Taxwriters Talking Two Tax Bills, One Partisan, One Bipartisan

Congressional Republicans may have another option next year besides writing a giant, deficit-busting tax bill or an unappealingly shorter or skinnier package.

One of the Senate’s more vocal taxwriters, Thom Tillis, R-N.C., is laying out an alternative path that he says could broaden 2025’s tax reform effort while cutting down on the breadth of temporary tax policy that was the hallmark of the Tax Cuts and Jobs Act.

This year’s stalled tax package (H.R. 7024), with its mix of business tax breaks and an enhanced child tax credit, showed there was support from both Democrats and Republicans for some tax provisions. That could be the basis for a bipartisan bill in 2025 that would run alongside a partisan reconciliation bill, Tillis and others suggest.

“I think you shouldn’t necessarily assume it’s a foregone conclusion that we can’t get bipartisan support for some of what we would otherwise do in reconciliation,” Tillis said. “What I think we have to do is figure out if there is anything meaningful enough to try and get bipartisan support for some tax policy that is consensus.”

The idea may have gotten a boost at a November 19 event, when William Gale of the Urban-Brookings Tax Policy Center included it in his list of the four possible directions the new GOP majority could take next year when it comes to tax policy.

Gale said Republicans could “go big” with a full extension of the TCJA, plus the plethora of proposals from the Trump campaign. Or they could cut costs by going shorter, with perhaps a two-year bill, or by going thinner, with only select portions of the TCJA extended, he said.

Or they could go bipartisan, with “what I call a sort of a combination policy, in which Republicans could take all the provisions that they like and the Democrats hate, and stick them in the reconciliation bill,” said Gale.

That would “leave all the features that the Democrats are interested in, and then try to build an additional bipartisan bill that actually meets the 60-vote criteria,” Gale said, referring to the 60 votes needed to end a Senate filibuster on legislation not in a reconciliation package.

Among the candidates for a bipartisan package would be the leftovers from the House-passed tax package: restoring full research and development expensing, changes to the child tax credit, and addressing the fraud-riddled employee retention credit program, among others, according to Tillis.

The caustic campaign season may make bipartisanship seem like a leap, but the list from recent years of major bipartisan tax and spending legislation passed under unified government is not short.

Compared with 2023’s debt limit and budget deal and subsequent efforts to skirt that agreement, the budget agreements reached with Democrats during Trump’s first term amounted to smooth sailing. And when Democrats controlled both chambers and the White House in 2021 and 2022, major bipartisan bills became law, including the $1.2 trillion Infrastructure Investment and Jobs Act and the CHIPS and Science Act.

Democrat and Finance Committee member Mark Warner of Virginia has heard of the two-bill concept and might be open to it, though these are early days.

“All things are possible,” said Warner, a key negotiator on both the infrastructure and semiconductor chip bills.

“I’ve had conversations as well,” Warner said. “But I don’t want to commit to anything or to preclude anything.”

Business Needs Permanent Tax Policy

Taxwriters from both parties and both chambers are fond of saying that the private sector needs consistent tax laws for planning purposes. Yet the parties have churned out trillions of dollars’ worth of temporary tax policy via reconciliation bills since 2017 — the TCJA, the American Rescue Plan Act, and the Inflation Reduction Act.

Reconciliation provides the politically crucial feature of being able to get legislation through the Senate with a simple majority rather than 60 votes, but it is also largely responsible for the short-term nature of U.S. tax policy. While reconciliation permits legislation that increases deficits in the near term, it bars changes that increase deficits after the 10th year. That’s why there was a political fight over renewing the Bush tax cuts as their expiration approached and why the Trump tax cuts passed in 2017 are already up for renewal.

Legislation is harder to pass through the normal legislative process, known as regular order, because it requires 60 votes to beat a Senate filibuster. But regular order legislation can increase deficits in the out years, being scored only for its 10-year budget impact.

However, regular order requires votes from both sides of the aisle. It’s been 46 years since either party held at least 60 Senate seats.

Dividing the tax menu into partisan reconciliation and bipartisan regular order bills would enable Republicans and Democrats to come together and write at least some permanent tax policy — “if you really want to get to something that has enduring value, because we know what the limits are to reconciliation, right?” Tillis said.

Tillis noted that the approach would give Democrats a chance to have a voice in at least some areas of tax reform in 2025.

The approach to negotiations, Tillis said, would be “if you make us go it alone, this is what we’re going to do; if you’re willing to come to the table, this is what we’re willing to do.”

“Obviously, there has to be a commitment saying we won’t go back on our word. We will defend this position, and it will be out of scope for reconciliation,” Tillis said.

Not Just Tillis

Democrats may be open to the idea of a bipartisan tax bill, given that they are nearly guaranteed to be locked out of any reconciliation negotiations in 2025.

House Ways and Means Committee members Bradley Scott Schneider, D-Ill., and Lloyd Smucker, R-Pa., agreed at a recent event held by The Hill that a bipartisan approach to tax policy, including the upcoming TCJA expirations, could provide businesses and taxpayers with more certainty.

“Sure, we have budget reconciliation that perhaps we can use, and probably that’s the intent,” Smucker said. “But I do think there’s a real opportunity to do this in a bipartisan way,” he said, adding that a bipartisan approach is going to have a more “lasting effect.”

But while Smucker posited that bipartisan work on a reconciliation bill could also be effective, Schneider suggested against that path if coalescing across party lines is a priority.

“If we do it the right way, if we do it in a bipartisan way, it’s more likely that what we do will stand the test of time,” Schneider said. “I would argue that reconciliation — at least, starting down the path of reconciliation — is a step off the wrong foot. I’ll put it that way.”

“There are things that we agree on, in particular when it comes to helping small businesses,” Schneider said. “Let’s try to work together to create a bill that can actually not last eight years and have to revisit this again, but can last a generation and give those businesses the stability and predictability they need.”

Sen. Shelley Moore Capito, R-W.Va., says she’s heard no talk of a two-bill path, but she quickly pointed out that her rollback of the tightening of the net interest expensing formula (S. 1232) would be a natural fit for any bipartisan bill.

“Net interest would definitely fit in there,” Capito said.

“We’re going to have a much broader discussion on what’s possible the first week of December,” said Capito, who didn’t appear optimistic when it comes to the idea of shearing off a bipartisan bill from a partisan one.

“The idea of two bills?” she asked. “First I’ve heard of it.”

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