Tax Policy Review: May 2026 Updates

Government Funding

Congressional Republicans have made progress on their two‑track funding plan for the Department of Homeland Security (DHS):

• Appropriations Funding: On April 30, the House passed and the president signed the Senate’s bipartisan appropriations bill, which ended a record 75-day partial government shutdown. The bill funds most of DHS for the remainder of FY26, excluding Immigration and Customs Enforcement (ICE) and certain border security operations.
• Reconciliation Funding: Republicans are advancing a separate reconciliation package intended to fund the DHS components left out of the appropriations bill through FY29. While the framework has taken shape, funding levels and policy conditions are still being negotiated. Congress is expected to try to pass the measure this week, ahead of the Memorial Day recess, to meet the president’s June 1, 2026, deadline.

Potential Legislation

Congress is scheduled to adjourn at the end of this week for the Memorial Day recess. The number of legislative days remaining before the midterm elections continues to decline, with 53 days left for the Senate and just 40 for the House of Representatives (House). Given the limited legislative calendar, significant tax legislation is unlikely to advance before the elections; however, certain tax priorities — particularly those with bipartisan support — could be addressed during the lame duck session.

Reconciliation 3.0

As discussed above, Reconciliation 2.0 is expected to be relatively narrow in scope. At the same time, some House Republicans are pressing for a broader Reconciliation 3.0 package before the August recess in an effort to enact key priorities ahead of the midterm elections. The Senate, however, has not shown the same level of interest, and it remains unclear whether House Speaker Mike Johnson (R-LA) could build sufficient consensus within his extremely narrow majority.

If Republicans move forward with a third reconciliation bill, tax provisions could be included, such as member priorities that didn’t make it into earlier packages, measures addressing affordability and possible targeted tax revenue raisers.

BUILD America 250 Act 

House Transportation and Infrastructure Committee leadership released a $580 billion surface reauthorization bill over the weekend. The BUILD America 250 Act would establish a new revenue stream for the Highway Trust Fund through annual registration fees on electric and plug‑in hybrid vehicles.

The proposal would impose fees of $130 for electric vehicles and $35 for plug-in hybrid vehicles that would gradually climb to a maximum of $150 and $50, respectively. It remains unclear whether the proposal has sufficient support to advance. Senate Finance Committee Ranking Member Ron Wyden (D–OR) has expressed opposition to the proposal, stating that “as far as I’m concerned, this is off the table.”

Gas Tax Holiday

While there has been considerable discussion around a temporary suspension of the federal gasoline tax, there does not appear to be enough momentum for the proposal to advance.

The federal gas tax adds 18.4 cents to the cost of each gallon of gasoline and 24.4 cents to each gallon of diesel fuel. Even if the federal tax were suspended, the impact on prices at the pump would be limited relative to recent price increases, and savings may not be fully passed on to consumers. At the same time, reducing this revenue stream would put additional strain on the Highway Trust Fund, which already faces long-term funding challenges.

Cryptocurrency Tax 

The Senate Banking Committee advanced the Clarity Act (HR 3633), a bipartisan bill that would overhaul the market structure for digital assets, clearing the way for consideration on the Senate floor. The legislation has been in development for months and appears to be nearing the finish line, although several issues remain to be resolved.

The CLARITY Act does not include any tax provisions. Policymakers have generally viewed market structure legislation as coming before tax policy in this space; however, tax writers have been working in parallel on a bipartisan digital asset tax package. Ways and Means Committee members Rep. Max Miller (R‑OH) and Rep. Steven Horsford (D‑NV) have taken the lead on negotiating and drafting the proposed legislation and recently introduced an updated version of the Digital Asset PARITY Act.

Ways and Means Chair Jason Smith (R–MO) is hoping to pass the legislation with bipartisan support before the end of the 119^th Congress, noting that “it has to be bipartisan, or I have no desire to move it.”

Housing Policy

Congress has also begun advancing broader housing legislation, including the Housing for the 21st Century Act, though the House and Senate are not yet aligned on a single approach. While the current proposals do not include direct tax provisions, they are intended to increase housing supply and could have downstream implications for existing tax incentives.

Despite the broad support these bills received, their fate in the Senate remains uncertain. Senate Finance Committee Chair Mike Crapo (R‑ID) and Ranking Member Ron Wyden (D‑OR) have put forward a broader bipartisan tax administration package, the Taxpayer Assistance and Service Act, which includes versions of several House-passed measures. Lawmakers in both chambers will need to reconcile their approaches before any package can move forward.

Implementing Tax Reform

Limited guidance related to P.L. 119‑21, also known as the “One Big Beautiful Bill Act” (OBBBA), was released this month. However, according to Kevin Salinger, Deputy Assistant Secretary for Tax Policy at the Treasury Department, significant additional guidance is forthcoming.

One notable piece of guidance released this month was a proposed regulations package addressing recent changes to gambling deductions and information reporting thresholds. 

Internal Revenue Service (IRS) Updates

Filing season is over. According to its most recent estimates, the IRS processed more than 140 million returns between the start of filing season and April 17, 2026. The average refund for the 2025 tax year increased by $333, or 11.3% compared to the prior year.   

According to Ways and Means Chair Jason Smith (R-MO), over 60 million filers claimed one of the temporary individual OBBBA deductions, including:

• 34 million taxpayers claiming the deduction for seniors
• 28 million taxpayers claiming the deduction for overtime
• Seven million taxpayers claiming the deduction for tipped income
• One million taxpayers claiming the deduction for auto loan interest

Proposed IRS Funding

Last month, we highlighted the White House’s proposed FY27 IRS funding request of just $9.8 billion. Since then, Republican House members have advanced a proposal providing approximately $10.2 billion in IRS funding. Both figures are well below the roughly $11.2 billion appropriated for FY2026. The Senate has not yet released a corresponding funding proposal.

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Priority Guidance Plan

The Treasury Department and the IRS are accepting recommendations for the 2026 –2027 Priority Guidance Plan through May 29, 2026. For details and instructions on how to submit, reference Notice 2026-23. The initial Priority Guidance Plan for the 2026 – 2027 cycle is expected to be released in the fall of 2026.

Economic Outlook

It has been an eventful month for the U.S. economy, marked by mixed economic data, the Senate confirmation of a new Federal Reserve Chair, and the national debt exceeding a significant milestone.

Mixed Economic Data Continues

The economy continues to send mixed signals, with the job market remaining relatively steady but showing signs of cooling, spiking inflation, and slower growth weighing on consumers and businesses:

• Inflation: Annual inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), rose again in April to 3.8%, nearly twice the Federal Reserve’s target of 2.0%. Recent increases are driven in part by higher oil prices amid the conflict with Iran.
• Employment: The U.S. economy added approximately 115,000 jobs in April, and the unemployment rate held steady at 4.3%.
• Gross Domestic Product (GDP): The advanced estimate of Q1 GDP came in at 2.0%, just shy of expectations.

Federal Open Market Committee (FOMC) News

The Federal Reserve has a new Chair — Kevin Warsh, who was confirmed by the Senate on May 13, 2026, just two days before Jerome Powell’s term was set to expire. While Powell is no longer Chair, he has indicated he will remain on the Board of Governors for the time being.

Warsh’s first FOMC meeting as Chair is scheduled for June 16 – 17, 2026. He assumes leadership at a time of competing pressures, including persistent and rising inflation, political pressure to reduce interest rates, and a notably divided FOMC, which recorded four dissents at its most recent meeting — the highest level in decades.

National Debt Milestone

In April, national debt held by the public ($31.27 trillion) surpassed U.S. GDP ($31.22 trillion), pushing the public debt-to-GDP ratio above 100% for the first time since the aftermath of World War II. The total debt-to-GDP ratio, inclusive of intragovernmental holdings, comes in at nearly 125%.

Additionally, the U.S. Department of the Treasury now expects to borrow approximately $2.06 trillion in FY2026, up from roughly $1.85 trillion previously — an increase of more than 10% in projected borrowing needs.

Trade Policy

Trade policy developments over the past month have raised new questions and added to uncertainty.  As the government begins to issue International Economic Emergency Act (IEEPA) tariff refunds, the fate of Section 122 tariffs remains unsettled. At the same time, negotiations of the United States-Mexico-Canada Agreement (USMCA) are accelerating, and the administration continues to consider additional actions under Sections 232 and 30.

Key Developments

Key developments over the last month include:

IEEPA Refund Process Began

On April 20, 2026, U.S. Customs and Border Protection (CBP) began accepting applications for IEEPA tariff refunds. Our latest IEEPA refund alert provides additional details and practical guidance.

Section 122 Tariffs Found to be Unlawful 

The U.S. Court of International Trade (CIT) held that the implementation of temporary tariffs under Section 122 of the Trade Act of 1974 was unauthorized. The government has appealed the decision and obtained a stay on the limited injunction imposed by the CIT. As a result, CBP continues to collect Section 122 duties while the appeal is pending. Please see our Section 122 alert for more information.

USMCA Formal Review

Formal review negotiations for the USMCA are expected to begin next week, marking the start of what is expected to be a prolonged process that could result in meaningful changes to the agreement.

Pending Section 301 and 232 Investigations 

While the new Section 301 investigations are still ongoing, the public hearings have concluded, and the process is moving into the post-hearing phase. These investigations appear to be moving on an accelerated timeline, with potential actions possible before the July 24, 2026, expiration of the current Section 122 tariffs. No new Section 232 investigations have been initiated recently; however, several remain pending and could result in trade actions in the coming months.

Looking Ahead

With multiple trade authorities in use or under investigation, companies and consumers should expect continued volatility in U.S trade policy. There is a high likelihood of additional tariff actions or adjustments in the coming months. Proactive planning and understanding the downstream effects of tariffs will remain critical. 

We will continue to bring you updates as trade policy evolves.

Control of Congress: 2026 Midterms

The most notable activity related to the 2026 midterm elections this month has centered around redistricting.  In the last several weeks:

• Louisiana’s primaries have been suspended to give the legislature time to draft a new congressional map following the S. Supreme Court ruling in Louisiana v. Callais. In Callais, the Court found the creation of a second Louisiana majority-Black congressional district was an unconstitutional racial gerrymander.
• Virginia voters passed a referendum enacting a new congressional map that would have net Democrats up to four additional seats; however, the referendum was subsequently invalidated by the Virginia Supreme Court, and the U.S. Supreme Court declined to block the decision. Virginia will use their existing map for the midterms.
• Florida legislators passed a new congressional map that could net Republicans up to four additional seats.
• Tennessee legislators approved a new congressional map that could net Republicans up to one additional seat.
• Missouri’s Supreme Court rejected legal challenges to the state’s new map, clearing the way for its implementation, which could net Republicans up to one additional seat.
• South Carolina’s governor called a special session to address congressional redistricting. The effort could net Republicans up to one additional seat if the only Democratic leaning district is eliminated.
• Alabama began the process of implementing a new map after the S. Supreme Court vacated prior lower court rulings and lifted an injunction that required the state to use a court-drawn map with two majority-Black districts

The Callais decision weakened Section 2 of the Voting Rights Act (VRA), a development that is likely to have implications well beyond Louisiana’s map. States, particularly in the South, that have previously drawn majority-minority districts to comply with the VRA may revisit their maps in light of the decision. While some states — including Tennessee, South Carolina and Alabama — are already moving to revise or implement new maps ahead of the 2026 elections, others face timing and procedural constraints that make near‑term changes unlikely and may instead pursue redistricting ahead of the 2028 cycle.

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• Article: Tax Policy Review: April 2026 Updates
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• Article: Tax Policy Review: January 2026 Updates