Congress has been extremely busy, with both bodies passing budget resolutions. However, they have passed very different budget resolutions, according to Marc Gerson, former chief tax counsel to the House Ways and Means Committee and a member of the law firm Miller & Chevalier.
"They have to agree to a concurrent budget resolution to unlock the budget reconciliation process," he said. "This month has been taken up by dealing with funding the government to avoid a shutdown, with a recess scheduled for this week. They have to await the results of the Florida special election, which will give Republicans more breathing room in the House. The House has outlined what a tax package would be, of $4.5 trillion using a standard current law baseline including extensions of the [Tax Cuts and Jobs Act] and expiring provisions."
That, he noted, may not be enough to cover the permanency of the TCJA and other expiring provisions, and the promises made by President Trump during the campaign, such as no tax on tips, Social Security and overtime pay.
"If they ultimately agree to the House approach, they have to either add revenue raisers or additional spending cuts or abandon permanency and agree to shorter-term extensions," he explained. "That would create room to add other things, or to use the current policy baseline. Then they would not have to pay for the extension of current law, and it would provide more flexibility, but it's unclear whether it would pass muster with the Senate parliamentarian."
A key priority for lawmakers is the extension of the "Big Three" business extenders, according to Gerson: R&D expensing, EBITDA-based interest expense deductions and 100% bonus depreciation. They are also debating the retroactive effective date, with Trump proposing Jan. 20, 2025, which may complicate efforts to secure earlier relief.
"R&D, Section 163(j) EBITDA and 100% bonus depreciation will definitely be included, but there is uncertainty as to whether they will be applied retroactively," he said.
"These three provisions were enacted as part of the Tax Cuts and Jobs Act of 2017 but were sunset due to revenue limits," he explained.
Fully deductible R&D expenditures expired at the end of 2021, along with the ability to use EBITDA for the 163(j) interest expense deduction limitation, and 100% bonus depreciation. Since then, taxpayers have had to capitalize and amortize these expenditures over five years. Also, since 2022, taxpayers have been required to use the less favorable earnings before interest and taxes for the Code Section 163(j) limitation on the deduction for business interest expense. And 100% bonus depreciation began decreasing at the end of 2022 and is currently at a 40% rate for 2025.
Each of the "Big Three" would have been extended by the Tax Relief for American Families and Workers Act of 2024, which provided for retroactive extension through 2025. The bill passed the House on a bipartisan vote in January 2024 but bogged down in the Senate.
The fact that President Trump indicated his support for 100% bonus depreciation by referring to his inauguration date of Jan. 20, 2025, in his recent joint address to Congress is an indication that the provisions will be drafted to apply retroactively, but is at odds with the general practice of tax bills applying to tax years "beginning after December 31" or "beginning before January 1."
