Capitol Hill Recap: Another Bite at the Reconciliation Apple?

Based on the current radar screen, 2026 is bound to be a less hectic year for Congress than 2025—at least as far as tax legislation goes.

That’s not much of a bar to pass, though, given that last year was one of the most consequential for tax policy in nearly a decade, if not longer. Through the One Big Beautiful Bill Act, lawmakers extended most of the temporary tax provisions first enacted by the 2017 Tax Cuts and Jobs Act and enacted many new ones that will likely become longstanding features of the tax code.

There aren’t nearly as many expiring tax policies in the months ahead to force Congress into major action, and most of their time will be taken up by the 2026 midterms, anyways.

Nevertheless, key Republicans such as House Speaker Mike Johnson are talking about trying to pass another major bill this year, to address issues left out of the OBBBA. Johnson said the party was again looking at the reconciliation process, which allowed Congress to pass the OBBBA with only Republican votes through both the House and Senate. While not exclusively tax-specific, reconciliation bills tend to involve many tax changes, as the rules limit what else can be included.

To proceed, Johnson will need to overcome some strong skepticism from his own caucus. Rep. Jason Smith, R-Mo., the chairman of the tax-writing House Ways and Means Committee, has said that he doesn’t think it is possible. That’s a sentiment echoed by a Ways and Means staffer who spoke at a DC tax conference last week, who said the current dynamics would make it very difficult to pass something along partisan lines.

While the reconciliation process negates the threat of a Senate filibuster—a very advantageous feature for lawmakers—it also comes with drawbacks. As we saw last year in the legislating of the OBBBA, it includes many procedural requirements and votes, all of which present opportunities for things to go awry.

Republicans’ majority in the House remains very thin, and passing anything along partisan lines would require rallying all of the party’s various caucuses, despite their many disagreements. Johnson and other Congressional leaders managed to do this last year for the must-pass OBBBA. But the items they’re considering for a second round likely won’t be as pressing.

What would a second reconciliation bill include? It’s unclear what Johnson and his team are considering. But the Republican Study Committee, a group of Republican members, has circulated a list of proposals. It includes measures to boost home ownership, such as eliminating capital gains tax on sales to first-time home buyers and creating tax-advantaged home savings accounts. It also seeks to address rising healthcare costs through changes to the healthcare system, including how the tax code incentivizes coverage. (At the moment, Republicans have said they aren’t looking to use reconciliation to extend the expired Affordable Care Act credits, which some moderates are hoping to reach a bipartisan agreement on.)

Many of those items would find support among Congressional Republicans, but they don’t have the same level of momentum that drove Congress to extend the TCJA last year. But, 2026 is young, and this Congressional term has been anything but predictable.

Recent Tax Pieces:

White House Plan Would Let Americans Tap 401(k)s for Down Payments on Homes – Anne Tergesen, Richard Rubin and Nicole Friedman, The Wall Street Journal:

The government already allows penalty-free early withdrawals before age 59 ½ from retirement accounts for certain reasons, such as disability and college and some medical expenses. People who take such withdrawals from pretax retirement accounts still have to pay income tax on the money, but can avoid a 10% penalty.

The vast majority of 401(k) plans also let employees borrow from their accounts for any reason, including for a home purchase. One big advantage of taking out a 401(k) loan is that the worker has to repay the money to themselves with interest, so their retirement savings won’t suffer a permanent reduction. Nearly 15% of participants in 401(k) accounts administered by Vanguard Group had a loan outstanding at year-end 2024.

The administration’s proposal could help people who feel they can’t afford to repay a 401(k) loan get access to capital for a down payment.

Proposed IRS Funding Cut Draws Concern From Tax Watchers – Cady Stanton and Benjamin Valdez, Tax Notes ($):

But while the IRS avoided the draconian cuts that were originally sought by House Republicans, tax policy experts said the annual funding shortfall — and particularly cuts to enforcement funding — could hurt the agency while it’s still reeling from recent staffing cuts, frequent leadership changes, and the task of implementing numerous tax code changes from the One Big Beautiful Bill Act (P.L. 119-21).

Chuck Marr of the Center on Budget and Policy Priorities said the compromise number will create more challenges for the IRS, calling the choice to cut the agency’s base budget by more than a billion dollars a “serious policy mistake.”

Senate Health Credit Negotiators Are Undeterred After Trump Plan – Victoria Knight and Lillianna Byington, Bloomberg Tax ($):

President Donald Trump released a new framework Thursday, which includes provisions aimed at health insurance transparency and lowering prescription drug prices. The White House weighing in adds a new degree of uncertainty into the Senate’s negotiations, though senators haggling over ACA tax credits insisted that Trump’s plan wouldn’t change their pursuit of reaching a bipartisan agreement on the subsidies.

“We’ve all known that in order to be able to advance something we’re going to have to have buy-in from the White House,” Sen. Lisa Murkowski (R-Alaska) told reporters Thursday. “I’m not giving up because I think what we have to do is respond to the immediacy of the situation that we have now.”

Sen. Bernie Moreno (R-Ohio), who has been a lead negotiator in the health care talks, said Trump’s plan is “a perfect sequencing” to the negotiations in the Senate. He said that Trump is talking about a future health care plan and that any deal the Senate makes is “basically a bridge” to Trump’s proposal.

Tax Advisers Press Officials on Specifics of Post-OBBBA Guidance – Chandra Wallace, Tax Notes ($):

The new special depreciation allowance for qualified production property under section 168(n), the application of research and experimentation expense transition elections to short tax years, and the new corporate alternative minimum tax adjustment for intangible drilling costs all raise questions requiring guidelines from the IRS and Treasury, advisers told officials January 15 at the American Bar Association Section of Taxation meeting.

Section 168(n) was added under the OBBBA (P.L. 119-21) “to get more factories constructed and operated on American soil” and allows taxpayers to elect a 100 percent depreciation deduction in the year qualified production property is placed into service, according to Jason Binder of KPMG LLP.

But “open questions abound” on what property qualifies, how to compute the deduction, how to account for buildings that include nonqualified uses, how the government will define “integral to production,” and what activities qualify as production, refining, and manufacturing, Binder said.

Businesses Seek Clarity On R&D Credit Post-GOP Tax Law – Stephen K. Cooper, Law360 Tax Authority ($):

Businesses that use the federal research credit are reexamining how to apply expense reduction rules after last year's GOP tax law changes, but Treasury officials and tax experts said Thursday that revisions, although complex, were intended to coordinate with existing capitalization rules.

Department of the Treasury officials and practitioners, speaking at the American Bar Association tax section's midyear meeting in San Diego, discussed how the updated credit rules interact with Internal Revenue Code Section 174 capitalization and amortization requirements and the reduced credit election under Section 280C.

Capitol Hill Recap: Another Bite at the Reconciliation Apple?

Make a habit of sustained success.

Alex Parker