Tax Hot Topics
In line with the top House taxwriter’s commitment to looking for opportunities this year to pass bipartisan tax measures, the House Ways and Means Committee approved five bills on March 25, all with unanimous support. The legislation focused on issues ranging from expanding a deduction for teachers’ classroom expenses to temporarily reviving an enhanced deduction for personal casualty losses.
- The Supporting Early Childhood Educators’ Deductions Act (SEED Act) (H.R. 5334) would extend the $350 above-the-line deduction for classroom expenses paid out of pocket by educators to preschool teachers. The bill advanced by a 43-0 vote and was authored by Rep. Jimmy Panetta, D-Calif., and Rep. Brian Fitzpatrick, R-Pa.
- The Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366) would extend through 2026 the ability to deduct personal casualty losses from natural disasters without having to itemize, retroactive to July 4, 2025. The bill advanced by a 43-0 vote and was authored by Rep. Greg Steube, R-Fla., Rep. Mike Thompson, D-Calif., Panetta, and the late Rep. Doug LaMalfa, a California Republican who died in January.
- The Survivor Justice Tax Prevention Act (H.R. 2347) would ensure compensatory damages from sexual assault-related legal cases are exempt from gross income calculation, without a requirement that victims prove visible physical injury. The bill advanced by a 41-0 vote and was authored by Rep. Lloyd Smucker, R-Pa., and Rep. Gwen Moore, D-Wis.
- The Taxpayer Experience Improvement Act (H.R. 7971) would require the IRS to create a dashboard allowing taxpayers to see customer service wait times, view their tax documents, track refunds and expand online accounts. The bill advanced by a 43-0 vote and was authored by Rep. David Schweikert, R-Ariz., and Rep. Don Beyer, D-Va.
- The IRS Whistleblower Program Improvement Act (H.R. 7959) would make minor changes to whistleblower rules for tax-related whistleblowers. The bill advanced by a 41-0 vote and was authored by Rep. Mike Kelly, R-Pa., and Thompson.
Grant Thornton insight:
Several provisions in the Taxpayer Experience Improvement Act and the IRS Whistleblower Program Improvement Act were also in a larger package introduced last month by Senate Finance Committee Chair Mike Crapo, R-Idaho, and the committee’s top Democrat, Sen. Ron Wyden, D-Ore., the Taxpayer Assistance and Service Act (S. 3931).
House Ways and Means Chairman Jason Smith, R-Mo., has taken the approach throughout this Congress of bringing up more narrow, bipartisan bills on tax administration, but it is possible that House taxwriters will later revisit some of the measures they have already passed in a way that aligns with the broader Senate approach.
The Ways and Means committee has previously passed several bills aligned with the Senate package, including H.R. 6956, which would require the IRS to use scannable barcodes and optical character recognition technology with paper tax returns for faster processing; the Tax Court Improvement Act (H.R. 5349); and the Fair and Accountable IRS Reviews Act (H.R. 5346). The latter two were approved by the full House in December.
The return of reconciliation?
While Congressional Republicans were able to use the budget reconciliation process last year to pass the One Big Beautiful Bill Act (OBBBA) and extend 2017’s tax cuts without support from Democrats, a second bite at that apple this year — a so-called Reconciliation 2.0 — has long looked unlikely. There is renewed energy around such a push, though, and Smith reportedly told attendees at a fundraiser last week that although he still does not think it’s realistic, tax policies should be part of the mix if it happens.
On March 27, Smith doubled down. “If there's a second reconciliation, the Ways and Means Committee will have a significant footprint or there won't be a second reconciliation,” the taxwriting committee chair said, according to Politico.
To wrangle necessary votes on the OBBBA last summer, House Speaker Mike Johnson, R-La., promised some of the chamber’s hard-liners that he would support a second reconciliation bill to further cut spending and address items that did not make it into the first bill. In January, the House Republican Study Committee released a detailed proposal that included proposals to lower housing, healthcare and energy costs; provide additional tax cuts; and cut federal spending. However, there has been less interest in the Senate and no “must-do” driver like expiring tax cuts or clear agreement among fiscal hawks and swing-district Republicans.
Then came the March pileup.
Democrats refused to support funding for immigration and border protection agencies within the Department of Homeland Security following high-profile incidents between immigration enforcement and U.S. citizens. The U.S. joined Israel in attacking Iran, and the administration is seeking $200 billion in supplemental war funding. The president demanded that Republicans pass a law mandating proof of citizenship for voters at polls, a measure that doesn’t have enough support to overcome a filibuster. This combination has congressional budget leaders moving “expeditiously” to prepare a party-line measure, in the words of Senate Budget Committee Chair Lindsey Graham, R-S.C.
There are still significant political, procedural and timing constraints to another reconciliation bill, but Smith said that if the GOP is going to attempt it, he believes taxes can help unify the party.
Grant Thornton insight:
If Republicans do find a way to pass another bill under budget reconciliation, it is likely to be much more limited and narrowly focused than the OBBBA, primarily addressing funding for homeland security and defense. The party’s fiscal hawks are almost certain to demand spending cuts and revenue offsets to limit adding to the federal debt, but it is much harder to find consensus among all Republicans on these than on policy measures or tax cuts.
Although there are lawmakers eager to include provisions on everything from healthcare to housing, only those that have the support of virtually the entire party will have a real chance. As midterm elections loom, there are clear divides between those members fighting to hold their seats and those in the safest seats, and House leadership can lose no more than one vote under its current razor-thin majority.
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