President Trump and the GOP-controlled Congress are officially in power, and have begun work on an aggressive, high-profile agenda covering among other issues spending cuts, taxes, and shrinking the federal government. Many—maybe most—of these issues could directly impact NAIFA members.

There are several ongoing initiatives in the beginning phases of implementation. They include:

• The Budget (Spending and Tax Cuts): Republicans in the House and Senate have begun working on the Congressional Budget Resolution (CBR) that is needed to start crafting reconciliation legislation. Reconciliation legislation is a special budget law procedure that allows the bill—subject to considerable and complex specific rules—to bypass Senate filibusters. The CBR, which will include reconciliation instructions, must be agreed to and passed by the House and Senate before the committees of jurisdiction can begin the actual writing of a reconciliation bill.

Each committee of jurisdiction will have a target number for savings (or additions to spending) from the areas they oversee. There will also be a “topline” number—a total amount by which spending and taxes will be adjusted. No topline number has yet been agreed to, but each committee of jurisdiction is working with at least a ballpark number of net savings to be achieved. Some of those target numbers are known; others are not.

Tax: It is not yet known how big the CBR-authorized tax bill ultimately will be. The total needed for tax cuts could go as high as $10 trillion or more. That number comes from estimates of the cost to extend expiring tax rules (like, for example, the section 199A deduction for qualifying noncorporate business income, individual and the estate tax exemption), and provision of new tax breaks. Some of those new tax breaks, like tax-free tips, Social Security, and overtime pay income are called for by President Trump. Others are being pushed by private sector interests and/or Members of Congress.

While it is possible that the final CBR will authorize a $10+ trillion tax package, it is more likely that the authorization number will be smaller, leaving it to the tax-writing committees to offset a large portion of the projected $10+ trillion cost of the package. The House Budget Committee approved its budget resolution on February 13 on a party line vote, authorizing $4.5 trillion in tax cuts, with $1.5 trillion in deficit reductions but requiring $2 trillion in spending cuts in order to cut taxes at that level. If the cuts exceed $2.5 trillion, tax cuts could be increased concomitantly. If this approach is adopted by the Senate, revenue-raising provisions are coming. Potential revenue raisers pose substantial risk to NAIFA’s interests.

Potential revenue raisers under discussion—and more will emerge—include imposing a cap on corporations’ deductions for state and local taxes (“C-SALT”), paring down the premium tax credits for Affordable Care Act health insurance, elimination of carried interest rules (the rule that allows certain hedge fund managers and other investment professionals to characterize their income from these investments as capital gains rather than as ordinary income), and adjusting business income tax rules—corporate rates and the section 199A deduction.

The Ways & Means Committee will start crafting its portion of the reconciliation bill after the CBR passes Congress. House GOP leadership is planning to put the Committee-approved budget resolution on the House floor the last week of February.

In the meantime, the Senate Budget Committee on February 12 approved its budget resolution for the first bill in its two-bill strategy. The first bill includes defense and energy spending but no taxes. Taxes and other spending cuts are deferred to a second bill to come “later.” Republican Senators, however, led by Majority Leader Thune, have indicated that they want the TCJA tax cuts to be permanent, which the House Budget Committee’s resolution would make difficult to achieve.

So, there is considerable disagreement between the House and the Senate which will have to be resolved before Congress can pass a CBR and start the reconciliation bill process.

Spending: The CBR is likely to include deep spending cuts that could impact spending by agencies like the Department of Labor (DOL), the Department of Health and Human Services (HHS), and independent agencies like the Securities and Exchange Commission (SEC). Among the directions to committees of jurisdiction of interest to us, the House Budget Committee-approved resolution directs the Energy and Commerce Committee to cut $880 billion from programs within its jurisdiction, while the Education and Workforce Committee is directed to cut $330 billion. Financial Services is directed to cut $1 billion. Because the committees have the discretion to choose how to comply with these instructions, we do not know yet what programs, for instance, at HHS, DOL, or the SEC might be cut and by how much. Committee action cannot proceed until the CBR is adopted by both Houses.

• Government Funding: Congress must also pass legislation to fund the U.S. government’s discretionary spending for the remainder of fiscal year (FY) 2025 by March 14, or the government will at least partially shut down. This bill will include authorization and funding for the National Flood Insurance Program (NFIP).

 The government funding bill process is and will get even more fraught as Republicans seek steep spending cuts (not all of which will win the support of some in the GOP lawmaker caucus), and Democrats seek to protect as much of the government’s “safety net” social programs as possible. Because this bill will not have filibuster protection in the Senate, and because the bill is widely viewed as one that cannot win unanimous House Republican support, Democrats will be needed to pass the bill. That means intense negotiations between Republican and Democratic appropriators in both the House and Senate. There is already growing talk/fear about the potential for a government shutdown.

• The Debt Limit: Also on tap for the first part of 2025 is the need to either raise or suspend the country’s debt limit—the maximum amount the U.S. can borrow. The debt limit has already been reached, and Treasury is now using “extraordinary measures” (generally, moving money from among different accounts) to avoid default on any of the U.S.’s obligations. Those extraordinary measures are expected to be depleted by early summer—best estimates right now suggest the “X Date” will come between June and August.

There is widespread agreement among economists that any kind of default on U.S. government obligation will trigger worldwide economic catastrophe. Thus, dealing with the debt limit is a high-priority, high-stakes endeavor.

The debt limit is also a fraught political issue. Many lawmakers view raising (or suspending) the debt limit as an unacceptable way to authorize additional spending. Getting the votes to raise or suspend the debt limit is always tricky and it is trickier than usual this time around. House Republicans will either have to be unanimous in supporting a bill that includes a debt limit provision (a highly unlikely result), or deal with Democrats—who will without doubt try to extract as many concessions as possible from their Republican colleagues.

Nevertheless, addressing the debt limit is a must-do. It could happen in the government funding bill, in a disaster aid bill (responding to the burning of Los Angeles), in the reconciliation bill, or on its own. All these strategies have their (seriously difficult) political problems. A decision on how to proceed on this issue has not yet been made.

The House Budget Committee’s budget resolution contains a 4 trillion increase in the debt ceiling. It is unclear how the Senate will react to its inclusion in reconciliation.

Without doubt, additional issues will arise in the coming weeks. Private sector interests have already begun advancing their priorities. Some that NAIFA supports are expansion of section 199A deduction for qualifying noncorporate business income, tax breaks for long-term care, and business income tax issues.

Prospects: While the GOP does in fact control the White House, the Senate and the House, its majorities (especially in the House) are tiny. Between now and April, House Republicans cannot lose a single vote from their own conference and still pass a bill. And after that they will have only a two-vote margin. The Senate has only a three-seat majority. And while President Trump claims a mandate from the 2024 election results, his actions and priorities are also not without limits. See, for example, the pushback that arose from his attempt to freeze federal payments. Only one thing is close to certain: the process will almost surely take longer than the President and Congressional leaders want it to.

 NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org.