What to Expect from the New Congress on Tax Policy

After the Republican victory in the November 6 elections, tax code reforms are likely a high priority for the new Congress. House Majority Leader Steve Scalise (R-La.) emphasized extending the Tax Cuts and Jobs Act (TCJA) as the GOP’s primary goal within the first 100 days of the next Congress. Scalise stressed bold efforts to include as many reforms as possible in a reconciliation package, despite Senate rules and party divisions on tax policies.

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However, challenges loom, including determining the cost of the reconciliation package, addressing non-TCJA provisions set to expire in 2025, and achieving party unity. Skepticism remains about quick legislative action, given past Senate delays on House tax packages.

Key steps for advancing a reconciliation bill include passing identical budget resolutions in the House and Senate and resolving differences over deficit impacts and committee responsibilities. While House Republicans aim to move quickly, bipartisan coordination will be essential.

The future of the state and local tax (SALT) deduction cap is also uncertain. While some moderate Republicans support letting the cap expire, discussions may include raising the cap or eliminating state workaround provisions, which cost the Treasury billions annually. The interplay of the SALT cap with other tax reforms will be a critical factor in shaping the overall package. A full TCJA extension is projected to cost $4.6 trillion, with significant fiscal implications tied to the SALT cap’s fate.

Summary: Republicans plan to extend the TCJA and push major tax reforms in early 2025. Challenges include reconciling costs, addressing expiring provisions, and uniting the party. The SALT cap remains a contentious issue, with its future hinging on fiscal and political considerations.