The House Committee on Ways and Means may mark up its tax portion of the reconciliation bill later this week or next, and rumors are at a fever pitch as to the potential contents of the bill. 

Whether a current law or current policy baseline is ultimately used, it is anticipated that the gross cost of the tax relief (i.e., extension of the expiring Tax Cuts and Jobs Act (TCJA) provisions and enactment of some of the Trump campaign proposals) will exceed the budgetary constraints provided in the reconciliation instructions. Thus, there has been significant focus on the potential use of revenue offsets. Somewhat surprising for the Republican party, reports indicate that tax increases on businesses and the wealthy are under serious consideration. However, it is important to note that every suggested tax increase on the table has seen a torrent of objections from certain factions of Congress and other interested parties – calling into question whether significant tax increases are viable as revenue offsets.

To avoid a destructive political fight on major tax increases, Republicans may pivot to reducing the term of the proposed tax relief to meet the reconciliation revenue targets. Although there is a strong preference for permanency of the expiring TCJA provisions, particularly among Senate Republicans, House Committee on Ways and Means Chairman Jason Smith (R-MO) has already indicated a potential eight- or nine-year extension as an alternative. 

Revenue pressure could further reduce the length of extensions of the TCJA provisions. A TCJA extension through President Trump's second term seems like an absolute minimum, but perhaps an extension in the six- or seven-year window eventually emerges. 

Just last week, the president appeared ready to embrace temporary TCJA relief when he reasserted that the final bill "will include 100 percent expensing retroactive to January 20," but specified that Republicans will "make that expensing for a four-year-period at a full 100 percent." If four years is good enough for expensing, don't be surprised if that time frame becomes applicable across the board for many, if not all, of the TCJA expirations.

With respect to the Trump campaign proposals such as no tax on tips, overtime, and Social Security benefits, there are already discussions of initial proposals limited to four years, although that time period may shift as well due to revenue constraints. The shortest politically feasible extension of the Trump campaign proposals would probably carry forward these provisions through the 2026 mid-term elections.

As always, it is important to monitor and advocate against revenue offsets of concern as they emerge, but political realities may force Congress to consider shorter-term extensions of tax relief as a more viable mechanism to make the numbers work.