Welcome to the Tax Policy Review — your monthly briefing from Cherry Bekaert’s tax policy team highlighting the most important legislative, regulatory and legal tax developments.
Tracking Tax Reform
In recent weeks, Capitol Hill has largely been consumed with Republican efforts to advance President Trump’s legislative agenda through “one big, beautiful bill.” The legislation, which policymakers will attempt to pass using the reconciliation process, is expected to address tax priorities, reductions in government spending, border security, defense funding and other Republican priorities.
While we are primarily focused on the tax provisions that may be included in the sweeping legislation, there are several non-tax policy components that will play a significant role in determining the shape, size and viability of the ultimate bill. Republican leadership is navigating a complex legislative landscape — working with a diverse conference, extremely narrow majorities in both chambers, a ballooning national debt and policy decisions that collectively total trillions of dollars.
House Action
The House Ways and Means (W&M) committee released bill text, held a markup and advanced their portion of the reconciliation bill out of committee last week. Cherry Bekaert examined the bill’s most relevant provisions in Tracking Tax Reform: A Closer Look at the Ways and Means Tax Framework.
Each committee sent its portion of the reconciliation bill to the House Budget Committee, where it was compiled into a single bill. While this is normally a procedural step, four conservative members of the committee opposed the package, raising broad concerns over its fiscal impact and, specifically, targeting the delay in ending Inflation Reduction Act (IRA) credits and changes to Medicaid.
After a weekend of negotiations, the four members agreed to allow the bill to advance out of the budget committee by voting “present.” However, shortly after the vote, they issued a statement making it clear that the compromises reached over the weekend don’t go far enough.
What Deals Were Reached?
At the time of publication, the details of any agreements between Republican leadership and House conservatives were not publicly available. However, the general framework appears to include an acceleration of the Medicaid work requirements and a complete termination of all IRA credits by the end of 2028.
Now the package will move to the House Rules Committee, where a vote is scheduled to take place at 1 a.m. on Wednesday, May 21, 2025, before Congress departs for a one-week Memorial Day recess. The Rules Committee is expected to make changes to the bill, including those conservative members are requesting and changes negotiated by the SALT caucus.
Passage in the House is not guaranteed; the package will need to garner near-unanimous approval from Republican representatives, as Speaker Mike Johnson (R – LA) cannot lose more than three votes with his 220 – 213 margin. The more conservative House members are generally concerned with whether the complete package does enough to reduce annual deficits with spending cuts.
Meanwhile, moderate House members are weighing whether the cuts to federal programs are too steep and how their vote will impact their midterm election prospects. In addition, at least five moderate members from blue states are insisting on an increase to the SALT cap in exchange for their votes. Johnson has a fine needle to thread to keep everyone on board.
If Johnson and House Republicans are successful, the bill will move to the Senate. The Senate is widely expected to either alter the House bill or present their own framework. Many senators have publicly spoken out about their desire to make changes, with several criticizing cuts to Medicaid and IRA credits. As in the House, the Senate Majority Leader John Thune (R – SD) can only lose three votes.
Ultimately, both chambers will need to pass identical bills to send the package to the president’s desk — which is shaping up to be no small feat.
Timing
House leadership, specifically Johnson and W&M Chair Jason Smith (R – MO), are hoping to have the bill on the president’s desk by July 4. While this is an ambitious timeline, it is potentially achievable if everything goes smoothly; however, unexpected delays and road bumps are common in Washington. The Senate has not committed to the House’s target delivery date, but Thune has said he would like to wrap up the process by mid-summer, before the August recess.
Still, both the July 4 and August recess deadlines are self-imposed, implemented to keep up pressure and momentum. The ultimate deadline will largely depend on three key dates:
- The X date: The date the U.S. will no longer be able to meet all its financial obligations. Treasury is not yet able to provide a precise X date; we discuss this in more detail below.
- September 30 (the end of FY25): The reconciliation instructions included in the budget resolution Congress passed in April expire at the end of the fiscal year, September 30, 2025. If Congress is unable to pass a reconciliation bill before that date, they will need to go through the entire process again using any FY26 budget resolution.
- December 31: This is the last day most Tax Cuts and Jobs Act (TCJA) expiring provisions are in effect.
Tax Reform Updates
We are keeping our readers informed of the latest reconciliation news through our Tracking Tax Reform series. These pieces are released and sent out as developments occur:
- Tracking Tax Reform: The Reconciliation Process
- Tracking Tax Reform: Senate Drafts Budget Resolution
- Tracking Tax Reform: Congress Adopts Compromise Budget Resolution
- Tracking Tax Reform: Ways and Means Releases Reconciliation Bill Text
- Tracking Tax Reform: A Closer Look at the Ways and Means Tax Framework
The X Date
The federal debt limit was reinstated on January 2, 2025, after a 19-month suspension. This statutory cap, which restricts the amount of debt the U.S. Treasury is authorized to issue, is established by Congress. Since the limit’s reinstatement, Treasury has employed “extraordinary measures,” a series of temporary financial action that temporarily extend the government’s borrowing capacity, to prevent the U.S. from defaulting on its obligations.
The date on which the extraordinary measures are exhausted, leaving the government without sufficient funds to meet its obligations, is commonly referred to as the “X date.” Treasury is responsible for projecting the X date, typically starting with a broad timeframe that becomes more precise as the date approaches.
In March, the CBO issued an estimated date of August or September. On May 9, Treasury Secretary Scott Bessent sent a letter to Congress stating there is “significant uncertainty” surrounding cash flows and urging them to increase the limit before recessing as “there is a reasonable probability” that the government’s funds will be exhausted sometime in August.
Republicans are planning to include a debt limit increase in the broader reconciliation package, increasing pressure for policymakers to pass the comprehensive tax and spending legislation before the X date.
Credit Rating Downgrade
On Friday, May 16, 2025, Moody’s Ratings downgraded the United States’ credit rating in response to increasing government debt and rising interest payments over the last decade. This was the United States’ last perfect AAA credit rating; S&P Global Ratings and Fitch Ratings downgraded the U.S. in 2011 and 2023, respectively.
While the change is not expected to have a substantial impact on credit markets in the short term, it comes at a critical time for Republicans, as they attempt to pass their sweeping tax and spending reform bill.
Trade Policy
Trade policy uncertainty is having a significant impact on the U.S. economy, driving markets, business strategies and consumer spending. The U.S. economy’s contraction in the first quarter of 2025 (GDP of -0.3%) has largely been attributed to a surge in imports as businesses attempted to purchase goods ahead of Trump’s promised tariffs, combined with a slow in personal consumption expenditures.
We have grouped the current tariff regime into two primary categories:
Countries
Trump has utilized the International Emergency and Economic Powers Act (IEEPA) to impose both global and reciprocal tariffs. The IEEPA provides the president with broad authority and does not require investigations or studies.
Most of the reciprocal tariffs are currently suspended:
- All countries, other than China, are on hold through July 8, 2025 (still subject to 10% baseline tariff).
- China was reduced from 145% to 30% for a period of 90 days, through August 10, 2025.
During these suspension periods, Trump’s administration is hoping to negotiate new trade deals with affected countries. For more details on the origin of these tariffs, see Trump Announces Sweeping Reciprocal Tariffs.
|
Country |
Tariff Rate |
|
China |
30% for all goods other than technology products (larger 145% rate on hold for 90 days) |
|
Canada |
25% for non-USMCA goods |
|
Mexico |
25% for non-USMCA goods |
|
All Other Countries |
10% baseline tariff* |
|
Select Other Countries |
Varying rates currently on hold for 90 days* |
*Excludes steel, aluminum, vehicles and parts, copper, lumber, pharmaceuticals, semiconductors, certain minerals, bullion, and energy.
Products
The Trump administration has also utilized Section 232 of the 1962 Trade Expansion Act to implement tariffs on a range of products. The president has indicated he intends these tariffs to be in place indefinitely, as they are meant to encourage domestic production and reduce dependence on foreign supply chains.
|
Product |
Tariff Rate |
Effective Date |
|
Steel, Aluminum & Derivatives |
25%^ |
March 12 |
|
Vehicles |
25%* |
April 3 |
|
Certain Vehicles Parts |
25%* |
May 3 |
^Other than Russia, which has a rate of 200%.
*Other than USMC items, automakers building vehicles in the U.S. may apply for temporary tariff offsets.
In addition, there are also several Section 232 studies ongoing. As a result, we are anticipating potential new tariff measures to be introduced on the following products:
- Timber and Lumber
- Copper
- Pharmaceuticals
- Semiconductors
- Medium and Heavy-Duty Trucks and Parts
- Commercial Aircraft and Parts
The uncertainty around trade policy and its impact on the broader U.S. economy is expected to continue over the coming weeks and months. Visit our Tariff Updates page for the latest updates and insights on trade policy.
Government Funding
Each year, Congress is responsible for providing the funding for discretionary expenditures. This funding can be provided by regular appropriations (which consists of 12 bills) or continuing resolutions (CRs), temporary measures that provide funding for a limited time. The government operates on a fiscal year, which runs from October 1 through September 30.
Congress has secured funding through the end of fiscal year 2025 (FY25, which ends September 30, 2025) through a series of CRs. Now, Congress must pass 12 appropriations bills before the start of the 2026 fiscal year (or another CR), to avoid a government shutdown.
Each year, in February, the president’s administration releases a budget proposal; however, they are often delayed and provide less detail in years where there is a change in administration. Earlier this month, Trump released his long-awaited “skinny budget” plan.
The administration's FY26 budget proposal would dramatically shift the allocation of discretionary funding, including:
- A $163 billion reduction to non-defense spending (22.6% increase)
- A $175 billion increase in Homeland Security funding (65% increase)
- A $113 billion increase in defense spending (though this funding is only a one-time boost and tied to the passage of the reconciliation bill, otherwise defense funding remains static)
The president's budget essentially serves as a wish list, highlighting the administration’s priorities. Congress is not required to enact anything included in the budget request; however, it can influence the appropriations process.
The extent to which the president’s policy goals will be incorporated into the final FY26 appropriations bills is unclear — the framework was initially met with significant resistance from several prominent Republicans, including Senate Appropriations Chair Susan Collins (R – ME). Additionally, Democratic votes will be needed in the Senate to pass any government funding bill, as appropriation bills are subject to the Senate filibuster.
Looking Ahead
The key dates we are watching in 2025:
- July 4: Johnson’s and Bessent’s self-imposed deadline for delivering a final reconciliation bill to the president
- July 9: The 90-day pause of reciprocal tariffs (for countries other than China) expires
- July 24 and August 1: The last days the House and Senate are scheduled to be in session before the August recess, respectively
- August 11: The 90-day period of reduced tariffs on China’s imports (30% rather than 145%) expires
- Sometime between August and September: The U.S. will hit the X date
- September 30: The last day of the 2025 fiscal year, which is the last day to pass a reconciliation bill under the current budget resolution and the day continuing appropriations expire
- December 18 and 19: The last days the House and Senate are scheduled to be in session before the holiday recess, respectively
- December 31: The last day most temporary TCJA provisions are in effect
Your Guide Forward
Cherry Bekaert’s tax policy team is here to monitor the latest tax policy developments and insights to bring you updates and news.
