February 2025 Policy Pulse

It’s been a busy few weeks in Washington, D.C. On Capitol Hill, Republicans continued to strategize around a tax reform reconciliation bill. Meanwhile, in the White House, President Trump has issued nearly 50 executive orders, impacting a wide range of both domestic and foreign policy.

Status of tax reform

House Republicans met in Miami last week for their annual legislative retreat, the centerpiece of which was strategizing around reconciliation plans. Leadership left without establishing a concrete path for moving forward.

Overall, Republicans are united in their desire to use the reconciliation process to pass tax reform this year; however, there are several discrepancies within the conference that make negotiations challenging:

• Cost: The largest point of contention among Republicans is how much of the tax bill, if any, should be deficit-financed. Per the latest Congressional Budget Office (CBO) estimate, the cost to extend the Tax Cuts and Jobs Act (TCJA) for 10 years totals almost $5 trillion. Some members aren’t as concerned with the cost or adding to the national debt; however, others are hoping to pass a reconciliation bill that decreases federal deficits on a net basis. Recently, Rep. Andy Harris (R–MD), House Freedom Caucus (HFC) chair, stated that the HFC would like a budget resolution that calls for $3 trillion in deficit reduction over 10 years.
• Margins: As we discussed in our January Policy Pulse, Republicans are working with extremely tight margins, especially in the House. Republicans captured 220 of the 435 House seats in the November 2024 election; since then, two members have resigned and a third is about to step down, leaving Speaker Mike Johnson (R–LA) with a 217 – 215 majority until special elections are held to fill the three vacancies. This scenario gives each individual policymaker a great amount of influence over the legislative process. We’re currently seeing this dynamic at play with demands from the HFC for meaningful deficit reduction and the State and Local Tax (SALT) caucus for relief from the $10,000 individual SATL cap.
• Format: Congressional Republicans have yet to agree to a strategy for passing their tax reform agenda. Senate Republicans and HFC members continue to support a two-bill strategy, with an early reconciliation bill addressing the border, defense and energy and a later bill tackling tax reform. Speaker Johnson and House Ways and Means Chair Rep. Jason Smith (R–MO) prefer a single reconciliation bill and view the inclusion of border and other policies in the same bill as essential components to garner enough votes to ensure passage. Senate Majority Leader John Thune (R–SD) noted last week that the budget blueprint for his two-bill plan is “ready to go” and indicated that the Senate is waiting to see what the House does. He noted there is “a point at which we will decide to pull the trigger,” adding fuel to the notion that if the House doesn’t deliver on a single bill approach soon, the Senate will attempt to proceed with their preferred strategy. That point may be quickly approaching, as on Feb. 4, Senate Budget Committee Chair Lindsey Graham (R-SC) and Senate Finance Committee member Ron Johnson (R-WI) publicly expressed frustration over the House’s inability to coalesce around a path forward and made calls for the upper chamber to move on its own plans.