Republicans exploring tax options and timing

The incoming administration and congressional Republicans have begun publicly hashing out possibilities for major tax legislation in 2025, but plans remain in flux as they explore various options.

Republican leadership is pressing for an aggressive timeline of action within the first 100 days. House Ways and Means Chair Jason Smith, R-Mo., said in a Fox Business interview that they “are ready at the Ways and Means Committee on day one to pass a tax bill.”

That kind of timeline may be overly ambitious for such a complex and significant legislative effort. Many lawmakers, particularly on the Senate side, are calling for a more deliberative approach. Key tax writer Sen. Ron Johnson, R-Wis., recently said: “We’ve got a year. I’d rather take that year. The clock is ticking on this, but we don’t have to hop on this in the first few months.”

Some Republicans have also floated the idea of two separate reconciliation bills, allowing them to act quickly on pressing issues with broad consensus and then follow it with a more deliberative package.

“We’ll have two bites at the reconciliation apple in the next calendar year,” House Budget Chair Jodey Arrington, R-Texas, said recently. “And so, we’ll have plenty of opportunity to re-ignite growth through pro-growth policies and include fiscal reforms.”

That kind of process can also be very difficult politically, with lawmakers jockeying to have their pet provisions move on the first package.

Cost to the federal government will be a major negotiating point. Senate Finance Committee Chair Mike Crapo, R-Idaho, continues to forcefully advocate for the position that extensions of currently policy do not need to be offset.

“(Former president) Barack Obama, when he faced this same question—when (former) President (George) Bush’s tax cuts were expiring — did the same thing I’m proposing,” Crapo said during a television appearance. “That is to say, if you’re just extending current law, we’re not raising taxes or lowering taxes, that that is a $4 trillion deficit. That's ridiculous,” the incoming Finance Committee chair added before saying he was making the case to change the way the Congressional Budget Office scores extending tax cuts, "very aggressively" to fellow Republicans.

The debate over the so-called policy baseline is important, because it could allow Republicans to add more provisions into a bill via the budgetary maneuvering needed to advance tax legislation along party lines in the Senate, a process used for the 2017 Tax Cuts and Jobs Act. Crapo would need to convince not only 49 of his fellow senators, since the Trump White House will likely agree with his stance, but also House Republicans, who have at least signaled more fiscal hawkishness in recent months, and were more concerned about revenue neutrality by offsetting tax cuts and reform in 2017.

Republicans can also address the cost issues with savings or revenue from outside the tax code, cutting federal spending or crediting themselves with revenue raised by tariffs if President-elect Donald Trump moves forward on the large-scale import duties that he’s promised. But Republicans remain mixed on using tariffs as a revenue source.

“Building a budget around tariff revenue is a little shaky,” said Rep. Adrian Smith, R-Neb., who chairs the Ways and Means Committee subcommittee on trade. “That makes me a little bit nervous.”

“I can see where tariffs are used strategically in certain areas to discipline the bad actors, but I like to have as few as possible,” Johnson said.

Republicans continue to grapple with how many of the president’s campaign tax promises they can deliver on. House Speaker Mike Johnson, R-La., recently said they would “try” to make the elimination of tax on tips happen, but conceded, “you’ve got to do the math.”

Smith, the House Ways and Means chair, also acknowledged the challenges of Trump’s tax cut promises added to renewing an already lengthy list of expiring policies. 

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