
Key insights
- Federal tax related items to follow include budget reconciliation, tariffs, and the Tax Cuts and Jobs Act (TCJA) extenders.
- President Donald Trump is seeking swift legislative action in three key areas: border protection, energy, and taxes.
- The bond market is getting nervous Congress may extend the Trump tax cuts without adequate revenue offsets, with the knock-on effect of increasing the already sizable $36+ trillion U.S. national debt.
- With so many moving parts, it’s plausible there won’t be a TCJA extender bill for several months and passage could even be late this year or early next.
Things are happening in Washington, DC. The new Congress was sworn in, President Donald Trump was inaugurated, and the Senate has commenced confirmation hearings for cabinet picks.
With the new year under way, where do things stand? Federal tax-related items to follow include budget reconciliation, tariffs, and the Tax Cuts and Jobs Act (TCJA) extenders. Explore where they and other federal efforts currently stand.
Federal budget reconciliation
Trump is seeking swift legislative action in three key areas: border protection, energy, and taxes. Congressional leaders have struggled with whether to pass one bill addressing all three areas or two bills that separate tax from border security and energy.
Trump, House Speaker Mike Johnson (R-La.), and House Ways and Means Committee Chairman Jason Smith (R-Mo.) support the “one big, beautiful bill” approach, whereas Senate leaders and members of the House Freedom Caucus prefer two bills.
Johnson has indicated he expects TCJA extender legislation to be ready for passage in the April/May timeframe under a one-bill approach. Senate leaders have not been as forthcoming on the timing of tax legislation under the two-bill scenario, but it likely would be in the second half of 2025.
CLA insight
SALT cap efforts
Multiple obstacles could hinder passing a tax bill by late spring/early summer. For one, there’s the House SALT Caucus which is made up of Republicans (and Democrats) from the high tax states of California, New Jersey, and New York. This group has hinted it may withhold support for a tax bill (and Republicans ultimately have just a two-vote margin in the House) unless it includes an increase in the state and local tax (SALT) cap.
Congressman Mike Lawler (R-N.Y.) has proposed raising the SALT cap to $100,000 for single filers and $200,000 for married couples filing jointly. Such a significant increase is likely to attract the ire of GOP budget hawks who view preserving the current $10,000 SALT cap as essential for funding TCJA extenders.
Federal budget deficit
The bond market is getting nervous Congress may extend the Trump tax cuts without adequate revenue offsets, with the knock-on effect of increasing the already sizable $36+ trillion U.S. national debt. These concerns are reflected in the 10-year U.S. Treasury bond yield, which has increased by over 100 basis points in the past three months despite Federal Reserve rate cuts last fall, thereby making deficit-funded TCJA extenders even more expensive.
California wildfires
Damages from the fire could be upwards of $250 billion and may prompt members of Congress from California to ask for disaster relief as a condition for supporting a tax bill.
TCJA extenders
With so many moving parts, it’s plausible there won’t be a TCJA extender bill for several months and passage could even be late this year or early next. For now, it seems both chambers of Congress are working on separate tax proposals, with the House potentially rolling out budget reconciliation instructions next month.
Other federal tax issues
Tariffs
During his campaign, Trump threatened to implement a 10% base-line tariff, a 25% tariff on imports from Mexico and Canada, and a 60%+ tariff on imports from China. The president has wide ranging powers to enact tariffs and doesn’t always need Congressional approval to move forward.
Beneficial ownership information
On Thursday, January 23, the U.S. Supreme Court lifted the nationwide BOI reporting ban previously issued by the United States Court of Appeals for the Fifth Circuit on December 26, 2024. Later in the day, in a separate case, the U.S. District Court for the Eastern District of Texas (Tyler Division) issued an order suspending BOI reporting on a nationwide basis pending litigation. In response, FinCEN has indicated that BOI reporting remains voluntary, and reporting companies will not be subject to liability while this new order remains in effect. We will keep you posted on new developments.
Taiwan preferential tax rates
The House may vote favorably on a bill that would give Taiwan preferential tax rates on U.S. cross border transactions. Taiwan is a major provider of semiconductors to the U.S., which makes the country one of our country’s key economic allies.
Debt limit
On January 17, Treasury Secretary Janet Yellen sent a letter to congressional leadership on the debt limit to begin extraordinary measures to avoid default. The debt limit is the amount of money the U.S. government is authorized to borrow to pay its bills. If Congress doesn’t raise the debt limit, there is a risk of U.S. government default.
The extraordinary measures the U.S. Treasury can take to prolong a default include paying bills with cash on hand, sell gold, etc., but eventually there could be a mad dash in Congress to solve the problem.
How CLA can help with federal tax changes
There’s a lot on the agenda in Washington with the new president and Congress. Tax extensions and changes are very likely to happen this year, and preparation is key in preparing for improved outcomes. Contact our tax team for assistance in getting your family and business well positioned.
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