The upcoming new year means a new Congress — and potentially new tax legislation. Before the new year starts, Congress must address the fiscal year 2025 budget, which currently is extended under a continuing resolution (CR) through December 20. In the new year, Congress will tackle extending the portions of the Tax Cuts and Jobs Act set to expire at the end of 2025.

Explore the latest on important tax matters remaining unresolved in Congress. 

Fiscal year 2025 (FY25) budget 

Congressional leaders are keen to avoid a government shutdown. Senate and House leaders are working toward another CR to fund the government through March 2025. 

The process is evolving, and the extended CR date is still under negotiation. There are discussions that the forthcoming CR could include disaster aid to replenish the coffers of the Federal Emergency Management Agency, the Small Business Administration, and related agencies. Details should be released soon.

Tax Cuts and Jobs Act extenders bill

There is disagreement between incoming GOP House and Senate leaders over how to approach a Tax Cuts and Jobs Act (TCJA) extenders bill next year. Incoming Senate Majority Leader John Thune (R-S.D.) supports passing a TCJA extenders bill using the budget reconciliation process in late 2025. Thune may start 2025 by passing a combined border control-defense-energy bill via budget reconciliation, giving Congress more time to work through the details of the tax package. 

In contrast, House Ways & Means Committee Chairperson Jason Smith (R-Mo.) has favored fast-tracking a TCJA extenders bill under budget reconciliation in early 2025.

Budget reconciliation

Many political commentators say the budget reconciliation process will make it easier to navigate tax legislation through the soon-to-be-inaugurated Republican-controlled Congress. This is especially true in the Senate, where budget reconciliation rules suspend the filibuster, restrict time to debate a bill to 20 hours, and reduce the number of votes needed to pass a bill from 60 to 51. Despite these procedural benefits, the budget reconciliation process does have its risks and disadvantages, including:

• Congress generally is not permitted to use budget reconciliation to make changes to Social Security benefits or related payroll taxes.

  CLA insight: This limitation could make it difficult for Trump to fulfill his campaign pledge of no income taxes on Social Security.

• The budget reconciliation process generally requires Congress to specify the period covered by the tax bill and quantify the budget impact (i.e., the total net deficit versus net surplus).
  CLA insight: Essentially, these requirements mandate a tax bill cannot add to the federal budget deficit beyond the date and amount stipulated in the resolution. Given these restrictions, some or many of the TCJA extenders will likely have a sunset date. Conceivably, the sunset date could be earlier than in previous tax bills passed under budget reconciliation (e.g., 2–4 years from enactment rather than 7–10 years) due to the substantial national debt.
• The budget reconciliation process can only be used to change spending, revenues, and/or the debt limit. A budget developed under reconciliation cannot include non-budgetary provisions. For example, provisions related to immigration reform or social issues that do not change revenues or expenditures generally cannot be part of a reconciliation bill.

CLA insight: It’s common for members of Congress to “horse-trade” one proposal for another to pass legislation. Given the slim majorities in the House and Senate, some in Congress may attempt to condition their support of the tax bill on the inclusion of non-tax provisions. That type of trading may not be possible given limitations on the budget reconciliation process.

• The budget reconciliation process allows Congressional members to offer amendments to the tax bill, but an amendment is generally prohibited unless it’s paid for with offsetting tax increases or spending reductions.

  CLA insight: There likely will be significant differences among Republican Party members on how to pay for the TCJA extenders bill. Introducing an amendment requiring a revenue offset could wreak havoc on the process, as “pay-fors” not already incorporated into the tax bill are likely to be contentious.

How CLA can help with federal tax changes

The upcoming year promises significant legislative activity. We will provide articles with insights and analysis as the process unfolds. We can work with you to navigate the evolving legislative landscape and develop strategies tailored to your situation to plan for the changes ahead.