By David Zaiken

On February 13, 2025, the House Budget Committee approved the 2025 Budget Resolution, which was unveiled last week. This resolution provides directions and guidance, allowing the House Ways and Means Committee to increase the deficit by $4.5 trillion over fiscal years 2025–2034. This increase accommodates the extension of the Tax Cuts and Jobs Act (TCJA). Additionally, the resolution tasks other committees with achieving $1.5 trillion in savings (such as federal workforce reductions and other budget measures). These steps lay the groundwork for a potential future reconciliation bill.

Key Details from the House Budget Resolution:

• Tax Savings Constraints: The guidance offered to the House Ways and Means Committee leaves little room for additional tax-saving measures, such as those related to research and development (R&D) or depreciation, unless alternative funding sources are identified.
• Next Steps: The House is not in session the week of February 17. However, it will reconvene on February 24, when the budget resolution may be brought to the floor for consideration.

Senate Budget Developments:

On February 12, 2025, the Senate Budget Committee approved a separate budget resolution, which notably diverges from the House version. The Senate’s plan proposes passing two budget reconciliation bills:

1. One focused on border security and other priorities of President Trump.
2. The second dedicated to tax legislation.

The Senate may also bring its resolution to the floor for debate during the week of February 24. This sets the stage for a showdown between the House and Senate, with major points of contention including:

• Whether there will be one or two reconciliation bills.
• Broader debates over the deficit and overall spending priorities.

Unresolved Tax Priorities:

At this time, the fate of several Trump core tax priorities remains uncertain, including:

• No tax on tips.
• Exemption from taxes on Social Security benefits.
• A 15% tax rate for U.S. manufacturing.

IMPACT AND PLANNING

The developments in both the House and Senate mark the beginning of the legislative process, with spending, tax policy, and tariffs becoming central elements of the debate. Businesses need to stay vigilant and begin planning for potential changes. Below are key considerations:

1. Monitor Legislative Progress: Companies should closely track the progress of the legislation, especially the potential extension (or lack thereof) of the TCJA provisions.
2. Assess the Section 199A Business Deduction: Determining the fate of this deduction will be critical for planning purposes.
3. Supply Chain and Legal Entity Planning: Businesses need to evaluate potential impacts on their supply chains and legal entity structures.
4. Model Potential Scenarios: Companies should be ready to model out various legislative outcomes. This will allow them to take proactive measures and adapt quickly, particularly by the third quarter of this year.

In summary, the legislative process is now underway, and its outcomes will have far-reaching implications for businesses and individuals alike. Staying informed and prepared will be key to navigating these potential changes.