Next Up: Tax and Spending Legislation
In order to get to the final hurdle of passing comprehensive tax legislation prior to the expiration of the temporary tax provisions of the Tax Cuts and Jobs Act (TCJA), Congress first needed to pass a fiscal year (FY) 2025 budget resolution. The passing of a budget resolution allows Congress to utilize the reconciliation process to pass tax and spending legislation with a simple majority vote in the Senate, bypassing the 60-vote filibuster threshold.
The House of Representatives approved the FY 2025 budget resolution on April 10, 2025, following the Senate’s approval on April 5, 2025.
The TCJA included many temporary tax provisions in order for it to comply with the budget reconciliation requirements when it was passed in December 2017. Extending these provisions as well as adding new individual and business-related incentives like bonus depreciation, expensing of researching expenditures and exemptions on tip income, overtime and Social Security has been estimated to increase the federal deficit by $6 trillion over ten years. The extension of just the TCJA provisions for ten years has an estimated cost of $4.6 trillion over ten years.
The authors of the FY 2025 budget resolution believe that scoring the extension of the TCJA provisions should be done using “current policy baseline.” This means that because the TCJA provisions are currently in place, extending them doesn’t incur any additional expense. Usually the scoring of a tax bill starts with the assumption that it has expired and the tax cost of reinstating it is factored into the cost of the bill. Using the “currently policy baseline” significantly reduces the cost of the TCJA extension.
Now that the budget framework is in place, the next step is for the 21 congressional committees (11 in the House, 10 in the Senate) to begin creating legislation that adopts the instructions contained in the budget resolution. The House Ways and Means Committee and Senate Finance Committee will handle the tax-related provisions. Once the work of the committees is completed, the budget committees will put together the entire package, ensuring it’s in alignment with the budget resolution. From there, it’s voted on by the House and Senate and, if passed, goes to the president for signature.
While the ability to use reconciliation means only a majority of votes are needed in the Senate for it to pass, one major item of note is that the House and Senate remain far apart in terms of spending cuts needed. The adopted budget resolution set a minimum floor of $4 billion in cuts, while the House budget passed in February mandated $1.5 trillion in cuts. House Speaker Johnson publicly commented on April 10 to include at least $1.5 trillion in spending cuts, with Senate Majority Leader Thune expressing the Senate’s willingness to do everything it can to be as aggressive as possible in terms of budget savings.
Creative Planning will continue to monitor tax legislative developments and provide guidance and analysis. If you have any questions about how these developments could impact you or your business, please schedule a call.
