Legislative Lowdown
White House Considers Allowing Top Marginal Income Tax Rate to Revert to Pre-TCJA Levels: According to a single report, the Trump administration is considering letting the top income tax rate and the expanded bracket expire in the tax bill being developed in Congress. The Tax Cuts and Jobs Act, (TCJA, Pub. L. 115-97) decreased the top individual rate to 37% and increased the threshold for the related tax bracket. Without an extension, top earners would see more income taxed again at a top rate of 39.6%. The administration reportedly is considering the proposal to make way for President Trump’s campaign tax priorities to eliminate the federal taxation of tip income, overtime pay and Social Security benefits, and in response to messaging from congressional Democrats, who have alleged that Republicans are open to weakening social safety net programs such as Medicaid in order to finance tax cuts for high-income, high-wealth taxpayers.
Congressional Republicans have not signaled interest in pursuing such a proposal in the expected reconciliation bill, as many Republicans oppose tax increases and support a full extension of the TCJA. In addition, raising the top tax rates would require adjustments to the Section 199A Qualified Business Income deduction to maintain its intended balance in tax rates imposed on business income, which would give rise to additional negotiations and discussions that may delay the passage of a tax package.
Budget Update – House, Senate Republicans Reportedly Close to Compromise: According to reports of discussions between House and Senate Republican leaders, congressional Republicans are aiming to move forward with a budget plan that sets different budget targets for each chamber, with reconciliation instructions varying significantly. Reports suggest the House committees would continue to target approximately $2 trillion in spending cuts, whereas Senate committees would be tasked with finding approximately $3 billion in spending cuts. This two-track strategy ostensibly would provide the Senate with more flexibility to pursue spending cuts, although doubts have already started to emerge that the Senate approach may not satisfy fiscal hawks in the House Republican Conference concerned about U.S. government spending. If ultimately successful, the strategy would allow the Senate to consider an amendment to the House-passed budget resolution later this week, with a “vote-a-rama” expected before week’s end.
The Senate’s planned timeline is still dependent on a ruling from the Senate parliamentarian on Senate Majority Leader John Thune’s (R-SD) plan to utilize a “current policy baseline.” The novel baseline approach would allow Congress to make the expiring TCJA tax provisions permanent, with no apparent cost even though, as a practical matter, the extension of the expiring Tax Cuts and Jobs Act (Pub. L. 115-97) provisions would still be deficit financed. Leader Thune, along with House Speaker Mike Johnson (R-LA), Senate Finance Committee Chairman Mike Crapo (R-ID), House Ways and Means Committee Chairman Jason Smith (R-MO), Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett, continued negotiations and procedural discussions on April 1.
CBO Projects Debt Ceiling Will Be Reached in August or September: In a statement on March 26, the Congressional Budget Office (CBO) projected that the United States would reach its debt ceiling and risk defaulting on its debt in August or September 2025, should lawmakers fail to raise or suspend the debt limit. The report further clarified that, should the government’s borrowing needs increase in the coming months, then the Treasury Department’s resources “could be exhausted in late May or sometime in June, before tax payments due in mid-June are received or before additional extraordinary measures become available on June 30.”
Thune Presses Estate Tax Repeal as Part of Tax Package: In a Senate floor speech on March 26, Senate Majority Leader John Thune (R-SD) advocated for repeal of the estate tax to help farmers, ranchers and the U.S. agriculture industry, stressing that eliminating the tax will help ensure that “no farmer or rancher has to worry about whether the family farm or ranch will be able to stay in the family after they pass.” Thune’s long-standing proposal would go beyond extension of the expanded personal exemption from the estate and gift tax—often referred to as the “death tax”—which was included in the Tax Cuts and Jobs Act (Pub. L. 115-97) and will revert to approximately half the current exemption amount (i.e., $13.99 million) at the end of 2025 without further action by Congress.
Tax Worldview
Estes Reintroduces OECD Retaliation Bill: On March 27, Rep. Ron Estes (R-KS) reintroduced the Unfair Tax Prevention Act (H.R. 2423) intended to discourage foreign countries from imposing extraterritorial taxes on U.S. companies—a primary enforcement mechanism of the Organisation for Economic Co-operation and Development (OECD) Pillar Two global tax agreement. The bill would modify the U.S. Base Erosion and Anti-abuse Tax (BEAT) to apply more broadly to foreign-parented companies in countries adopting extraterritorial taxes on U.S. businesses. In a press release, Rep. Estes said the current OECD agreement “disproportionately impacts U.S. job creators and our country’s economic competitiveness by targeting our companies for foreign treasuries’ gains.” The bill is co-sponsored by 24 other Republicans on the House Ways and Means Committee.
Finance Committee Democrats Investigate Pfizer for Alleged Offshore Profit-Shifting: Led by Senate Finance Committee Ranking Member Ron Wyden (D-OR), committee Democrats released a report alleging that pharmaceutical company Pfizer engaged in offshore profit-shifting referred to as “round-tripping” to avoid paying U.S. taxes, a purported arrangement in which the U.S. company treats sales to U.S. customers as derived from foreign subsidiaries in order to take advantage of the 10.5% global intangible low-taxed income (GILTI) tax rate, rather than the 21% domestic corporate tax rate. The report alleges that Pfizer reported no U.S. income on its 2019 tax return despite recording $21 billion in global income. The report contends that Pfizer’s tax results reflect a “design flaw” in the GILTI rules that were enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA, Pub. L. 115-97).
The report also alleges that Pfizer signed nondisclosure agreements (NDA) preventing the disclosure of details about securing favorable income tax rates in Singapore and Puerto Rico. Additionally, the report details that other pharmaceutical companies have engaged in round-tripping, including AbbVie, Amgen and Merck. A spokesperson for Pfizer disputed the report, stating that it was “incomplete” and that the company paid $12.8 billion in U.S. income taxes over the last four years “on a larger portion of its global income than it had pre-TCJA.”
1111 Constitution Avenue
TIGTA Analyzes Direct File Pilot Program: On March 20, the Treasury Inspector General for Tax Administration issued an audit report titled “Inflation Reduction Act: Results of the Direct File Pilot.” The report provides an update to TIGTA’s continued oversight of the Internal Revenue Service (IRS) Direct File program, which was piloted during the 2024 tax-filing season and allowed eligible taxpayers to file their federal tax return directly with the IRS at no cost.
TIGTA found that the IRS did not account for all costs of the Direct File pilot, including an estimated $8.8 million for costs associated with providing Office of Management and Budget (OMB) employees detailed to the IRS to help develop Direct File, as well as costs incurred through collaboration with the IRS’ Credential Service Provider. TIGTA also provided figures about the development and testing of Direct File and the results of the pilot program, finding that 432,450 taxpayers created or signed into a Direct File account, but only 140,803 taxpayers submitted a return that was accepted by the system. TIGTA also found a software error preventing some taxpayers from seeing their prior year adjusted gross income (AGI), which was used to suggest whether the taxpayer was over the AGI limit for the Direct File Program.
TIGTA issued eight recommendations to the IRS, including ensuring that the total costs of Direct File include costs from all support functions, improving eligibility screening practices, correcting errors on returns, reaching out to taxpayers eligible to claim education credits, and improving personnel and customer service operations. The IRS agreed with six of the recommendations and partially agreed with the other two recommendations.
Trump Signs EO on Digitizing Treasury Payment Systems, Including Tax Refunds: On March 25, President Trump signed an executive order (EO) titled “Modernizing Payments To and From America’s Bank Account.” This EO requires the secretary of the treasury to cease issuing paper checks for disbursements of federal intragovernmental payments, tax refunds, vendor payments and benefit payments. All executive departments and agencies must transition to electronic funds transfer (EFT) methods, including prepaid card accounts and direct deposit. Additionally, the secretary of the treasury is ordered to provide agencies with access to the Department of the Treasury’s centralized payment systems for direct deposit, debit and credit card payments, real-time payment systems, digital wallets and other modern electronic payment options. The EO provides exemptions for agencies, including a continuation of providing paper checks for individuals who do not have access to banking services or electronic payment systems.
Internal White House Document Reveals 30% Personnel Cut at Treasury Department, IRS: According to an internal communication from the White House obtained by The Washington Post, officials are preparing to reduce the size of the federal workforce significantly, cutting agency personnel by between 8% and 50% depending on the agency. The document reportedly lists target personnel cuts for 22 agencies, and states that the Treasury Department will sustain “a roughly 30 percent personnel cut” and that the Internal Revenue Service “would cut nearly 1 in 3.” In an email response to The Washington Post, a White House official contended that the document was outdated and “does not accurately reflect final reduction in force plans,” while The Washington Post maintained that the document was last updated on March 25.
At a Glance
Real Estate Trade Groups Advocate for Preservation of Carried Interest Provision: In response to President Trump’s proposal to end the special tax treatment of carried interest—which would tax gains from certain partnership arrangements common in private equity and hedge funds, as well as some venture capital firms, as ordinary income rather than capital gains—several trade groups representing the real estate community advocated in support of maintaining the provision. The coalition wrote a letter to the leadership of the Senate Finance Committee and House Ways and Means Committee urging the preservation of the provision, saying that it “helps ensure our nation can meet the goals of increasing housing supply, modernizing our building stock, and contributing to economic growth.”
Senate Passes Legislation to Repeal Biden Administration Crypto Reporting Rules: On March 26, the Senate passed Congressional Review Act (CRA) legislation reversing a Biden administration Treasury Department regulation issued in December 2024 providing reporting requirements for decentralized finance (DeFi) brokers engaged in cryptocurrency transactions. Under the rule, DeFi brokers would need to file IRS Form 1099-DAs for all digital asset transactions conducted, putting them under the same requirements as securities brokers and centralized digital asset trading platforms. The Senate previously passed the resolution on March 4, but had to re-vote after the House passed the resolution, as revenue-raising bills must originate in the House.
Hearings and Events
House Ways and Means Committee
The House Ways and Means Committee has no tax hearings scheduled for this week.
Senate Finance Committee
The Senate Finance Committee has no tax hearings scheduled for this week.