Last week, the option of last resort broke the surface in Congress with Republican leaders announcing plans to pursue a budget reconciliation bill. Such a bill is seen as a way to resolve several contentious issues, including Immigration and Customs Enforcement (ICE) funding, some elements of the Safeguard American Voter Eligibility (SAVE) America Act, and potentially other priorities, including $200 billion in supplemental defense funding for the Iran war. Reconciliation also inevitably puts tax policy in play. 

Republicans have already started expressing concerns regarding a reconciliation bill, including whether such a bill could garner enough support for passage and whether the items mentioned above for inclusion could pass the strict budget reconciliation rules. Nevertheless, Senator Lindsey Graham (R-SC), Chairman of the Senate Committee on the Budget, is making plans to start action on reconciliation: "After consulting with President Trump and his team and Leader Thune, the Senate Budget Committee will expeditiously move toward creating a second budget reconciliation bill," Graham said on March 25. Therefore, we'll evaluate the role that tax could potentially play as lawmakers begin to assemble a second reconciliation bill. 

It has been reported that House Committee on Ways and Means Chairman Jason Smith (R-MO) has indicated that if a reconciliation bill moves forward, a tax title will be included. Hope that such a bill could be a vehicle for additional tax relief also carries the possibility that tax increases could be included to help fund the cost of the bill. The cost could be massive – particularly if the supplemental defense funding is included – suggesting Republicans might look at the top marginal rate or other significant increases as a funding mechanism. The pursuit of significant tax increases by Republicans in a midterm election year would be unique, but it's important to remember that in the context of the One Big Beautiful Bill Act (OBBBA), President Trump suggested the use of a so-called "Millionaire's Tax" and other tax increases on the wealthy. 

The cost of a reconciliation bill and the need to fund it will temper the drive to include tax relief, but Republicans have a menu of options to choose from if they so desire – most of which have significant bipartisan support – including (1) tax extenders such as the work opportunity tax credit, (2) tax administration legislation, (3) retirement savings legislation, and (4) legacy items given the large number of members retiring at the end of this Congress. If a reconciliation bill does not emerge prior to the midterms, these items – and others such as the U.S.-Taiwan treaty legislation that cannot be included in a reconciliation bill – could form the basis for a potential bipartisan year-end tax package. #TaxTake

Upcoming Speaking Engagements 

Rocco will speak at the 26th Annual U.S. and Europe Tax Practice Trends conference on April 16. 

Layla and Rocco will speak at the American Petroleum Institute (API) Federal Tax Forum on April 21-22.

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