Here’s a look at recent tax-related happenings on the Hill, including the reconciliation bill heading to the House Rules Committee after a close vote in the House Budget Committee.
Lately on the Hill
House Budget Committee Passes Reconciliation Bill
After an initial failed vote, the House Budget Committee reconvened over the weekend to pass reconciliation legislation with a 17 to 16 vote. The panel initially voted down the measure 16 to 21, including five Republican members who voted no. After negotiations with Speaker Mike Johnson (R-LA), which reportedly resulted in a quicker timeline for implementing Medicaid work requirements and phasing out clean energy tax credits,1 four of the Republican holdouts voted “present” to allow the bill to move forward.
The House Rules Committee now takes up the measure. The committee released its markup of the bill, which included some changes such as removing the “no tax on tips” provision for highly compensated employees and delaying the deduction on vehicle loan interest for one year.
The Rules Committee is scheduled to meet on Wednesday, May 21. Upon passage by the committee, the bill would reach the House floor for a full chamber vote. Expectations are that more changes are coming; you can follow along with our legislative tracker found here.
Two key issues are dominating the intra-party debate on the reconciliation bill.
Spending Cuts & Deficits
Members of the House Freedom Caucus are concerned with the deficit impact of the bill and are determined to enforce the minimum $1.5 trillion in spending cuts negotiated in the budget resolution. “This bill falls profoundly short,” said Rep. Chip Roy (R-TX) during the Budget Committee’s markup. “It does not do what we say it does with respect to deficits.”2
The Joint Committee on Taxation provided an estimate of the budgetary effects of the tax provisions within the reconciliation bill. The score came in at $3.8 trillion spanning 2025 through 2034. The estimate comprises both spending and revenue raisers, including cuts in spending.
By far the most expensive provisions, combined at nearly $5 trillion, are to make permanent the current personal income tax rates, the alternative minimum tax exemption and phase-out thresholds, and the increased standard deduction.
Significant revenue generators include the continued revocation of the deduction for personal exemptions and the limitation on the state and local tax (SALT) deduction by individuals, estimated at nearly $1.9 trillion and $916 billion, respectively.
At $3.8 trillion, the House would have some wiggle room to negotiate additional tax cuts, assuming it can achieve $1.5 trillion in spending cuts. The tax-writing Ways and Means Committee was appropriated $4.5 trillion, reduced dollar for dollar for any spending cuts below $2 trillion. Notwithstanding, the $1.5 trillion figure is viewed as the absolute minimum for cuts and a more palatable number for Republican leadership.
State & Local Tax Deductions
Members of the SALT Caucus are rejecting proposals within the reconciliation package. The tax bill, as currently drafted, would increase the SALT deduction limit from $10,000 to $30,000 for taxpayers earning $400,000 or less. Between $400,000 and $500,000 in earnings, the deduction ratably reduces until reaching a $10,000 floor.3 The bill also appears to prohibit certain service businesses described in Section 199A(d) from paying state income taxes (often referred to as pass-through entity taxes) at the business level for the purpose of avoiding the limitation.
The measure satisfied Rep. Nicole Malliotakis (R-NY), who said the increase would cover 98% of the families in her district;4 however, fellow Republican representatives from New York, New Jersey, and California have rejected it.
Rep. Nick LaLota (R-NY) did say he could possibly support a cap at $40,000 for individuals and $80,000 for couples and argued that “any cap on SALT provides a savings. It is not a cost,” considering that the current $10,000 cap will expire after 2025 if no action is taken. 5
Moving Forward
Republican leadership is trying to shore up these concerns in an effort to get the bill through the House Rules Committee. Any tweaks to the bill can be made there in preparation for a vote by the full House. House Republicans hold a 220 to 213 majority, affording only three potential defections to pass the measure.
If or when the budget reconciliation passes out of the House, members of the Senate will have the opportunity to change it, something they are already saying they will do. “Anybody that thinks that we’re just going to rubber-stamp it and pass it out needs to understand there’s more work to do,” said Sen. Thom Tillis (R-NC).6
Senators have expressed a desire to change provisions related to Medicaid, the Child Tax Credit, and international tax provisions.7 Clean energy credits are also pegged for adjustment with the House’s proposal to cut more than $560 billion from credits by repealing those for clean vehicles and clean hydrogen and accelerating credit phaseouts on clean energy production and nuclear power. “I would expect we will make some changes to try and improve it,” said Sen. Kevin Cramer (R-ND).8
Ways and Means Committee Chair Jason Smith (R-MO) commented that he expected changes from the Senate, but that they would be minimal considering the number of Senate-backed priorities in the bill, including tax credits for employer-provided childcare and paid family and medical leave.9
From the Treasury & IRS
Senate Hearing Scheduled for IRS Commissioner Nominee
The Senate Committee on Finance scheduled a hearing to consider President Donald Trump’s nominee William “Billy” Long for IRS commissioner. The hearing took place on Tuesday, May 20, 2025, beginning at 10 a.m. EDT.
International Tax Safe Harbor Must Be Implemented in 2025
Rebecca Burch, Treasury deputy assistant secretary for international tax affairs, commented at a conference held by the Tax Council Policy Institute in Washington that the U.S. will not be implementing Pillar 2 and that a permanent safe harbor should be provided for the U.S.’ international tax regime and such safe harbor rules must be implemented by the end of 2025.10
Released Guidance
Proposed and final regulations (REG-107459-24, T.D. 10031) have been released, reducing the user fee to request IRS Letter 627, also known as an estate tax closing letter.
Revenue Ruling 2025-11 provides the 2025 third quarter interest rates for overpayments and underpayments of tax, which remain the same as the prior quarter. The rates are 7% for noncorporate payments, 6% for corporate payments, 9% for large corporate underpayments, and 4.5% for corporate overpayments exceeding $10,000.
Revenue Ruling 2025-12 provides the June 2025 applicable federal rates (AFR), adjusted AFR, adjusted federal long-term rate and long-term exempt rate, percentages for determining the low-income housing credit, and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or reversionary interest.
Notice 2025-29 sets forth the corporate bond monthly yield curve and corresponding spot segment rates, the 24-month average corporate bond segment rates, and the 30-year Treasury securities interest rates and weighted average rates.
The IRS has opened the IRA/CHIPS Pre-filing Registration Tool for the 2025 tax year. The tool helps qualifying businesses, tax-exempt organizations, or entities such as state, local, and tribal governments make elective payments or transfer elections related to the credits.
This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein.
- 1“Trump Tax Bill Advances After Deal for Faster Medicaid Cuts,” bloombergtax.com, May 19, 2025.
- 2“GOP Fiscal Hawks Sink Key Vote on Trump ‘Big, Beautiful Bill,’” the hill.com, May 16, 2025.
- 3Taxpayers who are married persons filing separately are limited to a $15,000 deduction, which begins to phase out at earnings between $200,000 and $250,000, reaching the floor deduction of $5,000.
- 4“Staten Island’s Malliotakis Open to $30,000 SALT Cap,” bloomberglaw.com, May 9, 2025.
- 5“SALT Republicans Signal $80,000 Cap Could Be on Table,” bloomberglaw.com, May 16, 2025.
- 6“Senators Give Advance Notice to House on Plans to Edit Tax Bill,” taxnotes.com, May 15, 2025.
- 7“Senate Republicans Eye Changes to House GOP’s Massive Tax Bill,” bloomberglaw.com, May 14, 2025.
- 8Senate Republicans Balk at House Plan to Gut Energy Tax Cuts,” bloomberglaw.com, May 14, 2025.
- 9“W&M Chair Doesn’t Expect Senate to Make Big Changes to Tax Bill,” taxnotes.com, May 16, 2025.
- 10“U.S. Pillar 2 Safe Harbor Must Happen by Year-End, Burch Says,” taxnotes.com, May 19, 2025.