The House took the first step for federal tax reform by approving a budget resolution on Tuesday night that would require a $2 trillion in overall spending cuts over the next decade to help pay for $4.5 trillion in tax cuts as an extension of Trump’s 2017 tax cuts set to expire this year. As of now, it appears that the Senate’s desire for two separate and distinct budget reconciliation bills, with the first focusing on the border and energy, and the second focusing on federal tax reform, is no longer being considered. Instead, President Trump and the House of Representatives have created a path for “one big, beautiful bill”, which will include federal tax reform, securing border, and energy. And the timeline of tax reform has been brought to the forefront, with the House Republican goal of having a bill including federal tax reform on Presidents Trump’s desk by May of 2025.
While House Budget Committee Chairman Jodey Arrington (R-TX) introduced a budget resolution bill on January 3rd, Senate Budget Committee Chair Lindsey Graham (R-SC) introduced a separate budget resolution on February 12th as the Senate was anticipating leading the budget resolution process due to divisions amongst House Republicans. However, Speaker Mike Johnson (R-LA) and Rep. Arrington were able to unite the House Republicans, which many viewed insurmountable. Only one Republican, Thomas Massie (HY), did not support the House resolution. As a point of reference, 13 Republicans voted again the Tax Cuts and Jobs Act of 2017. The significance of the House essentially acting as one will continue to remain important through the budget resolution process.
The Democrats made efforts to block the bill, with Rep. Brittany Petterson (D-CO) returning with her newborn child, and Rep. Kevin Mullin (D-CA) leaving a hospital bed in California for the vote. The vote ultimately passed on partisan lines with 217 Republicans supporting the bill, and 215 Democrats voting against it.
The next step will be for the Senate to approve the House resolution, but it is anticipated that the Senate will make modifications which will send the bill back to the House for approval. A major difference between the House and the Senate in relation to the budget resolution process, is determining whether federal tax reform must be paid for with government spending cuts. The House has been using a current law baseline score, which requires at least $1.5 trillion in spending cuts to offset the projected budgetary impact and most likely will lead to temporary extensions of the current federal tax law. However, Senators desire to utilize the current policy baseline which would not require mandated spending cuts, and potential permanency of major tax policies. However, if the current policy baseline were utilized as desired by the Senate, the 31-member House Freedom Caucus may no longer support the process as they support significant spending cuts.
U.S. Senate Majority Leaders John Thune, House Speaker Mike Johnson, Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett are expected to meet with President Trump, starting the negotiations between the Senate and House in relation to the budget resolution bill, under President Trump’s direction.
While the House passing the budget resolution is a positive step, there is still a lot of work to be done. It should not be assumed that all favorable Tax Cuts and Jobs Act provisions will be extended, as President Trump is focused on eliminating federal taxation on tips and maintaining other campaign promises. It is now more important than ever to make sure that individual and business tax needs are expressed to congressional representatives and senators, as significant negotiation is expected.
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