Legislative Lowdown
Reconciliation Update - House Continues to Push for Passage by Memorial Day: This week is pivotal for House Speaker Mike Johnson (R-LA) and House Republicans in the ongoing debate over the budget reconciliation package (or “the one, big beautiful bill,” as President Trump has called it). Several critical meetings among Republican members are scheduled this week, and negotiations continue over the tax components that may be included in the package (discussed below). The House Natural Resources Committee is holding its markup this week, while other committees will meet to attempt to resolve differences in policy—such as cuts to Medicaid—that threaten to derail the entire bill. The House Energy and Commerce Committee and Agriculture Committee were originally aiming to mark up their portions of the reconciliation legislation this week, but Speaker Johnson asked them to delay to the week of May 12 so that disagreements may be resolved in preparation for possible consideration of the full reconciliation package by Memorial Day (effectively May 26 when the House is scheduled to begin its one-week Memorial Day recess). Speaker Johnson also has hinted that the House will remain in session for the week of May 26 if the package has not been passed. This timeline, however, is becoming increasingly fraught, with several lawmakers and Trump administration officials looking to pass the final package by July 4, which would give the House additional flexibility into early June to complete its initial part of the process.
Republicans Say ‘Contours’ of Tax Package Are Beginning to Form: House Ways and Means Committee Republicans have reportedly outlined the “contours” of their tax package, with renewed focus on repealing or sunsetting many of the energy tax credits and grants enacted in the Inflation Reduction Act (Pub. L. 117-169), including eliminating the transferability option for certain energy tax credits. Increasing the endowment tax on universities appears to have strong support among the Republican majority, while raising the top individual tax rate and limiting the deduction on state and local taxes for businesses are not expected to be included in the package. Several meetings have been scheduled, with committee Republicans meeting on Tuesday, Wednesday and Thursday, and top leadership (Ways and Means Committee Chairman Jason Smith (R-MO), Senate Finance Committee Chairman Mike Crapo (R-ID), House Speaker Mike Johnson (R-LA), Senate Majority Leader John Thune (R-SD), Treasury Secretary Scott Bessent, and National Economic Council Chairman Kevin Hassett) scheduled to meet on Wednesday afternoon. House Republicans hope to mark up the tax package during the week of May 12.
SALT Policy Remains Unresolved as Lawmakers Continue Negotiations: On May 1, congressional Republicans in support of raising or eliminating the limitation on the state and local tax (SALT) deduction met with House Speaker Mike Johnson (R-LA) and House Ways and Means Committee Chairman Jason Smith (R-MO), but did not reach a deal on how to address the current $10,000 SALT deduction cap. Members reportedly discussed potential options to limit eligibility to middle-class taxpayers, including either imposing an income limit or only modestly increasing the deduction limitation.
White House Communicates Priorities for Tax Package: The White House has reportedly communicated to House Republicans the top tax priorities for President Trump as the chamber looks to negotiate and finalize a tax package in the coming weeks. The administration’s latest list of policy priorities include a lower tax rate for foreign-derived intangible income (FDII); a 15% tax rate for domestic manufacturers and a corresponding cut for qualifying passthrough businesses; a four-year extension of full bonus depreciation (discussed below); a new deduction for auto loan interest for domestically produced vehicles; ending federal taxation of tip income, overtime pay and Social Security benefits for four years; and making the Tax Cuts and Jobs Act (Pub. L. 115-97) permanent. The White House has also included a list of pay-fors, such as repealing many Inflation Reduction Act (Pub. L. 117-169) tax credits, raising taxes on university endowments, limiting tax benefits for owners of sports teams and modifying the carried interest provision. Each of the proposed revenue offsets face varying degrees of opposition among lawmakers and stakeholders. While the latest White House list of policy priorities continues to expand, reports suggest that President Trump remains primarily focused on his original campaign proposals to eliminate the tax on tips, overtime and Social Security, with newer additions expected to factor in as part of the negotiation of the final package.
Trump Calls for Four-Year Extension of Bonus Depreciation Provision: At a White House event on April 30, President Trump called for reinstating the bonus depreciation deduction for four years, making it retroactive to Jan. 20, 2025. Subsequent reports indicate that the period is more likely to be five years. The provision was part of the Tax Cuts and Jobs Act of 2017 (Pub. L. 115-97) and allowed businesses to deduct 100% of the cost of certain assets from 2018 to 2022, before beginning to phase out in 2023. Absent an extension, the provision is scheduled to fully expire at the end of 2025. The announcement follows renewed efforts by Trump administration officials to incentivize domestic manufacturing through the tax reconciliation package. Last week, Treasury Secretary Scott Bessent proposed an expansion of accelerated depreciation for new domestic manufacturing facilities.
Tax Worldview
Ways and Means Republican Pushes for OECD Retaliation in Tax Package: Rep. Kevin Hern (R-OK), the chairman of the House Republican Policy Committee and a member of the House Ways and Means Committee, has called for inclusion of language retaliating against the Organisation for Economic Co-operation and Development (OECD) two-pillar global tax agreement in the upcoming budget reconciliation bill. Congressional Republicans have long criticized the deal, arguing that the United States stands to lose billions of dollars in revenue if the countries broadly adopt the Pillar Two regime, which House Republicans contend the Biden administration negotiated without consulting with Congress. Rep. Hern indicated that he would prefer to codify retaliatory action against the OECD rather than use tariffs to disincentivize implementation, stressing that “we want to send a message, a permanent message, that we want to protect the U.S. fisc.” On April 29, European Union (EU) officials met to discuss several policy options to potentially modify the EU’s 15% global minimum tax law in response to U.S. objections, with the EU Council’s Polish presidency reportedly proposing three options: (1) revisiting the global anti-base erosion (GLOBE) rules on the treatment of U.S. tax credits; (2) limiting the application of the undertaxed profits rule (UTPR), and (3) considering the U.S. global intangible low tax income (GILTI) regime equivalent to Pillar Two’s Income Inclusion Rule (IIR).
Bessent Discusses DST Negotiations with EU: During a White House briefing on April 29, Treasury Secretary Scott Bessent discussed ongoing trade negotiations with the European Union (EU), including the imposition of digital services taxes (DSTs) by EU countries on U.S. companies. Bessent called for the removal of the “unfair tax on one of America’s great industries,” stating that the EU has additional “internal matters” to decide before they can engage in formal negotiations.
1111 Constitution Avenue
Trump Nominates Korb to Be IRS Chief Counsel: On May 1, President Trump nominated Donald Korb to serve as chief counsel of the Internal Revenue Service (IRS). Korb previously served as chief counsel during the presidential administration of George W. Bush. The chief counsel is one of two roles at the IRS that must be confirmed by the Senate, along with the commissioner. The Senate Finance Committee has not yet announced when it would begin to consider Korb’s nomination.
Trump ‘Skinny Budget’ Proposal Includes IRS Cuts as Lutnick Proposes Abolishing Agency: Commerce Secretary Howard Lutnick has proposed replacing the Internal Revenue Service (IRS) with an “External Revenue Service” to handle tariff revenue in lieu of collecting income taxes. Secretary Lutnick, speaking at a meeting with President Trump and other Cabinet members, said that this would “let those outside countries trading with us … pay their fair share to America.” This is the first time Secretary Lutnick has proposed replacing the IRS during a Cabinet meeting.
In addition, the Trump administration continues to make efforts to downsize IRS operations. Along with ongoing reductions in force, the White House Office of Management and Budget (OMB) released the president’s topline discretionary fiscal year 2026 Budget Request (“Skinny Budget”), which proposed cutting the IRS’ annual budget by 20%. If enacted, this would reduce the agency’s funding to the lowest level since 2002. The proposal says that the cut would “end the Biden Administration’s weaponization of IRS enforcement, which targeted conservative groups and small businesses,” and asserting that the cut would not affect Taxpayer Services functions.
Trump Again Threatens Revocation of Harvard’s Tax-Exempt Status as Lawmakers Respond: As part of escalating tensions between the Trump administration and Harvard University over allegations that the university has not protected Jewish students from harassment, as well as the university’s defiance of the administration’s demands on educational and diversity practices and turning over visa records of international students, President Trump announced in a post on Truth Social on May 2 that the administration would be “taking away Harvard’s Tax-Exempt Status.” Though the Internal Revenue Service (IRS) can revoke the tax-exempt status of an educational institution, it must do so with cause, proving that the institution is violating the criteria necessary to retain tax-exempt status. It is also illegal for the president or other members of the executive branch to direct the IRS to audit or investigate a taxpayer or organization, though the only punishment would be a penalty for the actor asking for the audit rather than the termination of the audit or investigation. Democratic lawmakers have requested that the Treasury Inspector General for Tax Administration (TIGTA) open an investigation to whether the Trump administration is violating the law.
Democratic Members of Congress Sign Amicus Brief Opposing IRS-DHS Data Sharing Agreement: On April 30, 105 Democratic members of Congress filed an amicus brief in Centro de Trabajadores Unidos v. Bessent (Civil Action No. 25-677). The underlying lawsuit—which the amicus brief supports—seeks to strike down the data-sharing agreement that would allow the Internal Revenue Service (IRS) to share confidential taxpayer data with the Department of Homeland Security (DHS) for the purpose of deporting taxpayers suspected of living in the United States illegally. The lawsuit claims that the agreement is illegal due to violating Internal Revenue Code Section 6103, which outlines terms for protecting the confidentiality of taxpayer information. The amicus brief supports a preliminary injunction to halt the execution of the agreement while the matter is being litigated.
IRS Office of Appeals to Lose Staff to Deferred Resignation Offer: At a conference on April 30, Internal Revenue Service (IRS) Independent Office of Appeals Chief Liz Askey said that over 300 staffers in the office have accepted the Office of Personnel Management’s deferred resignation offer, with another 100 requests outstanding. Askey stated that the office had 1,663 staffers as of April 15, which is expected to be reduced to about 1,300 staffers after the most recent deferred resignation offer. Some believe a large reduction in IRS Appeals Office staff would make it more difficult for tax disputes to be resolved and could lead to more litigation in the U.S. Tax Court.
Hearings and Events
House Ways and Means Committee
The House Ways and Means Committee has no tax hearings scheduled for this week.
Senate Finance Committee
The Senate Finance Committee has no tax hearings scheduled for this week.