Capitol Hill Recap: Peril with the Parliamentarian

Republicans have already hit several speed bumps as they try to pass legislation to extend the 2017 Tax Cuts and Jobs Act. But the latest may be the biggest yet.

According to Senate Democrats, who are now leading procedural opposition to the bill as the Senate mulls the legislation, the parliamentarian on Thursday struck several crucial provisions for violating the body’s reconciliation procedures. The loss of those provisions, mostly related to new Medicaid requirements, blows a giant hole in the bill’s finances–according to Democrats, more than $250 billion in lost new revenues over 10 years, a potentially fatal blow to the bill’s chances if replacements can’t be found.

Republicans have already responded with hope that through some small changes, the provisions can pass the requirements. According to the Senate’s reconciliation rules, all legislation passed through this expedited procedure must be “budgetary”--a determination which has often been subjective in practice. The Byrd Rule gives senators the opportunity to raise objections, and the parliamentarian can make determinations that are binding.

Of course, Republicans could just ignore or fire the parliamentarian–something that some are already urging the party leaders to do. But without the reconciliation procedure, the legislation could be halted by a Democratic filibuster. And if they change the reconciliation rules, it could be seen as negating the filibuster altogether–something that spooks many lawmakers who fear what the other party could do once they have complete control.

If they can’t get reworked versions of these provisions through, Republicans will have to come up with savings elsewhere to meet the conditions set by the initial budget resolution. (Another requirement of reconciliation.) It won’t be easy. They could add more expirations into key parts of the legislation, saving billions. But that would go against the commitment many senators made to add permanency to the tax code. It also may not satisfy Republican deficit hawks in the House, who were promised that the final legislation would make substantial cuts to federal spending.

The new development has called into question whether Republicans can meet their self-imposed July 4th deadline to get a bill to President Trump’s desk. That timeline initially provoked a lot of skepticism, but there’s been strong momentum in Congress to get it done quickly. And Republican leaders say they’re still committed to the deadline, and that they anticipated hurdles like this.

To keep on track, they may have to start initial votes over the weekend. Very soon, we may know if this was just a speed bump or a dead end.

A Global Deal

As reported in today's daily roundup, the U.S. Treasury Department announced that it had reached an agreement with G-7 nations on the Organization for Economic Cooperation and Development's Pillar Two 15% global minimum tax, averting a potential trade war and achieving the U.S. goal of "co-existence" between the U.S. and OECD systems. The deal negates the need for the retaliatory Sec. 899 proposal currently in the Senate bill, and Senate Republicans have already said they'll remove it. We'll have more analysis of this in our international roundup next week, but on the Hill the big question is, how will Republicans make up the $50 billion that the Joint Committee on Taxation had estimated Sec. 899 would bring in?

Recent Tax Pieces:

GOP handed more megabill setbacks as numerous tax provisions get sidelined – Brian Faler, Politico:

The deleted items are relatively small, especially compared to the health provisions MacDonough has struck in recent days that have forced Republicans to scramble to shore up the package. But the provisions nevertheless helped win support for the overall plan from individual lawmakers..

Johnson Says Trump Tax Bill Vote May Slip Despite SALT Progress – Cam Kettles, Erik Wasson, Alicia Diaz and Maeve Sheehey, Bloomberg Tax ($):

House Speaker Mike Johnson suggested earlier Friday that the July 4 date may slip, even as he and Treasury Secretary Scott Bessent said they believed they could soon unlock a compromise over one of the key sticking points in the bill: the state and local tax deduction.

Trump is planning to stay in Washington over the weekend to exert pressure on lawmakers to reach a deal on the bill, according to a White House official. Republicans remain divided over several thorny issues holding up the bill, including size of the SALT deduction, cuts to Medicaid health benefits and the price-tag of the legislation.

Senate Fixes to the House Bill and More – Mindy Herzfeld, Tax Notes ($):

Overall, the Senate bill is a significant improvement over the House bill and represents a more ambitious effort to revise international tax laws for 2025 and beyond. It modifies the TCJA regime to better advance the administration’s goals of encouraging U.S. manufacturing and ownership of high-value intellectual property assets while opening the door further to negotiations with other countries over respecting the U.S. regime as equivalent to the global minimum tax.

Silicon Valley Rich In Line for $17 Billion Win in GOP Tax Bill – Ben Steverman, Bloomberg News ($):

Venture capitalists, along with successful tech founders and early startup employees, already pay no taxes on billions of dollars of gains annually, thanks to a lucrative and complicated provision called Qualified Small Business Stock, or QSBS. Now the carve-out could get even more generous in changes included in Senate Republicans’ proposed tax and spending bill moving through Congress.

Republicans Prepare to Open ‘Pandora’s Box’ of Budget Gimmicks – Andrew Duehren, The New York Times ($):

Because much of their legislation is dedicated to extending temporary tax cuts from 2017, Senate Republicans have become preoccupied with this accounting practice. Just maintaining the 2017 tax cuts after this year would cost roughly $3.8 trillion over a decade under the current law baseline.

That’s a huge cost. So Senate Republicans are hoping to use their own standard, called the “current policy baseline.” This alternative framework takes it as a given that the 2017 tax cuts exist in perpetuity, rather than expire at the end of the year. By this logic, extending the 2017 law should not represent a new cost to the budget, even if it is the centerpiece of the Republican legislative agenda this year.

Capitol Hill Recap: Peril with the Parliamentarian

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