Republicans prepare to fast track Trump tax cut extensions in reconciliation

Republicans are preparing to fast-track an extension of the Trump tax cuts through the reconciliation process if they win a landslide victory in November.

Nearly seven years after Republicans used budget reconciliation to pass the Tax Cuts and Jobs Act (TCJA), the party is preparing to use the same method to renew key provisions set to expire in 2026.

While most bills require the support of 60 senators to avoid a filibuster, budget reconciliation allows lawmakers to pass major tax and spending bills with a simple majority, even without bipartisan support.

Republican tax planners are already splitting off into working groups on specific tax issues ahead of the 2025 tax cut deadline, with the House Ways and Means Committee poised to begin work immediately if Republicans take control of Congress and the White House.

House Majority Leader Steve Scalise, R-Louisiana, also spoke on the floor last week about reconciliation, updating lawmakers on the process that could bring one of their top policy priorities to finalization.

“What I was doing with Leader Scalise was a process of reminding everybody of the importance of reconciliation, how it was used in 2017, how Democrats have used it in the first two years of the Biden administration,” Ways and Means Committee member David Kustoff (R-Tenn.) told The Hill last week.

Democrats used budget reconciliation to pass the Affordable Care Act under former President Obama, and to pass President Biden’s Economic Rescue Plan and the Stop Inflation Act. Republicans also tried to use budget reconciliation to repeal key parts of Obama’s health care law, but were famously blocked in the Senate by then-Senator John McCain (R-AZ).

“We need to be prepared for a range of options, and I can’t stress enough how important it is to plan ahead on the policy side. We’ve been working on the TCJA for years, even before we had a unified government,” said Rep. Adrienne Smith (R-Neb.), chair of the Working Group on Rural America.

Smith said the premise of the various groups was to “educate the meeting, especially since a lot of our members weren’t present in 2017.”

The scope of the group extends well beyond the individual provisions that are set to be phased out to various sectors of the economy, including manufacturing, supply chains and the “new economy”.

Republicans are also keeping a close eye on developments surrounding the Senate legislative clerk, who will determine what can pass through the more limited reconciliation process.

“We have to always keep in mind the very strict rules that surround reconciliation. If we get too creative, we go beyond what the Senate rules allow,” said Rep. Doug Lamborn, R-Colo.

But the final procedural constraints are not preventing Ways and Means working groups from currently holding brainstorming sessions on topics ranging from the impact of artificial intelligence (AI) on labor force participation rates to taxing the emerging life sciences industry.

“How will synthetic biology and AI impact our tax system over the next decade,” Rep. David Schweikert (R-Ariz.), chair of the New Economy Working Group, said Wednesday. “If call centers become all computer-based, will that change labor force participation rates and incomes? [payroll] “Will they work to generate more tax revenue? Or will those people go on to other types of employment where they’re more productive?”

Republican tax experts are divided on what to do about the corporate tax rate, which President Trump’s tax cuts lowered from 35% to 21%.

Some Republicans believe corporate tax rates are too low and are ready to raise them, Ways and Means Committee Chairman Jason Smith of Missouri said recently.

Some argue it should be lowered even further to attract more businesses and capital investment to the United States.

“In terms of the corporate tax rate, it’s not going to be eliminated, but we may try to lower it at some point,” Rep. Vern Buchanan (R-Fla.), who heads the Ways and Means Committee’s manufacturing tax team, said last week.

“We want to find ways to create more incentives. [manufacturers]”It creates more jobs, it creates opportunities for more work to be done in the United States instead of overseas,” he said.

Other Republicans are seeking to extend the individual provisions as is, without changing the corporate tax rate.

“The contracts have been very productive so far,” Adrian Smith told The Hill. “I think it’s good to get a smooth extension in place.”

Democrats are also considering what happens after the personal tax rates set by the TCJA expire, and intend to overhaul corporate tax rates.

Rep. Suzan DelBene (D-Wash.) said last week that the corporate tax rate is “definitely something that’s on the table and something we’re going to be talking about.”

The business and corporate tax changes in the 2017 Tax Act changed the flow of investment through the economy but did not contribute significantly to economic growth. The Congressional Budget Office (CBO) estimated that the act expanded gross domestic product (GDP) by 0.3% in 2018 and 0.6% in 2019, before pandemic economic policies made it difficult to accurately measure its lasting impact.

This law does not affect the compensation levels of ordinary people, Congressional Research Service It concluded that “there was little increase in wage rates for ordinary workers” as a result of the law.

The CBO estimated this month that extending the law through 2034 would cost $4.6 trillion, a huge increase to a budget deficit that was already swelled to a record 120% of GDP due to the pandemic. The U.S. currently has a total debt of $34 trillion, most of which the government effectively owes to itself.

Several Republicans on the Ways and Means Committee declined to answer questions about how an extension or expansion of the Trump tax cuts would be paid for through additional revenue-raising measures.

“Let me know how the election goes,” Schweikart said, “and then we can start to explain some of your options.”

One revenue-raising measure currently proposed as part of a separate tax reform package is the elimination of the Employee Retention Tax Credit, which would amount to about $78 billion. Under the current proposal, the money would be used to offset a series of business tax credits that were eliminated to cover the costs of the TCJA, as well as to increase the child tax credit.

But for now, at least, the bill has stalled in the Senate.

“All I can say is that we’re at an impasse right now,” Sen. John Thune (R-Iowa) told The Hill last week. “I think it’s going to take a while to get back on track. We just don’t have the votes in the Senate right now to move it.”

“We’re probably not going to take it up in the Senate,” he added.

Senate Democrats have been urging Sen. Chuck Schumer (D-N.Y.) to bring the bill to a vote since it passed the House with broad bipartisan support.

“we [Schumer]”I’m in conversation with him about when we can schedule it. Right now we’re dealing with the border issue, which is obviously a big issue, but I believe we’ve got the votes,” Sen. Ron Wyden, D-Ore., said last week.