Copy of AFF Sentinel V22 #23-Tax Plans and Reconciliation Progress
- Steve Dittmer
- Jul 22
- 4 min read
Reports From Behind the Scenes Indicate Movement But Key Decisions Not Made Yet
Steve Dittmer | AFF Sentinel
Colorado Springs, CO
Originally sent to subscribers 03/25/25
Beyond tariff concerns and the fights over deportations of illegal criminals, likely the biggest question now centers on the tax reform portion of the reconciliation bill.
As you likely remember, both the Senate and the House have passed different versions of resolutions specifying what they want to include in the reconciliation bill. In general, the main difference was the Senate resolution did not include tax provisions, preferring to wait for a second bill to handle the complexities of tax issues.
Sen. Mike Crapo (R-Id) is chairman of the Senate Finance Committee. The factions are now working on getting as much as they can into the one, big, beautiful bill. The plan is fluid both because of those negotiations but also because no one seems to be sure what the Senate parliamentarian will allow in the bill under reconciliation rules.
But the principles are proceeding along the lines of continuing the existing tax regulations from the 2017 law as the baseline and then adding as many new provisions as they can agree on. The added elements of lowering tax rates further, eliminating taxes on tips, overtime and Social Security would be added in if possible but how many and which ones is uncertain.
We were encouraged by Crapo’s comments that there is serious emphasis on getting the tax elements of the reconciliation bill done as quickly as possible. Comments from other sources that Treasury Secretary Scott Bessent is putting tax reform at the top of his priority list are also encouraging. The timeline that is most popular is getting this reconciliation bill through by June. That would be half a year faster than the bill in 2017 and would make the economy pick up in the second half of 2025 instead of waiting for 2026.
Kevin Hassett, director of the National Economic Council, said that while the major players at cabinet level are meeting every ten days or so, the deputies are meeting every day to thrash out issues between the House, Senate and Administration. There has been “enormous progress” according to Hassett. His team is working on getting out a report by mid-week to use in meeting with each member of Congress in showing the effects of the last tax cuts on generating economic growth.
There seems to be a plan that rather than relying on the members to follow the leadership, they intend to meet with and answer questions from each member. Given the slim majorities Republicans hold, that would appear to be wise tactics. By constructing the bill to have tax cuts, spending cuts, border and defense spending, energy and permitting reform and DOGE-suggested cuts in the package, they intend to have key factions on board from the beginning.
As we’ve mentioned before, putting the tariffs ahead of the tax bill was not the preferred sequence. But it is something that can be overcome, in contrast to trying to repeal Obamacare ahead of the tax cuts last time.
There is agreement from the Republican side and the Administration that the tax provisions need to prioritize economic growth. The factor that doesn’t seem to be properly understood -- or accurately reported by media and Democrats -- is that decreasing tax rates increases government revenue.
But the budget big picture involves several factors. The House resolution calls for a minimum of $1.5 trillion in spending cuts, with a target of $2 trillion. Allowing the present tax law (2017) to expire would mean a $4.5 trillion increase in taxes for taxpayers, which would hit the middle class the most. Savings from DOGE findings could amount to $1 to 2 trillion.
The Administration is figuring on expensing and depreciation retroactive to Jan. 20, 2025 on equipment and also on factory construction. R&D provisions are to be included.
There is also discussion of including rescission clauses in the reconciliation bill to claw back or cancel unused funds from previously passed bills. The misnamed “Inflation Reduction Act” is a particular target, especially green energy provisions that haven’t been spent. So also is the $80 billion allocated to IRS expansion. There are projects authorized but not executed, often because DEI and ESG requirements were so restrictive that no contractors were able to comply.
There is apparently still indecision on what baseline approach to use. It still seems to us like tax policy that has existed for eight years is existing policy. If that is the baseline, there is much more room for tax cuts and spending cuts than if one is assuming the existing law has expired when it hasn’t. This displays the kind of lack of common sense that makes one puzzled as to whether they are acting crooked or just dumb in D.C.
Getting the one, big, beautiful bill with the major elements through Congress is the main thing. But it does not mean other bills can’t follow with additional provisions later.
One thing is certain: whether it is tax policy or tariff policy, there is lots of unsettled discussion within the Administration. That should lead to enlightened, better decision making. But it also means it is likely final decisions won’t be made until the last minute or beyond. That uncertainty everyone hates is not going away soon.
Another key sentiment from recent days: while the data on key sectors has been encouraging, many analysts are not expecting the kind of strong GDP growth we saw last year, at least in the first half. Many are projecting GDP to be in the 1.5-2 percent range rather than the 2.8-3 percent of recent months. While tariffs have gotten the attention, it is tax policy resolution that will kick off strong GDP growth for the second half.
Our address: Agribusiness Freedom Foundation, P.O. Box 88179, Colorado Springs, CO. 80908.
To support the work of AFF, you can contribute with any major credit cards here:
Or,
If you wish to use your Paypal acct. click below: