The 2024 elections and retirements reshaped the Senate Committee on Finance more than most others, handing the gavel for the first time to Senator Mike Crapo (R-ID), who is now at the helm of the committee that will determine the direction of tax policy. 

Last week, the new chairman laid out his priorities and how best to advance the GOP's tax agenda. "With many of the Tax Cuts and Jobs Act's [TCJA] provisions set to expire at the end of 2025, congressional Republicans are focused on preventing an over $4 trillion tax hike on American workers and businesses," Crapo explained, adding up a list of achievements that includes the end of corporate inversions, which he attributed to the lower corporate rate and international tax reforms.

Crapo also cited the need for close Internal Revenue Service (IRS) oversight to improve taxpayer services and the need to resume work on legislation to "relieve double taxation on cross-border investment between the U.S. and Taiwan."

Chairman Crapo is a leading advocate for using a current-policy baseline for scoring a tax reconciliation bill. This would allow for extensions of current-law (but soon to expire) tax rates and policies without counting the revenue impact. Under the regular budget scoring rules, a current-law baseline is used to project revenues and deficits, which effectively requires the extension of expiring provisions to be paid for.

Simply extending current law to avoid a massive tax increase on American taxpayers shouldn't be counted as deficit spending, Crapo says. 

"It doesn't have to be," he said in an interview last week. "Almost every American who has any common sense understands that. If you're not changing the tax code, you're simply extending current policy — you are not increasing the deficit. The bottom line here is that it's a $4.3 trillion tax increase, not a $4.3 trillion deficit increase."

Crapo's concerns are not easily addressed. The budget rules can be changed, but that may be too difficult to accomplish ahead of or as part of the legislative drive to advance a reconciliation bill in 2025. Moreover, assuming a current-policy baseline effectively means that the TCJA extensions themselves would not modify tax laws, which violates the reconciliation germaneness rules that require the policy changes therein to primarily (not incidentally) modify tax or spending policy. In other words, it might be too difficult to extend a tax law in a reconciliation bill that is already assumed to be in place for scoring purposes. It's safe to say, the Senate parliamentarian's office will have its hands full sorting it all out.

One bright spot that Republicans can point to for political cover is that advocating in favor of the current-policy baseline is consistent with the views of White House Chief of Staff Jeff Zients, who wrestled with similar issues when he served as deputy director for management at the Office of Management and Budget (OMB) for President Obama. Facing a similar fiscal cliff with the 2012 expiration of the Bush-era tax cuts, Zients argued the current-policy tax cut extensions reduced the deficit overall because they were clipped to reduce the benefits to upper-income taxpayers. Back then, he said that this "more realistic" scenario actually reduced the deficit by $737 billion. Congressional Budget Office (CBO) scoring at the time pegged the cost of enacting the American Taxpayer Relief Act at nearly $4 trillion from 2013-2022.

In the end, Republican leaders in Congress may find themselves stuck using the budget scoring rules as they are, while defending against the arguments of deficit hawks and political critics by making the rhetorical argument, like Zients, that the bill stops a tax increase more than it raises the deficit. #TaxTake

Upcoming Speaking Engagements and Events

Loren will speak at the DC Bar Tax Conference on January 15, along with Miller & Chevalier colleagues Layla Asali, Rocco Femia, and Lisandra Ortiz.

In the News

Jorge commented in Politico on President Trump's pick of Ken Kies as Treasury Assistant Secretary for Tax Policy, pointing out that Kies, a seasoned tax lobbyist, is a "serious pick" that shows the Trump Administration sees the role as "extremely consequential" in the upcoming tax debate.

Jorge also discussed the different approaches between House and Senate Republican for extending to extending the Tax Cuts and Jobs Act through the budget reconciliation process in Tax Notes, emphasizing that crafting a budget resolution, especially one involving multiple policy proposals, is a complex process that is difficult to rush.

Marc highlighted the critical role of congressional staff in shaping tax policy in Bloomberg Government: "Members are obviously driving the big-picture strategy and policy decisions, but for a lot of fulfilling that strategy, they heavily rely on staff."