficit. It’s triggered through a challenge process, which requires a ruling by the Senate parliamentarian. This often creates some uncertainty during the legislative process as to whether certain provisions will be included in the final version of a bill.
Revenue scores are way of estimating the fiscal impact of a policy change. Congress in projecting the revenue effects of proposed legislation generally relies on the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT). For tax laws specifically, it’s the JCT that models out revenue impacts. How that revenue impact is measured, or scored, by JCT has been a central part of the tax policy conversation in the first few months of the current Congress, and will continue to be at the center of the ongoing debate until some version of tax legislation is passed later this year.
Current policy baseline
A budget score is measured relative a baseline, so what is that baseline? Republicans are currently looking to extend the TCJA, which largely expires at the end of 2025, and provide for a variety of other tax cuts. Extending the TCJA would certainly impact federal revenues into the future. However, the question is whether that extension should be measured against the law applicable today or what would otherwise be the law applicable to the extension years.
CBO sets the baseline under a law that requires the baseline to be “based on laws enacted through the applicable date.” Conventional thinking is that laws are assumed to expire when, as they are now written, they are set to expire. In that sense, an extension of the TCJA would be scored to reduce federal revenues in years after 2025 since it would alter the rules that would be in effect absent congressional action. Republican leadership has challenged this view and would instead measure the effects of an extension as compared to the version of the TCJA that is in effect today. Accordingly, the Senate budget resolution would grant authority to the Chairman of the Budget Committee, Sen. Lindsey Graham (R-SC), to use “more realistic assumptions regarding current tax policy, which may include extending provisions” under the TCJA in the baseline.
What does this mean moving forward?
Movement in Congress on the budget resolution means that the process is advancing toward a tax bill. However, questions remain that will impact the substance of tax cuts.
The inclusion of policy baseline language in the Senate budget resolution may create a path to exclude approximately $4.0 trillion in revenue cuts associated with an extension of the TCJA from the revenue score associated with such legislation. However, a revenue score is not the only factor to consider. Several Republicans in Congress, especially those in the House, have expressed significant concerns about deficits and the national debt. Those members may even withhold support for a bill that provides too significant of tax cuts without corresponding offsets to federal spending. In that sense, the relevant question may not be whether the current policy baseline can be used but rather what scorecard will be acceptable to all Republicans in Congress. Resolution of that question is an important step that will dictate which tax cuts and incentives may be included in the coming bill.
Escalating tariffs and their consequences
The Trump administration has continuously announced the implementation of tariffs since taking office. These efforts reached a crescendo on April 2 with the rollout of new, reciprocal tariffs on most nations. Reviewing the details of the reciprocal tariffs underscores the broad impact that is expected. The most immediate reaction is illustrated by the financial markets. Looking ahead, businesses are now faced with a much more complex environment for short-, mid-, and long-term planning given uncertainty about supply chains and costs.
Irrespective of market reactions, the Trump administration appears to be steadfast in its sustained, long-term commitment to tariffs. This means that tariffs are likely to be a lasting policy feature, requiring renewed focus on operations. For example, some companies may need to revisit their approach to transfer pricing. Tariffs apply to related party transactions, just as they do to transactions done at arm’s length. This means pricing should now include tariff expenses. Impacted businesses should consider reevaluating their structures and modeling in real time for ways of allocating costs.
Businesses facing sectoral tariffs will react in various ways depending on their footprint and structure. Supply chains may need to be diversified, as companies search for paths to tariff-free access to U.S. markets. This makes it crucial, for instance, to keep close watch on how tariffs do or don’t impact trade with Mexico and Canada. The challenges are most acute for automotive companies given the fully integrated nature of North American supply chains.
What do recently introduced tax bills tell us about the future?
Trump has been highlighting to Congress many of the tax policy promises he made during his campaign. And already some of his specific tax proposals have taken shape in bills. It’s hard at this point to forecast how likely any of these will make it into law. But broadly taking stock of these gives a sense for where the points of policy emphasis are within the Republican party.
- Tips — Trump repeatedly promised to eliminate tips during his campaign. Competing bills implementing that promise haven’t been introduced in Congress. The No Tax on Tips Act has been introduced in the Senate by Ted Cruz (R-TX), S. 129, and in the House by Vern Buchanan (R-FL), H.R. 482, both with multiple co-sponsors attached. An alternative bill, the Tip Tax Termination Act (H.R. 558), has also been introduced in the House by Don Bacon (R-NE).
- Overtime pay — Trump also promised to eliminate taxes on overtime pay while on the campaign trail. The Overtime Pay Tax Relief Act of 2025, H.R. 561, introduced by Don Bacon (R-NE) picks up this promise in the form of a deduction for individuals with limitations. Alternatively, the No Tax On Overtime Act of 2025, S. 1046, was introduced in the Senate by Josh Hawley. A similar bill with a different name, Keep Every Extra Penny Act of 2025, H.R. 405, was also introduced in the House by Russ Fulcher (R-ID).
- Social Security — At least five separate bills have been introduced to reduce income taxes on Social Security benefits. In the House, those include: No Tax on Social Security (H.R. 904; Jefferson Van Drew (R-NJ), Senior Citizens Tax Elimination Act (H.R. 1040; Thomas Massie (R-KY), Tax Relief Unleashed for Seniors by Trump Act (H.R. 1129; Nicole Malliotakis (R-NY), and RETIREES FIRST Act (H.R. 2266; Nicole Malliotakis (R-NY). In the Senate, bills include: RETIREES FIRST Act (S. 358; Marsha Blackburn (R-TN) and Senior Citizens Tax Elimination Act (S. 458; Tommy Tuberville (R-AL).
- Estate and gift tax — Trump is generally opposed to the estate tax, and has at times indicated he would eliminate it. Senate majority leader John Thune (R-SD) is sponsoring the Death Tax Repeal Act of 2025, S. 857, which would repeal both the estate tax and the generation-skipping transfer tax. There is a counterpart in the House, H.R. 1301, which has 176 co-sponsors.
There are also bills pending that would extend or make permanent key parts of the TCJA. One bill, the TCJA Permanency Act (H.R. 137; Vern Buchanan (R-FL)), would address the bulk of the expiring TCJA. More targeted extensions of certain TCJA programs include:
- QBID. The Main Street Tax Certainty Act (H.R. 703; Lloyd Smucker (R-PA)), would make permanent the qualified business income deduction under Section 199A. A companion bill, S. 213, was also introduced in the Senate by Steve Daines (R-MT). The Small Business Prosperity Act of 2025 (H.R. 110; Andy Biggs (R-AZ)) would go further to expand QBID benefits by gutting the service company phase out.
- Bonus depreciation. Another key feature of the TCJA was 100% bonus depreciation, which has been phasing out in recent years. The ALIGN Act (H.R. 574; Jodey Arrington (R-TX)) would restore 100% bonus depreciation.
- Research and development costs. Full, 100% expensing of research and development costs under Section 174 would also return under the American Innovation and R&D Competitiveness Act of 2025 (H.R. 1990; Ron Estes (R-KS)).
- SALT cap. The annual limitation on the deductibility of state and local taxes (the SALT cap) is a crucial issue for several Republicans in Congress. As expected, multiple approaches to dealing with that cap have been introduced. The SALT Fairness and Marriage Penalty Elimination Act (H.R. 232; Michael Lawler (R-NY)) would substantially increase the limitation from $10,000 per taxpayer ($5,000 for each married taxpayer filing separately) to $100,000 per individual and $200,000 in the case of married taxpayers filing jointly. Alternatively, the SALT Deductibility Act (H.R. 430; Andrew Garbarino (R-NY)) would merely eliminate the SALT cap for 2025 and beyond.
Republicans have also introduced multiple bills to eliminate or modify tax credits included in the Inflation Reduction Act, but the path for those proposals is very uncertain. Democratic members have also proposed tax legislation. However, at this point, there appears to be limited opportunity for such proposals to gain traction.
Regulatory roundup: Updates on ERC and CTA
Both the employee retention credit (ERC) and the Corporate Transparency Act (CTA) have recently gone through several compelling administrative twists and turns.
The evolution of ERC-related expense deductions
The ERC was a key COVID-19-related stimulus program aimed at supporting businesses that retained employees during relevant portions of 2020 and 2021. Taxpayers claiming the ERC were required to reduce their wage expenses for tax purposes with respect to the relevant tax year of credit eligibility to prevent duplication of benefits. That meant that taxpayers have been required to amend their tax returns for 2020 and 2021 when retroactively claiming the ERC for those years. However, the situation has now evolved given recent guidance from the IRS.
In late March, the IRS updated its ERC FAQ page to clarify points related to wage expense deductions. It begins by restating the general position of wage expense disallowance with respect to the year of the credit claim. The IRS regards this as consistent with well-established authority, namely a Notice published in 2021, part of an Internal Revenue Code section (§ 280C), and a common law concept called the tax benefit rule, which is partly codified at Section 111. However, the FAQs go on to provide an alternative path for adjusting wage expense without filing and amended income tax return. Specifically, the IRS concluded that the taxpayer may instead recognize income (as a negative wage adjustment) in the tax year in which the credit is received. Similarly, additional wage expense deductions may be claimed in the year that an ERC claim is denied, if such wages were previously reduced in 2020 or 2021.
The practical end to beneficial ownership information reporting
As enacted, the CTA requires certain companies to report to the federal government information about their beneficial owners. But the applicability of CTA’s reporting requirements have been on an on-again, off-again journey in the last few months because of action in the courts and, even more recently, by FinCEN itself, the agency that administers the CTA.
Recent developments were largely centered on the courts. Our last update, in January, was that the U.S. Supreme Court entered a brief order staying a nationwide injunction that had been imposed by a Texas district court. But because a second district court also paused the reporting requirements, FinCEN continued to hold off on imposing them. That changed when that second court stayed its order on February 18. This restored the filing obligation, but FinCEN postponed the reporting obligation by an additional 30 days, until March 21. FinCEN also announced an intention to issuing additional guidance modifying the reporting requirements.
FinCEN issued that guidance in the form of an interim final rule that separated domestic owners and entities from foreign owners and entities. Specifically, the rule exempts domestic entities from reporting and absolves such entities that have already reported from obligations to report updated information. The reporting requirements will continue to apply to foreign entities, except that no reporting is required for domestic beneficial owners of foreign reporting companies. Foreign entities still subject to reporting requirements have an additional 30 days to report, from the date the rule was published in the Federal Register. Practically, this ends the beneficial ownership reporting regime for almost all entities within the United States even if questions remain regarding the foundation upon which the interim final rule was built.
