Republicans split on process for tax package

House and Senate Republicans are publicly split on how to use the reconciliation process to advance their ambitious tax agenda in 2025.

Discussions continued throughout the last two weeks over whether to split their priorities into two separate reconciliation bills, and where tax provisions could fit in the schedule.

The reconciliation process will allow Republicans to pass tax and spending changes with simple 50 vote majorities in the Senate. It can generally be used only once per budget cycle, but Republicans can use budget resolutions for two separate government fiscal years to pass two separate reconciliation bills in calendar year 2025.   

Senate Majority John Thune, R-S.D., is pushing to split major portions of the Republican agenda into two separate bills so they can move more quickly on some priorities while being more deliberate on tax policy.

“In my view, it makes sense to move quickly on things we know we can do quickly — border, defense, energy,” Thune told reporters on Dec. 10. “And then come back with another package that would address some of the savings that can be achieved through reductions in cost in various agencies and bureaucracies and government programs and then also deal with the expiring Trump tax cuts in a package later this year.”

House Ways and Means Committee Chair Jason Smith, R-Mo., is pushing hard to keep everything together in a large bill.. He called the bifurcated approach “reckless,” because of the potential delay of a tax bill in the face of significant tax increases scheduled to take place at the beginning of 2026.

“So to come up with idea that we will do a small reconciliation at the beginning that does energy and immigration and defense, and a second will be tax, is very foolish,” Smith said in a CNBC interview. “It breeds failure, in my opinion.”

“People above me will make the decision, but I’m telling you: I know how to get votes,” Smith told reporters later, speaking hours after Thune. “If they want to give me the best opportunity to pass the president’s tax plan, make it all in one bill.”

Smith may be losing the argument as the two-bill approach appears to be gaining traction.

"There probably will be at least two reconciliation packages,” House Speaker Mike Johnson, R-La., said in a recent television interview. “So, the determination right now is where does the tax piece fit in? Do we do that first out of the gates, or do you wait a couple months to get all that done? Because it can be very complicated."

Ultimately Trump’s position may be the most important, since his influence could be significant in delivering any holdout votes. Stephen Miller, the incoming White House deputy chief of staff and longtime immigration and border security policy adviser to Trump endorsed the two-bill approach in a recent televised interview.

Taxes will be a priority, Miller said, “But the very important point in all of this is that, with the current size of the majority in the House, there isn't a proposal to pass taxes in February.” The senior Trump adviser also said that “fiscal reforms” and “energy reforms” would come along with tax cuts, along with potentially more “border reforms.”

Using two reconciliation bills could significantly slow down tax legislation, but there’s no guarantee that taxes would go in the second package. Johnson’s comments indicate there is still significant interest in moving taxes quickly in the first package, and Smith has been promising that he can act very quickly after a budget resolution passed. Senate Republicans appear to favor a more deliberate legislative process on taxes.

Regardless of timing, narrow margins in both the House of Representatives and Senate will complicate the process. Due to resignations and cabinet appointments, Republicans are expected to hold a slim 217-215 majority until special elections can replace departing members (although health issues or unexpected departures could further affect those numbers).

While reconciliation allows Republicans to pass their agenda along party lines, as reconciliation bills do not need the normal 60 votes to advance in the Senate, the process comes with its own set of constraints. Reconciliation bills can only touch funding, revenue, and the debt ceiling, and cannot increase the deficit outside of the standard 10-year budget window.

Already Republicans from high-tax states like New York, New Jersey, and California have pledged not to support any bill that does not eliminate the $10,000 state and local tax deduction cap. They alone can block a tax bill from advancing, and while Trump promised to eliminate the cap, the restrictions of reconciliation could make that difficult. The SALT cap provided a major revenue source to offset overall income tax cuts, lowering the corporate tax rate, and additional business benefits within the TCJA. Republicans will likely need to replace that revenue if they want a long-term extension of current personal tax rates and other major items, like extending the 199A qualified business interest deduction and reviving 100% bonus depreciation. Or they could combine a variety of priorities in a bill with a continued (or raised) SALT cap, making it more difficult for high-tax state members to vote no on the bill. 

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