Republicans are getting ready to fast-track the extension of the Trump tax cuts through the reconciliation process if they win big in November.
Nearly seven years after the GOP used budget reconciliation to pass the Tax Cuts and Jobs Act (TCJA), the party is gearing up to use the same maneuver to renew key provisions set to expire in 2026.
While most legislation needs the support of 60 senators to avert a filibuster, budget reconciliation allows lawmakers to pass major tax and spending bills with a simple majority — and without bipartisan backing.
Republican tax writers have already broken into working groups on specific tax topics in advance of the 2025 tax cut expirations, priming the House Ways and Means Committee to get straight to work if the GOP sweeps Congress and the White House.
House Majority Leader Steve Scalise (R-La.) also addressed his conference last week about reconciliation, bringing members up to speed on the process that could carry one of their top policy priorities to the finish line.
“With Leader Scalise, it was really a process of reminding everybody of the importance of reconciliation, how that was used in 2017, how the Democrats used that during the first two years of the Biden term,” David Kustoff (R-Tenn.), a member of the Ways and Means Committee, told The Hill last week.
Democrats used budget reconciliation to pass the Affordable Care Act under former President Obama, along with President Biden’s economic relief plan and Inflation Reduction Act. The GOP also attempted to use budget reconciliation to repeal major swaths of Obama’s health care law but was famously foiled by then-Sen. John McCain (R-Ariz.) on the Senate floor.
“We need to be prepared with different options. It cannot be overstated that it’s important to plan ahead, policywise. We worked on TCJA for years before we had unified government,” said Rep. Adrian Smith (R-Neb.), chair of the working group on rural America.
He said the premise of the different groups is “to educate the conference, especially because so many members were not here in 2017.”
The scope of the groups extends well beyond the individual provisions that are due to sunset and into different sectors of the economy including manufacturing, supply chains, and the “new economy.”
Republicans are also paying attention to dynamics around the Senate parliamentarian, who decides the extent of what can be passed through the more limited reconciliation process.
“We always have to be mindful of the pretty restrictive rules that surround reconciliation. You can’t get too creative or you get outside the boundaries of what’s allowed under the Senate rules,” Rep. Doug Lamborn (R-Colo.) said.
But eventual procedural constraints are not getting in the way of the brainstorming session that the Ways and Means working groups are now undertaking. The conversations are ranging from the effect of artificial intelligence (AI) on the labor force participation rate to taxation of emerging life sciences industries.
“Over the next decade, synthetic biology and AI — what do they do to the tax code?” Rep. David Schweikert (R-Ariz.), head of the “new economy” working group, said Wednesday. “If your call center is now just computers, does that change labor force participation and income and [payroll] tax collections? Or do those individuals go on to other types of employment with higher productivity?”
There is considerable variance among Republican tax writers about what to do with the corporate tax rate, which the Trump tax cuts slashed from 35 percent down to 21 percent.
Some Republicans think the corporate rate may have been dropped too low and are open to hiking it back up, Ways and Means Chair Jason Smith (R-Mo.) recently said.
Others say it should be dropped even lower as a way to attract more businesses and capital investment to the U.S.
“In terms of the corporate rate, that doesn’t sunset, but they might try to take that down at some point,” Rep. Vern Buchanan (R-Fla.), who heads the manufacturing taxation team on the Ways and Means Committee, said last week.
“We want to find a way that we can create more incentives for [manufacturers], create more jobs and opportunity to do more of the work here in the States instead of abroad,” he said.
Other Republicans are shooting for a straight extension of the individual provisions, with no changes to the corporate tax rate.
“What we’ve had on the books has been very productive,” Adrian Smith told The Hill. “I think a good thing would be to have a clean extension.”
Democrats are also thinking beyond the expiration of the individual tax rates set by the TCJA, intending to reposition the corporate rate.
Rep. Suzan DelBene (D-Wash.) said last week that the corporate rate was among issues that were “absolutely … on the table and things that we’re going to be talking about.”
While changes in business and corporate taxes from the 2017 tax law changed investment flows within the economy, it did not add substantially to economic growth. The Congressional Budget Office (CBO) estimated gross domestic product (GDP) expansion due to the law of 0.3 percent in 2018 and 0.6 percent in 2019 before the economic policies of the pandemic made its continued effects too difficult to measure accurately.
The law also did not affect compensation levels for regular people, with the Congressional Research Service concluding that “ordinary workers had very little growth in wage rates” resulting from the law.
The CBO projected this month that extending the law through 2034 would cost $4.6 trillion, a substantial increase to the deficit after it already ballooned to new highs at more than 120 percent of GDP in the aftermath of the pandemic. Total U.S. debt stock is now $34 trillion, though a significant portion of that is money the government effectively owes itself.
Several Ways and Means Republicans declined to answer questions about how extensions or expansions of the Trump tax cuts could be paid for through additional revenue raising measures.
“Tell me how the election goes,” Schweikert said. “And then I can start to walk you through what some of your choices are.”
One revenue raiser that’s currently being floated as part of a separate tax package is a cancellation of the employee retention tax credit, coming in at around $78 billion. The current proposal would use that money to offset a series of business credits that were nixed to help pay for the TCJA as well as a boost in the child tax credit.
But that package has stalled out in the Senate, at least for now.
“I would just say right now it’s stalled out,” Sen. John Thune (R-N.D.) told The Hill last week. “I think it will take a while for it to get back on track. In the Senate right now, there aren’t the votes to move it.”
“We’re not looking at probably getting that on the floor of the Senate,” he added.
Senate Democrats have been encouraging Majority Leader Chuck Schumer (D-N.Y.) to just put the bill up for a vote, since it sailed through the House with wide bipartisan approval.
“We’re talking to [Schumer]. I’m talking to him about when it can be scheduled. Right now we’re working on the border, which obviously is an important issue. But I believe we’ve got the votes,” Sen. Ron Wyden (D-Ore.) said last week.