Summary
- Senate’s August recess, scheduled to start this weekend, may be delayed, as House leaves until after Labor Day
- Ways & Means holds Nevada and California field hearings on OBBBA
- No obvious political path forward to fund government as September 30 deadline looms
- President Trump reaches some trade deals on eve of August 1 deadline, while negotiations over OECD pillars and DSTs continue
- President Trump signs disaster tax bill into law
The timing and prospects for more tax legislation this year partially depend on developments in the appropriations process. Funding for government operations is set to expire at the end of the fiscal year on September 30 and the path to avoiding a shutdown is not obvious.
The House has left for its August recess. The Senate will be in session at least this week, and possibly longer, in order to consider the confirmation of President Trump’s nominees. Some conservatives have argued that the Senate should either work through August, or go on recess without pro forma sessions to allow President Trump to make recess appointments. Since 2017, the Senate has held pro forma sessions whenever it functionally went out of session to prevent Presidents Trump and Biden from making recess appointments.
Both chambers are set to return for three weeks starting immediately after Labor Day on September 2, take a week off for the Jewish New Year, and return on September 29.
Appropriations
The House has passed two of the twelve annual appropriations bills, with the Senate yet to pass any. The House has moved all twelve bills through subcommittee, and all but the Financial Services (containing Treasury and IRS funding) and the Commerce-Justice-Science bills through the full House Appropriations Committee.
The Senate has yet to pass any of the appropriations bills. The Senate Appropriations Committee has approved six appropriations bills, all on a very broad bipartisan basis except the Commerce-Justice-Science bill. The Senate may vote this week on some combination of the Committee-passed bills.
The Senate bill is silent on the Trump administration’s ongoing effort to close down the Department of Justice’s Tax Division and disperse its functions elsewhere within the Department, while the House bill would explicitly approve the plan. It appears the plan to close down the Tax Division will go forward unless explicitly prohibited by the final bill.
Funding of the IRS is just one of many appropriations issues on which Republicans and Democrats are far apart. There are also very wide gaps over the total level of defense and non-defense spending. The many partisan policy riders included in the House bills are opposed by Senate Democrats.
One possible path forward is a continuing resolution keeping last year’s funding levels. In March, Minority Leader Senator Schumer (D-NY) led a group of ten Democratic Senators in providing the votes needed to defeat a filibuster and allow the Senate to vote on the FY 2025 continuing resolution appropriations bill, which then passed 54-46. It is not clear whether Senator Schumer would be willing to agree to another continuing resolution should Republicans attempt that path. It seems even less likely that the House and Senate would agree to other funding levels.
Another Broad Tax bill?
Members of Congress continue to talk up the possibility of another tax bill. Most prominently, Speaker Johnson (R-LA) said this week that Congress would include tax provisions in another reconciliation bill this year. Among other provisions, the bill would include tax provisions that were removed because of the Senate’s Byrd procedural rules as to what items may be included in a reconciliation bill. Republicans have said that they would re-draft those provisions to meet the Byrd rule requirements. Senate Republicans have sounded much more cool to the idea of another reconciliation bill, but have not ruled it out.
Chairman Smith (R-MO) said that the OBBBA provision limiting to 90% gambling losses taken against gambling winnings, inserted by the Senate, was a mistake and should be reversed. He also has advocated returning to the House-passed provision that would increase the Section 199A deduction from 20% to 23%.
There is also a possibility that Congress would enact a bipartisan tax bill. President Trump floated sending Americans checks to reflect increased tariff revenue. Senator Hawley (R-MO) has also advocated sending Americans stimulus checks similar to those enacted as part of the 2021 American Rescue Plan Act.
Enactment of H.R. 517, the Filing Relief for Natural Disasters Act
On July 24, President Trump signed into law H.R. 517, the Filing Relief for Natural Disasters Act. The law allows the Treasury Secretary, in consultation with FEMA, to postpone filing deadlines upon the governor of a State declaring a disaster or state of emergency. Prior law generally required a Federally declared disaster. The law also extends the mandatory suspension period from 60 days to 120 days.
The Committee on Ways and Means marked up the bill on February 26 and favorably reported the bill on March 27. Although the bill was bipartisan, the “Background and Need for Legislation” in the Committee Report (H. Rpt. 199-44) criticized “the lack of return on investment from funding provided to the IRS by the Inflation Reduction Act and the need for information technology modernization at the agency.” The bill passed the House 388-0 on March 31.The Senate approved the bill by unanimous consent on July 10.
The OBBBA Debate Continues
Although Congress spent some time debating the enactment of the OBBBA, the broader political debate over its merits is barely beginning and will feature prominently at least through the November 2026 midterm elections.
The Committee on Ways and Means held a pair of field hearings on the OBBBA on July 25 and 26 in Nevada and California. Chairman Smith has emphasized field hearings since taking the reins at the Committee in 2023.
The July 25 hearing was held at YESCO Custom Electric Signs in Los Vegas. The witnesses were:
- Patrick Wrona, Server, RPM Italian
- Sharon Simmons, Driver, DoorDash
- Eric Byington, Paint Foreman, YESCO
- Austin Robinson, Director of Manufacturing, Click Bond
- Nancy Overman, Senior and Retired Hospital/Hospice Volunteer Manager
- Yadusha Jones, Mother and Small Business Owner, Henderson, Nevada, and
- Nicole Cannizzaro, Majority Leader, Nevada State Senate
The first six witnesses testified in favor of the OBBBA, concentrating on the provisions exempting tips and overtime, but also other parts of the bill including the higher deduction for seniors, higher child tax credit, and expanded uses of HSAs. Mr. Robinson also testified in favor of the business provisions in the OBBBA and the TCJA. State Senator Cannizzaro criticized the OBBBA, concentrating on how the law will impact health care access and affordability, energy, and the ability of low-income individuals to obtain food.
The July 26 hearing was held at the Reagan Library. The witnesses were:
- Kevin Kester, Rancher, Bear Valley Ranch
- Raymond Huff, President, HJB Convenience
- William Fulton, Vice President of Business Development, Robinson Helicopter Company
- Jay Timmons, President and CEO, National Association of Manufacturers
- Dr. Josh Rauh, Senior Fellow, Hoover Institution, and
- John Kim, President & CEO, Catalyst California
The first five witnesses praised the OBBBA, concentrating on the estate tax, Section 199A, expensing and R&D. Dr. Rauh also called on Congress to make sure that the G-7 statement on exempting American companies from OECD’s Pillar 2 is fleshed out and implemented in a manner that protects American sovereignty, and the power of Congress under the Constitution to make American tax policy. He said that other countries must agree to drop taxation of American companies under the UTPR not just under current U.S. tax law, but even if Congress lowers taxes. Mr. Kim harshly criticized the OBBBA provisions on health care and immigration enforcement.
Republican members, led by Chairman Smith, stressed the tax relief that the OBBBA provides to middle-class Americans, and that the business provisions would lead to economic growth. Chairman Smith criticized the Congressional Budget Office for what he said was consistently underestimating the growth coming from tax cuts. In Las Vegas, Chairman Smith criticized the Senate for inserting the gambling provisions limiting losses.
With Ranking Member Neal not appearing at either hearing, Rep. Horseford (D-NV) and Rep. Sanchez (D-CA), filled in as acting Ranking Member at the Nevada and California hearings, respectively. Democrats called the OBBBA a giveaway to the wealthy that also will hurt lower- and middle-class Americans through cuts to government spending programs.
Tariffs
Trump administration officials said on Sunday that the United States will not postpone the August 1 deadline by which countries must reach trade agreements with the United States or generally face across-the-board tariffs in a manner designed to be reciprocal to the treatment by other countries of American exporters. Several large trading partners have recently reached agreements with the United States, including Japan last week and the EU on Sunday. Both agreements have a baseline tariff level of 15%, but many details of both deals have not been publicly released. Some of the largest trading partners engaged in ongoing talks include China (with whom the deadline has been pushed back to August 12), Canada and Mexico. The latest developments on the trade negotiations can be found at the S&C Tariffs Tracker.
Canada agreed to drop its DST as part of the trade negotiations. However, other countries with DSTs have thus far refused to drop them.
It remains to be seen whether any of the DSTs will be dropped as part of the trade negotiations. Although Congress did not include Section 899 in the OBBBA, Tax Code Sections 891 and 896 provide the president with authority to address extraterritorial and discriminatory taxation. The president also has trade remedies against such types of taxation. There is a real possibility that the president will use those authorities to respond to DSTs in the weeks ahead. Alternatively, the administration may avoid responding to DSTs and instead try to resolve those issues as part of ongoing Pillar 2 negotiations.