First Major Step Toward Federal Tax Reform Passed by the House

The Senate initially aimed to create two separate and distinct budget reconciliation bills, with one focusing on the border and energy and the second on federal tax reform. It now appears that this is no longer being considered, as President Trump and the House create a path for what he’s calling “one big, beautiful bill.” This will include federal tax reform, securing the border, and energy. The tax reform timeline is being brought to the forefront, with Republicans hoping to have a bill that includes federal tax reform on the president’s desk by May 2025.

House Speaker Mike Johnson (R-LA), Ways and Means Committee Chairman Jason Smith (R-MO), and Budget Committee Chairman Jodey Arrington (R-TX) were able to unite House Republicans behind the budget resolution, which many viewed as insurmountable. The vote ultimately passed on party lines, with 217 Republicans supporting the bill and 215 Democrats voting against it.

The next step will be for the Senate to approve the House resolution. It is anticipated that the Senate will make modifications which will send the bill back to the House for approval. A major difference between the House and the Senate in relation to the budget resolution process is determining whether federal tax reform must be paid for with government spending cuts. The House has been using a current law baseline score, which requires at least $1.5 trillion in spending cuts to offset the projected budgetary impact and will most likely lead to temporary extensions of the current federal tax law. However, Senators want to utilize a current policy baseline, which would not require mandated spending cuts and potential permanency of major tax policies. If the Senate is successful in using the current policy baseline, it’s likely the 31-member House Freedom Caucus, which is looking for significant spending cuts, would no longer support the process

U.S. Senate Majority Leaders John Thune, Speaker Johnson, Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett are expected to meet with President Trump to start the negotiations between the Senate and House on the budget resolution bill under the president’s direction.

While the House passing the budget resolution is a considerable step toward tax reform, there is still a lot of work to be done. It should not be assumed that all favorable Tax Cuts and Jobs Act provisions will be extended, as President Trump is focused on eliminating federal taxation on tips and maintaining other campaign promises. It is now more important than ever to make sure that individual and business tax needs are expressed to state representatives and senators, ahead of negotiations, which are expected to be significant.