Accounting
Trump tax bill takes center stage as GOP debates cuts
Congressional Republicans returning to Washington on Monday will tackle their toughest test yet, negotiating a massive tax bill package to deliver President Donald Trump a signature legislative victory.
Efforts to renew Trump’s landmark 2017 tax cuts and secure additional reductions he’s promised were temporarily sidelined while lawmakers worked to narrowly avert a government shutdown earlier this month.
The party can now shift its attention to the undertaking, aimed at cutting tax bills by trillions of dollars. The scope of that effort will require some difficult decisions and near unanimity as Republicans navigate narrow majorities in both chambers.
Republicans still must agree on the overall size of the package, which tax elements to include, and how — or if — to offset the cost, a controversial question that will pit the most ardent fiscal hawks against members seeking tax breaks.
Here’s a look at the challenges facing Republicans as they move on a critical legislative priority:
What’s the overall cost of the bill?
The action is centered in the Senate, where the first step is to decide on a topline figure for the bill.
House Republicans — in their version of the tax blueprint passed earlier this month — agreed to $4.5 trillion in tax cuts, paired with $2 trillion in spending reductions.
Both those figures have problems. Republicans have their eyes on cutting far more than $4.5 trillion in taxes. And cutting $2 trillion from the federal budget over a decade could mean making politically harmful cuts to popular programs like Medicaid.
But scaling up the tax break total, or downsizing the ambition for spending cuts, have the potential to spark the ire of House deficit hawks. Both chambers ultimately have to agree on those topline figures before the tax talks can advance.
What are the ways to offset that cost?
The realities of the math mean that Republicans have been looking for creative ways to offset the cost.
While certain factions of the party are demanding spending cuts, they can’t offset all their desired tax cuts by slashing the budget alone.
Republicans have discussed a small number of offsets — eliminating the carried interest tax break for hedge fund managers, expanding a tax on university endowments and limiting the amount of state and local taxes corporations can deduct.
They could include some of the cost savings from Elon Musk’s Department of Government Efficiency effort. Some conservatives are also demanding a repeal of green energy tax breaks signed into law by President Joe Biden.
Still, all of those combined would amount to just a fraction of the overall cost.
That’s led them to consider using a budget gimmick to claim that extending the 2017 tax cuts costs nothing — instead of the more than $4 trillion over a decade the nonpartisan Congressional Budget Office has estimated.
This untried accounting move known as using the “current policy baseline” rather than the “current law baseline” could let them count the renewal of the 2017 cuts as free, which gives them an additional $4.5 trillion — or whatever total the two chambers agree on — to reduce more taxes.
The difficulty in finding palatable ways to pay for the bill could stymie the Senate’s efforts on the budget outline, dragging work on the bill into the fall, said Erica York of the right-of-center Tax Foundation
What are the downsides of getting the tax cuts for ‘free’?
It’s not even clear that using current policy baseline is allowed under the Senate rules, something Republican aides have been discussing with the chamber’s rules keeper, parliamentarian Elizabeth MacDonough.
Arcane Senate rules also mean that using this baseline to extend existing tax rates will mean that each provision will need to have a tiny tweak so it registers a “fiscal impact.” That could result in some messy outcomes in the code.
Budget watchdogs are vehemently opposed to getting creative with the budget baseline.
“It lets you lie about what you are doing,” said Marc Goldwein of the Committee for a Responsible Federal Budget. “It will be a massive budget-buster over time.”
The Congressional Budget Office on Friday released
There are also risks with bond investors. Debt markets are watching if Congress has embarked on a precedent-breaking spree by bulldozing Senate guardrails.
“It basically tells financial markets and the bond markets we have really just given up on controlling deficits,” said Kent Smetters of the Penn Wharton Budget Model.
Further complicating matters, CBO will issue a new estimate of the timing of a possible U.S. federal debt default. That has the potential to speed up — or delay — the tax bill. House Republicans have pushed to include raising the debt limit in the tax package, where their colleagues in the Senate are still deciding whether to combine the issues or vote on them separately.
What, exactly, are these tax cuts?
Republicans broadly agree that the heart of the package will be the extension of the 2017 cuts, which include rate cuts for individual taxpayers and deductions for small business owners.
Beyond that, the tax cut wish list is long and growing. Trump wants to end taxes on tips, overtime pay and Social Security benefits. He’s floated a lower corporate rate for companies that manufacture domestically and vowed to make car loans deductible.
One of the most politically volatile is expanding the state and local tax deduction, known as SALT. A group of House Republicans from high-tax states have vowed to block the bill unless it includes a substantial increase to the $10,000 cap on the write-off.
There are also demands for new tax breaks. Most Senate Republicans want to end the estate tax and some are seeking to expand Opportunity Zone tax benefits — capital gains breaks for people who invest in developing areas.
“They are going to have to make some choices,” said PwC’s Rohit Kumar, a former top Senate GOP aide. “They will have to put in some revenue limits.”
The American Institute of CPAs is asking the Treasury Department and the Internal Revenue Service for greater clarity on their
SECURE 2.0, like the original SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 includes a
The Treasury and the IRS
The requirement generally applies to 401(k) and 403(b) plans established after Dec. 29, 2022, which is the date when the SECURE 2.0 Act became law, but there are some exceptions for new and small businesses, church plans, and governmental plans.
Based on the recent proposed regulations, the AICPA made several recommendations in its
In determining the employee count for small businesses, the AICPA recommended that the Treasury and the IRS issue final regulations stating that only employees of the plan sponsor are included in the count for purposes of determining status as a small business under Section 414A.
The AICPA also had a comment on the definition of “predecessor employer,” suggesting that the Treasury and the IRS issue final regulations that define the term by reference to Treas. Reg. Section 1.415(f)-1(c)(2) for purposes of Section 414A(c)(4)(A).
“The purpose for our letter is to provide input to Treasury and the IRS in order to further clarify the rules and provide recommendations to help with the implementation of the auto-enrollment provision of the law,” said Kristin Esposito, AICPA director of tax policy and advocacy, in a statement Tuesday.
The Public Company Accounting Oversight Board sanctioned James PAI CPA and its sole owner and partner Yu-Ching James Pai for audit failures.
The PCAOB found that Pai and his firm violated multiple PCAOB rules and standards in connection with two audits of one issuer client, that the firm violated quality control standards, and that Pai directly and substantially contributed to those violations. In the audits, the firm and Pai failed to perform risk assessments and obtain sufficient audit evidence in multiple areas, including revenue and related party transactions.
“Performing appropriate risk assessments and obtaining sufficient evidence are fundamental to an audit, and failure to meet these most basic requirements puts investors at risk,” PCAOB chair Erica Williams said in a statement.
The PCAOB also found that, in the audits, the firm failed to perform engagement quality reviews, obtain written representations from management, comply with requirements concerning critical audit matters and audit committee communications and documentation, and establish a system of quality control.
“Issuing an audit report stating that the audit was performed in accordance with PCAOB standards is a solemn commitment to the investing public, and serious consequences can follow when an auditor fails to meet that commitment,” Robert Rice, director of the PCAOB’s Division of Enforcement and Investigations said in a statement.
Without admitting or denying the findings, Pai and the firm consented to the PCAOB’s order, which:
- Censures Pai and the firm and imposes a $40,000 civil money penalty, jointly and severally, against them;
- Revokes the firm’s PCAOB registration with a right to reapply after three years;
- Bars Pai from being an associated person of a PCAOB-registered firm, with a right to petition the Board to terminate his bar after three years;
- Requires the firm to undertake remedial actions to improve its system of quality control and procedures before reapplying for registration; and,
- Requires Pai to complete 40 CPE hours before seeking to terminate his bar.
Bridgewater Associates founder Ray Dalio warned House Republicans of the dangers of rising U.S. deficits and urged them to cut the budget deficit to just 3% of gross domestic product or risk debt service costs squeezing government spending.
Dalio’s message of austerity comes as House and Senate Republicans battle over the size of spending cuts to be paired with a giant tax cut coming later this year. The U.S. budget deficit was 6.6% of GDP in 2024, according to the Congressional Budget Office.
“There was a good understanding of the choices and the possibilities to manage this dire situation over time,” Dalio said in a statement after the meeting. “I look forward to staying in touch about these issues and having similar discussions with others so that there are realistic assessments of the issues and what might be done to deal with them.”
The House has drafted a $4.5 trillion tax cut blueprint paired with $2 trillion in spending cuts over ten years, which would add about $3 trillion to deficits over the decade. Senate Republicans want to deploy a budget gimmick to allow them to add trillions more in tax cuts without more spending cuts. House and Senate GOP leaders will work to resolve their differences in a meeting with Treasury Secretary Scott Bessent later Tuesday.
After the Dalio meeting, House Budget Chairman Jodey Arrington said he’s resolved to block any Senate tax plan that lacks sufficient spending cuts, saying it would be dead on arrival in the House. But Arrington also acknowledged that the House’s own budget blueprint fails to meet Dalio’s 3% GDP target.
“This is not something you accomplish in one bill,” he said. “We need to begin exercising the spending cut muscles.”not supported.
Representative David Schweikert, an Arizona Republican, said Dalio’s message means Congress must pass spending cuts to pay for their plans to make President Donald Trump’s expiring 2017 tax cuts permanent as well as any new tax cuts.
Dalio has been warning for some time that the U.S.’s growing debt burden threatens the country’s financial stability, an argument he advances in a forthcoming book: How Countries Go Broke: The Big Cycle.
“We are at a precarious time in what I call the Big Cycle, where there is a confluence of major forces playing out in a way that is similar to many times in history,” Dalio said in a statement released in advance of the meeting.
Dalio, 75, stepped down as co-CEO of Bridgewater in 2017 and
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