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President Donald Trump’s signature legislative achievement of his second term in the White House, the historically large tax and spending bill known as the One Big Beautiful Bill Act (OBBBA), saw its first Tax Day on April 15.
IRS CEO Frank Bisignano testified before the Senate Finance Committee on the tax collection agency’s operations, including implementation of the law, to mark the occasion. Treasury Secretary Scott Bessent appeared before the Senate Appropriations Committee April 22.
According to Bessent, 34 million taxpayers took the new senior deduction, 28 million took the deduction for overtime wages, and 7 million claimed the deduction for tipped wages. Bisignano said approximately 1 million taxpayers took the new auto loan interest deduction.
Bessent said that the agency recorded 5.5 million new tax-advantaged Trump accounts for children being claimed, including 1.3 million for newborn Americans eligible for $1,000 in seed funding provided under a pilot program.
All these individual taxpayer benefits were created under the OBBBA and will be central parts of Republican campaigning heading into the midterm congressional elections later this year. Polling around the signature tax law has been underwater, leading the administration and congressional Republicans to informally rebrand it as the “Working Families Tax Cuts.” The GOP hopes that once more voters use deductions created by the law — or see broader benefits for the U.S. economy — the party will get credit at the ballot box.
Grant Thornton insight:
While the overall bill has not proved popular, taxpayers able to take advantage of them are enthusiastic about the boosted standard deduction for seniors and the deductions for overtime and tipped income. A challenge for the next Congress is that these provisions are all due to expire at the end of 2028, and lawmakers will almost certainly face strong pressure to extend them or make them permanent, at a high cost. In addition, labor organizations are already pressing for legislation that would expand the definition of qualified overtime pay to allow more workers to claim the deduction.
Meanwhile, Democrats pressed Bessent and Bisignano about IRS enforcement funding cuts enacted during this fiscal year and those proposed in the administration’s new budget. Both leaders touted current enforcement and pushed back on the argument that the proposal to cut enforcement by $900 million in federal FY 2027 would result in lost tax receipts for the Treasury. While Sen. Jack Reed, D-R.I., noted that the IRS estimates each dollar spent on enforcement generates $11 in increased collections, Bessent said, “The data does not support that because we cut the budget, and enforcement recoveries were up 12% last year.”
The next funding cycle begins
Though the administration insists it can continue to do more enforcement with fewer resources, Congress appears likely to fund the agency above the $9.8 billion in the president’s budget request. On April 21, the House Appropriations Committee passed a financial services spending bill that would fund the IRS at $10.2 billion for FY 2027, a 9% cut from FY 2026’s $11.2 billion but nearly half a billion more than the president’s request.
The legislation, passed on a party-line vote with no support from Democratic appropriators, would cut IRS enforcement funding from $5 billion to $3.6 billion.
Grant Thornton insight:
Last year, House appropriators also proposed slightly more funding for the IRS than the president requested, and, as with last year, there may be an even higher funding level for FY 2027 coming out of the Senate — where the legislation will likely require bipartisan support. Senate Democrats will likely insist on a funding level closer to, or above, the $11.2 billion directed towards the tax collection agency this fiscal year. The final decision on funding is unlikely to come until after this fall’s midterm elections.
GOP leaders hope reconciliation 3.0 plans smooth path for 2.0
The Senate has taken the first major step on the second budget reconciliation bill of the term, approving a budget resolution in a 50-48 vote on April 23. GOP leaders hope to keep the legislation tightly focused on funding immigration enforcement operations, and they are making plans for a third bill this fall for other items on members’ wish lists.
However, the House must pass an identical resolution for the committees of jurisdiction to begin drafting the bill, and some within the majority want to broaden the scope beyond U.S. Immigration and Customs Enforcement (ICE) and parts of U.S. Customs and Border Protection.
Right now, the taxwriting committees are not expected to play a role in shaping the bill. But House Ways and Means Committee Chair Jason Smith, R-Mo., recently told Punchbowl News that Congress needs to sweeten the package for the public, because pots of money for ICE and border patrol “aren’t really popular things” with Americans.
“If you’re going to pass a reconciliation bill, it needs to be one that addresses the concerns of the American people, and affordability is the concern I hear more than anything,” Smith said.
House Budget Committee Chair Jodey Arrington, R-Texas, said on April 22 that GOP support in the chamber for a “skinny” bill will depend on whether members think there is a realistic chance for a third party-line bill later this year.
“The question will be for our conference … [do] they believe that we can do another reconciliation for fraud and defense and maybe some affordability issues?” Arrington said.
Promoting the plan for a narrow bill now and another bill in the fall, House Speaker Mike Johnson, R-La., told reporters on April 23, “It has to be clean because it's gotta be quick. That's the challenge. So we’re going to socialize that with everybody. We’re going to move right to reconciliation, what will now be 3.0.”
Johnson and the House GOP leadership team plan to unveil a framework this week for a third reconciliation bill (dubbed “reconciliation 3.0”), hoping this will get virtually all of their members on board with the second package. (With the current party breakdown of 217 Republicans to 212 Democrats, plus one Independent, Johnson can lose no more than two GOP votes.)
Grant Thornton insight:
It is far from certain that the party will be able to coalesce around a common set of provisions to include in a third reconciliation package, with budget hawks demanding more spending cuts and members in more moderate swing districts unlikely to support these. The third bill cannot advance before FY 2027 begins on Oct. 1, and some members believe a bill with big spending cuts will prove too risky just before the Nov. 4 midterm elections, with voters heavily focused on affordability and looking for economic relief.
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