Key insights
- The House approved a federal budget resolution but questions on extending the Tax Cuts and Jobs Act (TCJA) remain as Senate leaders may want different extension rules.
- Proposals to fund the TCJA extension include repealing the Inflation Reduction Act and eliminating business state and local tax deductions.
- Other current federal budget and tax considerations include tariffs and possible domestic production tax incentives.
Keep abreast of federal tax developments to take advantage.
Some progress has been made in passing a 2025 federal budget resolution — and related tax benefits — but there is still much to be resolved in Washington.
On February 25, the House passed The Concurrent Resolution on the Budget for Fiscal Year 2025 by a 217 – 215 vote. The vote was extremely close because some House Republicans are worried about potential cuts in Medicaid, while others believe the proposed spending cuts ($1.5 – $2 trillion) are not deep enough to make a dent in the deficit.
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Despite the House approval, these concerns may not go away in the future, not to mention House leaders will also need to sell the Senate on their vision for tax policy. The House budget resolution is expected to extend the Tax Cuts and Jobs Act (TCJA) provisions for no more than 10 years. But Senate Majority Leader John Thune (R-S.D.) favors making the TCJA permanent.
The next step in the budget reconciliation process is for the House and Senate to reconcile their respective budget resolutions, which can be accomplished by:
- Conference committee
- An exchange of amendments
- One chamber adopting the budget resolution passed by the other without any changes
Once the House and Senate committees agree on a common budget resolution, a resolution will be sent to their respective floors for a vote. House Speaker Mike Johnson (R-La.) wants the House vote on the common budget resolution by April, with the goal of sending a complete budget reconciliation (including tax) to President Donald Trump for signature by May. If this timeline holds, proposed tax legislation may be released in mid-to-late April.
Proposals to fund the Tax Cuts and Jobs Act extension
The big tax question confronting the House is whether its future tax bill will include TCJA extenders, Trump’s campaign tax promises (i.e., no tax on tips, Social Security, and overtime), or both. The House’s budget resolution directs the House Ways and Means Committee to pass tax legislation that increases the deficit by no more than $4.5 trillion over 10 years. This appears to be enough to cover the cost of a TCJA extender bill but not Trump’s campaign pledges unless there are revenue offsets.
Repealing the IRA and eliminating business SALT deductions
Repealing the Inflation Reduction Act (IRA) and eliminating the business state and local income tax (SALT) deduction are options under consideration to boost revenue. Repealing the IRA could save close to $800 billion over 10 years. Limits on corporate SALT deductions could save between $190 billion and $300 billion over 10 years. Trump also has called for ending the CHIPS and Science Act.
Carried interest loophole
Trump has expressed interest in closing the carried interest loophole as one of his delineated tax priorities. Closing this loophole could raise $6.5 billion in revenue over 10 years, but it may be more of a symbolic win against Wall Street than an economic windfall to pay for Trump’s tax breaks.
With potential federal tax law changes and other legislation from the new administration, evaluating tax planning opportunities is crucial. View our Tax Policy Watch webinar covering TCJA, tariffs, and taxes.
Other federal tax and budget considerations
Tariffs
Tariffs are now in effect against Mexico and Canada, but some of the rules have already changed. Trump is also considering suspending or terminating the tax treaty between the United States and China as part of his America First Investment Policy.
Federal budget
The continuing resolution (CR) extending fiscal year 2025 federal government funding expires March 14. If Congress fails to pass a budget or another CR, then there could be a government shutdown. Trump seems to favor another CR through September.
Domestic production tax incentives
In his address to Congress on March 4, Trump said he wants to cut taxes on domestic production and manufacturing. He said he also wants to provide 100% expensing retroactive to January 20, 2025. It’s unclear his full intensions with those statements but it could be the restoration of 100% bonus depreciation.
How CLA can help with federal tax planning
New or renewed federal tax policies are expected this year, possibly as early as this spring. Early planning can help you take advantage, whether the Tax Cuts and Jobs Act is extended in full, in part, or at all.
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