Reconciliation eyed for much more than TCJA renewal

With the final races for Congress settled, the Republican election sweep in November provides some clarity as to what the next administration’s federal tax priorities will be next year. With their slim majorities, 220-215 in the House of Representatives and 53-47 in the Senate, Republicans will seek to use the reconciliation process to put forth an aggressive tax legislative package. But that can only happen with solid inter-party consensus on what they want.

Much of what will be included is still uncertain, as many of the tax campaign pledges of president-elect Donald Trump lacked details. On a recent Grant Thornton Executive Forum 2024 webcast, “Post-election impact on the business landscape and tax policy,” Mark Margulies, Grant Thornton National Managing Principal of Tax Services, Dustin Stamper, Tax Legislative Affairs Practice leader for Grant Thornton, and Charles Cooper, Managing Partner of the Brumidi Group, offered thoughts on what direction next year’s tax legislation discussions will go and what the likely results will be.

What is not in dispute is that there will be tax law changes of some sort. Stamper said 2025 was already set to be a significant year in tax legislation as most of the provisions of the Tax Cuts and Jobs Act (TCJA), approved by the reconciliation process in late 2017, were expiring at the end of next year. A full recounting of the TCJA tax provisions set to expire at the end of 2025 can be found here.

While reapproving the TCJA would be a relatively simple undertaking, Stamper said GOP leaders have more on their mind. “I think it’s pretty clear the way Republicans have been talking about this, having working groups over the last year, that they are looking at this as a broader opportunity to address tax provisions that aren’t themselves scheduled to change, and to look at the tax code as a whole,” Stamper said. In addition, Margulies added that Republicans may regard that the promise of the years of growth resulting from the TCJA was short-circuited by the pandemic. He said if deficits aren’t a huge concern, a new tax reconciliation bill could result in as much as a $4 trillion tax cut, more than doubling the $1.5 trillion tax cut from the TCJA.

Stamper said there are political and practical limits to the size of a tax cut bill that at least some Republicans will likely heed. “The more traditional GOP view, which still holds some sway … is this idea that tax cuts, if they are pro-growth, don’t need to be offset because they grow the economy. And they would say that is even more true if we are extending current policy.”

The Congressional reconciliation process was created in 1974 by the Congressional Budget Act and includes the provision that a reconciliation bill cannot be filibustered in the Senate, so it can enjoy a bare minimum of support in each chamber to pass. But the restriction is that it cannot lead to a revenue loss outside the 10-year budget window, which is why so many of the previous bill’s provisions have a sunset date next year.

Republicans are currently discussing the timing for a reconciliation tax package and whether to use two reconciliation bills to divide up their broader priorities. And while the process is familiar, many of the incoming Congressional Republicans in both chambers had no part in 2017’s TCJA discussions and, as Stamper said, may not be as invested in the outcomes of many of the provisions.