The coming days are among the most consequential for this year’s budget reconciliation process. As we forecasted last week, the three remaining House committees are scheduled to mark up their portions of the reconciliation bill this coming Tuesday, May 13: Agriculture, Energy & Commerce, and Ways & Means. E&C and W&M are scheduled to begin 2pm, followed by Ag at 7:30pm.
Last night, W&M released “shell” legislative text (viewable here) when noticing the markup. We expect a Chairman’s amendment in the nature of a substitute (AINS) to be released at some point on Monday containing the fulsome legislative text that W&M will mark up on Tuesday. E&C’s full legislative text is expected to be released tomorrow (Sunday) at some point. A section by section summary can be found here. It is unclear when Ag will release their legislative text.
Below is an outline of details that have emerged, as well as what to expect on the House’s reconciliation process over the next two weeks.
Ways and Means Shell Bill
The shell bill released last night contains several items of note:
- Tax Cuts and Jobs Act (TCJA) individual tax provisions made permanent, with some minor modifications
- FDII, GILTI and BEAT deductions made permanent at original TCJA levels
- Increased child tax credit (CTC) to $2,500 (thru 2028)
- Increased standard deduction (thru 2028)
- Increased estate tax exemption from $14M to $15M per spouse, adjusted for inflation
- Increase in the Sec. 199A QBI small business deduction from 20 to 22 percent, with some modifications
For more detail, please refer to the Joint Committee on Taxation’s Description of the shell bill (viewable at this link). Policies not included in the shell bill that will be unveiled on Monday include Trump priorities (i.e. no tax on tips/overtime, interest free auto loans, senior deduction, expensing for new structures, etc.), expired business provisions (R&D amortization, EBITDA, bonus depreciation), new offsets (see below), a debt limit increase, and adjustments to the personal SALT cap (with $30,000 serving as the current landing spot for W&M).
Potential Offsets
We remain optimistic that limits to the deductibility of corporate SALT (C-SALT) will not be included in the W&M bill, nor will the top marginal rate rise. Similarly, it seems unlikely that changes to the taxation of carried interest investment income will be included, despite a late push from President Trump.
That said, with the House unlikely to exceed its base $1.5T spending reduction target, offsets will likely be included to reduce the net cost of the tax provisions from $4.5 trillion over 10 years to closer to $4 trillion over 10 years, keeping in compliance with House budget instructions. These offsets will include phasing out green energy credits under the Inflation Reduction Act (IRA) and other populist offsets like increasing the excise tax on corporate stock buybacks (currently 1%), increasing taxes on university endowments (likely on a tiered structure), as well as further limits on the deductibility of corporate executive compensation (Sec.162m).
On IRA credits, the situation remains fluid, but we expect W&M will be aggressive in repealing and phasing out credits. The following represents our understanding of the current state of play on IRA credits:
Phase-Outs* (2031):
48E/45Y (wind, solar, clean energy ITC and PTC)
45U (nuclear)
45Z (clean fuel production), with restrictions on technology and foreign licensing
45X (clean energy including solar manufacturing), with restrictions on technology and foreign licensing
*Specific mechanics of the phase outs are still being finalized.
Eliminated:
25D (residential clean energy)
30D (clean vehicle / EV credit)
30C (EV charging / alternative fuel property credit)
45W (commercial clean vehicle)
45V (clean hydrogen)
Additional items of note include: transferability of credits is expected to end after two years (2026); 45Q (carbon capture and sequestration) is expected to remain untouched; and discussions are ongoing surrounding Foreign Entity of Concern (FEOC) restrictions, with the 2021 NDAA language being viewed as a potential landing spot if such restrictions are included.
We note that the text released on Monday will likely include additional business tax provisions-incentives as well as offsets-and discussions on all of the above will continue through the weekend. It is quite possible that details will change and that provisions will be added or subtracted before text is released on Monday.
Next Steps in the House
Once Ways & Means, Energy & Commerce, and Agriculture report their respective portions of the bill, each of the 11 instructed House committees will have acted (an overview of the first eight committees to act is linked here, courtesy of Majority Whip Emmer). The Budget Committee is then expected to meet on Friday, May 16, to stitch the 11-part bill together for floor consideration, which House Leadership anticipates will occur the week following (prior to the Memorial Day Recess).
As always, the razor thin margins of the House will make for a challenging whip process and the multitude of topics covered in the legislation will almost certainly give rise to unforeseen Member concerns, particularly if adequate deficit reduction does not materialize. However, Leadership will once again be able to leverage President Trump to tamp out any pockets dissent as they have successfully been able to do on the previous two votes on the initial House budget resolution and the unified reconciliation budget resolution.
Senate Outlook
With most of the attention on the House, Senators continue quiet work behind closed doors in anticipation of being ready to move their own bill next month. Similar to the House, the Senate reconciliation instructions direct 10 separate committees to report legislation from within their jurisdiction. Members continue to discuss which of the 10 committees will mark and which will withhold action until the Senate floor.
The House and Senate have been working together on major pieces of the bill and it is anticipated that Senate legislation will be directionally similar to the House bill. Accordingly, Senate GOP Leadership will be vocally supportive of the House’s forward motion next week.
Still, there will be differences, particularly with Senate Republicans focusing on permanence of both individual and business tax provisions, as well as the more generous tax cut instruction to the Senate Finance Committee. Senate Republicans are generally less interested in punitive offsets and do not have SALT concerns like the House does. But as with any major legislation, Senator wishes may exceed available space, meaning that some offsets are likely. Separate but related: Senators also continue to discuss deficit reduction measures, including in the health care space.
OUTLOOK/ANALYSIS. The legislative portion of reconciliation is upon us and about to swing into high gear, with a goal of a summer signing ceremony in the White House Rose Garden for major legislation that will reduce taxes and spending, along with domestic policy priorities like immigration and border security, as well as energy production.
With Treasury Secretary Scott Bessent’s latest estimate (viewable here) that the debt limit must be raised by sometime in August, July looks to be the month during which the House and Senate will iron out differences between their respective bills. To get there, however, the House GOP majority-slender at 220-213-must continue to hit its marks this month, and the Senate must follow suit in June. To aid in this effort, President Trump and the White House will greatly ramp up their lobbying efforts to keep the GOP majorities on track. This is the critical period when major decisions get made and we will keep you apprised of developments as they occur.
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