Party-line legislation talks now extend to Reconciliation 3.0

Tax Hot Topics

As lawmakers seek to end the funding lapse for the Department of Homeland Security (DHS), now in its eighth week, and provide supplemental military funding, discussion of additional budget reconciliation packages has intensified among Republicans — and with it the hopes of some to include tax provisions.  

Reconciliation is a fast-track process that allows for changes to federal revenue, spending, or the debt ceiling with a simple majority vote in the Senate instead of the typical 60-vote threshold needed to limit debate and advance legislation. In the current context, the One Big Beautiful Bill Act (OBBBA), passed in July 2025 using the FY25 budget resolution, can be considered “Reconciliation 1.0.”  

As it is being discussed now, a ‘reconciliation 2.0’ package, using an FY26 budget resolution, would include at least three years of funding for the Immigration and Customs Enforcement (ICE) agency and money for Customs and Border Patrol (CBP). Democrats have refused to support funding for these agencies within DHS without certain reforms, and Republican House leadership has recognized the chamber will have to pass a Senate bill that excludes these agencies while funding the rest of the department. President Donald Trump has endorsed this plan and said he wants the bill on his desk by June 1.

Most recently, talk has begun about a potential ‘reconciliation 3.0’ bill later this year, which would require passage of an FY27 budget resolution and could be used to provide supplemental defense funding the administration is requesting and elements of a voter ID bill known as the SAVE Act (only certain provisions might meet the requirements for a reconciliation bill, as they must have meaningful budgetary impact).  

Congress will need to move quickly to complete a bill before Memorial Day, and GOP leaders are hoping to keep any bills narrowly focused, but the opportunity to include party-line provisions before a potential loss of their majority in either or both chambers this November has Republican lawmakers raising their own priorities. These range from deep spending cuts and healthcare reforms to corporate alternative minimum tax changes and OBBBA tweaks.

House Ways and Means Committee Chair Jason Smith, R-Mo., has long made clear his skepticism that passing another reconciliation bill would be feasible, given the challenge attaining the near-unanimous agreement needed among the narrow Republican majority. However, as leadership has begun to develop a narrowly targeted plan for a second bill, Smith has said tax writers will be at the table if it happens. (See our recent article.)

A key question is whether Republicans will seek to offset any spending in the bill(s). If they do, the tax writing committees could be asked to provide revenue raisers, but these are always harder to find agreement on than tax cuts or incentives are.

House Budget Committee Chair Jodey Arrington, R-Texas, said last week that he would like to add new limits to the low-income housing tax credit and the earned income tax credit, cutting off undocumented immigrants and targeting fraud while reducing the benefits’ costs. However, he acknowledged that his ideas may not have enough buy-in to be included.

“I’ve got a longer list than I think Republicans have an appetite for,” on measures to address fraud, he told on Fox Business April 7.