January 2025 Policy Pulse

As power changes hands in Washington this month, we’ll be watching and reporting on developments regarding potential tax reform. Though many Republicans are united in their desire to extend the expiring provisions of the Tax Cuts and Jobs Act (TCJA), most of which only remain in place through Dec. 31, 2025, enacting legislation is liable to be a complicated task. Below we provide some recent developments and a look ahead at the 119th Congress.

Recent updates

Government funding

Congress narrowly averted a government shutdown by passing a continuing resolution (CR) on Dec. 20, 2024, mere hours before funding expired. It was a turbulent process with Speaker Johnson’s (R-LA) third attempt at a bill ultimately passing. The first version Johnson negotiated, a compromise with Democrats, was derailed by criticism from president-elect Trump. Johnson’s second attempt was a much simpler bill that included a debt ceiling suspension through Jan. 1, 2027, at Trump’s request. This attempt failed as 38 Republicans defected, citing concerns around fiscal responsibility. The third version, a “clean CR” that did not address the debt ceiling, passed with the help of Democrats, with 34 Republicans continuing to vote against the bill. The CR in place continues to fund the government through March 14, 2025, at fiscal year 2024 (FY24) levels and included $110 billion in disaster aid as well as a one-year farm bill extension.

The chaos surrounding this process highlights the difficulty Republican leaders will face as they attempt to balance the demands of a diverse conference. The House Speaker and his team will have to govern with a razor-thin margin in the 119th Congress, complicating the prospects for potential legislation, including tax reform.

The 119th Congress seated

The 119th Congress was seated at noon on Jan. 3. In the Senate, the new majority leader, Sen. John Thune (R–SD) gave an opening speech where he committed to defend the filibuster. The Senate’s filibuster rule effectively creates a 60-vote threshold for passing legislation, other than bills passed via reconciliation. Thune told Punchbowl this includes discouraging members from attempting to overrule the Senate parliamentarian on any unfavorable rulings on a reconciliation bill as “that’s totally akin to killing the filibuster.” For more information on the reconciliation process see the “Tax reform in a united government” section in our November Policy Pulse.

In the House, Speaker Mike Johnson (R–LA) narrowly won re-election, earning the votes of all but one Republican in the chamber. While Johnson technically won on the first ballot, it was in dramatic fashion as two Republican holdouts switched their votes at the last minute after personal intervention by Trump. Though Johnson holds the gavel, his speakership is somewhat tenuous. Shortly after the final vote, 11 conservative House members issued a letter expressing their reservations about his previous performance and demanding, among other things, that any reconciliation bill reduce spending and the deficit.

The 119th Congress: A look ahead

Balance of power in Congress

Republicans swept the 2024 election, maintaining control of the House of Representatives and recapturing the Senate and White House. Here’s a look at the makeup of the 119th Congress:

House

Republicans have a 220 – 215 seat majority in the 119th Congress, just a five-seat majority, which means the speaker can only lose two votes.

However, Republicans will be governing with an even narrower majority for several months. Rep. Matt Gaetz (R–FL) has already resigned his seat and Reps. Elise Stefanik (R–NY) and Mike Waltz (R–FL) are expected to resign early in the session to accept nominations for positions within President Trump’s administration. Republicans will spend several months with just a 217 – 215 majority; in this scenario, the Speaker can’t lose a single vote, as a tie vote is a loss and there is no option for a tie-breaker, as there is in the Senate.

Senate

Republicans have a 53 – 47 seat majority in the Senate and they also have the option of a tie-breaking vote from the Vice President of the United States, who also serves as the president of the Senate.

The 2025 calendar

Jan. 1: In accordance with the TCJA, bonus depreciation has phased down to 40% for 2025.

Jan. 2: The debt ceiling (also referred to as the debt limit), which is the maximum amount of money the U.S. Treasury can borrow, was reinstated; the limit was set to equal the amount of debt existing at the end of the day on Jan. 1. Unless Congress raises or suspends the limit, Treasury will not be able to borrow additional funds and will need to use extraordinary measures to prevent the U.S. from defaulting.

Jan. 3: The 119th Congress kicked off at noon, with both the House and Senate gaveled into session. Speaker Johnson was reelected on the first ballot, after a little excitement that resulted in two Republican holdouts changing their votes. New Senate majority leader Thune, in his opening speech, vowed to uphold the Senate filibuster.

Jan. 17: The Congressional Budget Office (CBO) will release The Budget and Economic Outlook: 2025 to 2035 which will include its 10-year budget and economic projections. The report presents a baseline which is used to score the impact that proposed legislation would have on federal revenue and spending. This year, the CBO’s forecast will be shorter to accommodate an earlier release date; over the following weeks additional information will be provided. The updated estimate for a 10-year extension of the TCJA (for 2026 through 2035) is likely to exceed the previous estimate of $4.6 trillion (for 2025 through 2034).

Jan. 20: Trump will be inaugurated as the 47th President at noon. Once Trump has taken office, he can formally submit nominees for his administration and the Senate can confirm them; though several key nominees may have pre-inaugural hearings, which speeds up the confirmation process, none can be confirmed before the president is in office. Additionally, Trump may choose to use his executive authority to implement tariffs. For more information on tariffs please see the “Potential new tariffs” section in our December Policy Pulse.

March 14: The last day government funding is authorized under the current CR. Congress must either pass all 12 appropriations bills (separately, in packages known as “minibuses,” or in one large package known as an “omnibus”) or another CR; without Congressional action on or before this date, the government will shut down on March 15.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.