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What to Expect from Congress in 2025

By NAIFA on 1/14/25 1:46 PM

Topics: Congress

The 119th Congress convened January 3. The GOP controls the House and the Senate, and Republican President-Elect Trump will be in the White House as of January 20. Republicans are still squabbling a bit about which priority issue to tackle first, but whatever the order, a massive tax bill, Fiscal Year (FY) 2025 government funding, FY 2026 appropriations to fund the government, the statutory debt limit, and nomination confirmations will dominate early in 2025. On the regulatory front, once cabinet secretaries (and other key agency leaders) are confirmed, expect action to roll back Democratic rulemaking in many issue areas.

Here is a rundown of what these issues may look like in the coming weeks and months.

Tax bill: Most current law individual and estate tax rules expire at the end of 2025. These include the section 199A deduction for qualifying noncorporate business income, individual tax rates and brackets, the standard deduction, capital gains tax rates, and the estate tax personal exemption. Thus, there is a pressing need to extend the life of these rules or the tax system will revert to the substantially higher rates and tax liability that were in effect prior to the enactment of current law (the Tax Cuts and Jobs Act/TCJA).

However, the cost of doing so could be high—early estimates put it in the range of $4.5 trillion or more (over 10 years). That means either offsetting new tax increases or spending cuts or adding to the deficit. Republicans would prefer those offsets to come in the form of spending cuts rather than tax increases, but it is hard to envision spending cut offsets big enough to cover a $4+ trillion cost without at least some revenue-raising tax provisions.

There are already some tax increase proposals in play, although none with direct impact on NAIFA issues. For example, some lawmakers are floating the idea of an increase on the tax on endowments held by universities. And there is some “low-hanging fruit” that could be part of an offset package—watch for private placement life insurance proposals, for example.

Ways & Means kicked off the tax bill process with a hearing on “The Need to Make Permanent the Trump Tax Cuts for Working Americans” on January 14. Testimony at the hearing focused on what extension supporters say is the economic growth that continuation of the expiring tax rules will trigger.

In addition, President-Elect Trump promised during his campaign for the presidency a whole host of new tax breaks. These include support for a tax credit for family caregivers, which could benefit the appeal of long-term care insurance, which covers at least some of the cost of respite care. Respite care is likely to be included in calculating the costs covered by a family caregiver tax credit.

Also likely to be in play in the creation of what is looking like a massive tax bill are Trump calls for a reduction (to 15 percent) of the corporate tax rate; tax-free tip, Social Security, and overtime income; and a deduction for interest paid on loans to purchase cars. All these proposals are likely to be tailored to some degree.

The proposal to make Social Security benefits tax-free has already been put into bill form by Sens. Marsha Blackburn (R-TN) and Roger Marshall (R-KS), both members of the tax-writing Senate Finance Committee. The Blackburn-Marshall bill would not make all Social Security benefits tax-free. Rather, it raises the threshold for taxing Social Security benefits to $34,000 for individuals and $68,000 for married couples filling joint returns. The thresholds would be indexed for inflation. The cost of the bill would be offset by redirecting an equal amount from other appropriations. Other new Trump tax proposals may also be narrowed.

But until narrowing details are filled in by the committees of jurisdiction (House Ways & Means and Senate Finance), the total cost of these new tax breaks combined with the cost of extending the expiring tax rules could go north of $15 trillion.

Adding $15 trillion to the already spiraling federal deficit is a non-starter for many—maybe most—lawmakers, including Republicans. And finding offsetting revenue, either from spending cuts or from new revenue-raising tax rules, is another issue area fraught with difficulty.

Congressional Budget Resolution (CBR)/Reconciliation: Republicans expect no help from Democrats in fashioning this huge tax bill, and so they are planning to use a budget law that would make an all-Republican bill easier to pass, especially in the Senate (the budget law in question, reconciliation, limits debate and thus circumvents the Senate’s procedural filibuster rules). Authorization to use reconciliation must come in a Congressional Budget Resolution (CBR) that House and Senate lawmakers must pass prior to work on the tax bill. That budget resolution will be tricky to pass given disagreements among Republicans in both chambers of Congress.

What to include in the CBR is currently being debated among Republicans in both the House and Senate. It will have to set targets for both spending and tax cuts. To date, GOP lawmakers have not yet agreed on those targets, although $2.5 trillion in spending cuts is a number being bandied about. And there are issues related to the cost of the tax rules to go into the reconciliation bill. One is whether the official scoring of the cost of extending the TCJA tax cuts should reflect current law, which assumes current tax rules will expire and thus projects a $4+ trillion cost of extending them; or current policy, which assumes continuation of current rules and thus makes the cost of extending them minimal or even nothing. But, use of current policy, while making it easier to extend current expiring rules, could create a problem for doing this in a reconciliation bill.

Reconciliation legislation is subject to a plethora of arcane rules that could further snarl the process among Republican lawmakers. For example, there is a reconciliation law rule that requires any provision in a reconciliation bill to primarily impact revenue (incoming or outgoing), with policy considerations only “incidental.” If, as some GOP tax writers prefer, the cost of extending expiring current law tax rules is scored as current policy rather than as current law, that could bring the cost of extending them to zero (or every little)—and that could run afoul of the reconciliation rule that requires policy to be “only incidental” to revenue. If that happens, it could cause a challenge to provisions extending the law that, if successful, could cause them to be dropped from the bill. Such a challenge—at a minimum to the provisions extending lower tax rates for high-income individuals, Section 199A, and/or capital gains, by Senate Democrats is virtually certain. Every Republican will fight that outcome.

Similarly, there is a reconciliation law rule that prohibits any provision impacting Social Security. That would put at risk inclusion in a reconciliation bill of the Trump proposal to make (at least some) Social Security benefits income tax free.

So, construction of a reconciliation tax bill is replete with challenges that go beyond support for or opposition to the policy underlying any given provision. That means the bill could take way more time to put together (and then pass) than the first 100-day timeframe that President-Elect Trump and Republican lawmakers want.

For NAIFA, priority issues include extension of the Section 199A deduction for qualifying noncorporate business income, the corporate tax rate, and potential adverse offset proposals. NAIFA is working with a number of interest groups that are prioritizing the extension of the 199A deduction. If so inclined, NAIFA members can participate in this initiative. To do so, go to: https://naifa.quorum.us/campaign/105700/.

FY 2025 government funding: Congress/Trump presidency is the need to provide discretionary spending authority for the entire U.S. government for the remainder of FY 2025. Current spending authority expires on March 14. Failure to enact new spending authority means the government would shut down, in substantial part. Funding the government will be no easier in 2025 than it was in 2024, despite all-GOP control. This effort will suck most of the oxygen out of the legislative air early in 2025.

Among the programs needing extended funding and/or authorization is the National Flood Insurance Program (NFIP). There may also be some effort to reform the NFIP, but given the short timeframe, the ongoing controversies involved in NFIP reform, and competition from other priority issues, the likelihood is that NFIP reforms will not make it into the FY 2025 government funding bill.

Debt limit: On December 27, outgoing Treasury Secretary Janet Yellen officially advised Congress that as of between January 14 and January 23, Treasury will have to use extraordinary (accounting) measures in order to be able to borrow more money. Extraordinary measures (which themselves add more cost to the federal government) are likely to last until late spring/early summer, although an “X Date” (the date by which Congress must authorize additional borrowing or default on at least some of its obligations) cannot at this point be calculated with specificity. Economists worldwide warn that a U.S. default—even a partial one—would trigger “catastrophic” economic consequences.

President-Elect Trump wanted the debt limit issue settled in the continuing resolution that Congress enacted last month, but there were not the votes to do it then. So, it will be a live and pressing issue early in 2025. Currently, there is talk of including an increase in or suspension of the debt limit in the reconciliation (budget) bill. But many Republicans loathe having to increase the debt limit and so doing it in an all-Republican bill (thus making it an all-Republican decision) could make this a heavy lift.

Regulations: Senate leadership says that while the upper chamber awaits House action on budget issues and the reconciliation bill, Senators will focus on nomination confirmations and a series of Congressional Review Act (CRA) motions. The CRA motions would, if passed, overturn some Biden Administration regulations. Senate leadership has not yet announced a list of its intended CRA motions. But it appears that the Department of Labor’s (DOL’s) fiduciary rule and its white-collar exemption to overtime rules could be among them. Also possible are CRA motions on Federal Trade Commission rule that would ban virtually all noncompete agreements, DOL’s worker classification rules, and possibly Centers for Medicare and Medicaid Services (CMS) rules adversely impacting compensation for health insurance advisor advice.

Nominations: The Senate must confirm all of President-Elect Trump’s nominees for cabinet (and other high level) heads. Some of the those who Trump says he plans to nominate are hotly controversial and so nomination confirmation votes will take up considerable time early in the year. But the departments with jurisdiction over the federal rules important to insurance and financial advisors—e.g., the DOL, Treasury, and CMS—cannot begin implementing Trump Administration priorities until those who will be leading those departments are in place.

Prospects: Very narrow majorities in the Senate (three votes) and the House (at first, no extra votes and by late spring no more than two votes more than the 218 needed for enactment on a purely partisan basis) make quick enactment of any of these priority issues a difficult task. There is yet no sign of unity among Congressional Republicans on the details of the goals they do agree on (spending cuts, tax rule extensions, etc.) And near if not, actual unanimity will be required to enact all-Republican legislation. President Trump’s influence will be key—some say decisive. And on some of these issues (e.g., government funding, debt limit), Congressional Republicans may be forced to negotiate with their Democratic colleagues. Stay tuned!

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

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