Key insights
- Federal legislators have made some progress in passing a 2025 federal budget resolution, which also includes considerations of extending parts of the sweeping Tax Cuts and Jobs Act (TCJA).
- Budget debates include whether to make TCJA permanent, and if so, how to fund it.
- Possible funding mechanisms include making tariffs permanent, cutting Medicaid, reducing Inflation Reduction Act benefits, and implementing a new 40% income tax bracket for millionaires.
Keep up with federal tax developments to take advantage.
Federal legislators have made some progress in passing a 2025 federal budget resolution, which also includes considerations of extending parts of the sweeping Tax Cuts and Jobs Act (TCJA). Explore the latest from Washington, DC on federal budget negotiations, including where things stand with the TCJA, tariffs, Medicaid, and the Inflation Reduction Act.
Federal budget update
The House passed the Senate's budget resolution by a vote of 216-to-214 on April 10, thereby ending the first stage of the budget reconciliation process.
When they return, the House Ways and Means Committee (HWMC) and Senate Finance Committee (SFC) will kick off drafting tax legislation and could submit recommendations to their respective budget committees as early as May 9. This date may slip into mid-to-late May because the HWMC and SFC will want to understand the budget cuts agreed upon by the non-tax committees before issuing tax-related proposals.
The House and Senate committees will draft legislation under separate sets of instructions. Explore the differences below.
| House | Senate | |
|---|---|---|
| Permitted deficit increase allowed for tax cuts | $4.5 trillion net deficit increase over 10 years, allocated to House Ways and Means Committee for tax breaks | Use of current policy baseline allows TCJA to become permanent (cost $4 – $5 trillion)
An additional $1.5 trillion net deficit increase over 10 years, allocated to Senate Finance Committee for incremental tax breaks |
| Debt limit increase | $4 trillion debt limit increase | $5 trillion debt limit increase |
| Spending cuts | $1.5 – $2 trillion gross spending cuts | $4 billion gross spending cuts |
| Budget scoring method | Current law baseline (implied) | Current policy baseline |
Ultimately, the two chambers will need to iron out these differences before voting on final legislation and sending a package to the White House for President Donald Trump’s signature.
Explore potential federal budget changes
Spending
The House budget reconciliation instructions require $1.5 to $2 trillion in cuts, of which $880 billion is allocated to the House Energy and Commerce Committee. The Energy and Commerce Committee oversees Medicaid budget matters, and some officials believe the committee won’t reach its ambitious cost-cutting goals without impacting health care programs, but some legislators are against deep cuts to Medicaid.
Some senators may be more comfortable with spending cuts in the $1 trillion range, and Congress may lean on Department of Government Efficiency initiatives to backfill the difference. Other avenues to make up for spending cuts include Inflation Reduction Act modifications and tariffs.
Inflation Reduction Act repeal or amendment
The House Freedom Caucus continues to press for overhauling the Inflation Reduction Act (IRA), former President Joe Biden’s landmark green energy legislation. However, some GOP members of Congress are strongly against full repeal.
Despite these disparate views, there may be modifications to the IRA given the significant potential revenue raising possibilities. Possible IRA amendments include eliminating direct IRS refunds of carbon oxide sequestration credits, clean hydrogen production credits, and advanced manufacturing production credits to for-profit businesses.
Tariffs
Another approach to bridging the gap between House and Senate spending expectations is to count tariffs as a revenue raiser. Given the free trade/anti-tariff contingent among the Senate GOP, it’s unlikely tariffs will be voted on as formal item in the budget reconciliation bill.
However, it may be possible to include indirectly tariff revenues in the equation if the Trump administration communicates a vision in its application. Some estimates indicate permanent tariffs could raise as much as $3 trillion in revenue over 10 years.
Other federal budget considerations
Other federal budget considerations include raising the state and local taxes (SALT) cap, restricting corporate SALT deductions, and creating a new 40% income tax bracket for millionaires.
40% millionaire tax bracket
There have been informal discussions in the House around creating a new 40% income tax bracket for millionaires to help pay for Trump’s campaign pledges of no tax on tips, Social Security, and overtime pay. If this becomes a serious proposal, there could be resistance from moderate Republicans in the House and Senate.
Raising SALT cap, C-SALT limitations
House GOP members from the high-tax states of New York, New Jersey, and California appear to disagree on where to land on the SALT cap. Members of the House SALT Caucus seem displeased with recent proposals to raise the cap to $25K or $30K.
Keeping with the SALT theme, there is also talk of scaling back on corporate tax deductions for state income taxes, the so-called “C-SALT” limitation. Although limiting C-SALT deductions could raise revenues, they may face resistance from Republicans who view the provision as anti-growth.
How CLA can help with federal tax changes
Some major federal spending and tax changes are likely this year, whether or not the Tax Cuts and Jobs Act is made permanent. Stay informed and start getting prepared for different scenarios on personal income taxes, SALT taxes, and changes affecting businesses, including tariffs and the Inflation Reduction Act.
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