Programming Note: Taxation and Representation will return on Jan. 8 with the start of the 119th Congress.
Legislative Lowdown
Reconciliation State of Play – Debate Continues Over Bill Strategy: As the start of the 119th Congress looms, House Republicans are still debating the timing, contents and number of reconciliation bills to take up, with the ambitious target of passing key legislation in the first 100 days of the incoming Trump administration. House Ways and Means Committee Chairman Jason Smith (R-MO) continues to press for a single reconciliation bill, emphasizing that it would be easier for Republicans to process in a House governed by the slimmest of majorities. However, incoming Senate Majority Leader John Thune (R-SD), with the backing of incoming White House Deputy Chief of Staff for Policy Stephen Miller, maintains that such an approach would miss an opportunity to pass non-tax legislation, namely border protection and “weigh down” the package given the divisions on what to include in tax legislation. Republican leaders intend to settle on a unified strategy before the end of the current Congress.
Ways and Means Committee Gains New Members with Ratio Set: On Dec. 13, House Minority Leader Hakeem Jeffries (D-NY) announced that House Democrats and Republicans reached an agreement on the standing committee ratios for the 119th Congress. The House Ways and Means Committee will grow by one member on both sides of the aisle, with 26 majority and 19 minority seats. Shortly after, the House Republican Steering Committee recommended the following four new Republicans to join the committee: Reps. Rudy Yakym (R-IN), Max Miller (R-OH), Nathaniel Moran (R-TX) and Aaron Bean (R-FL). The House Steering Committee is responsible for recommending members to serve on standing committees in the House of Representatives. The recommendations are subject to approval by the House Republican Conference. Profiles on Reps. Yakym and Miller were included in the Dec. 4 issue of “Taxation and Representation,” and profiles on Reps. Moran and Bean were included in the Dec. 11 issue.
The Democrats have not yet announced the three members who would join the committee, but Leader Jeffries noted in his announcement that the seats are “expected to be filled by former members of the committee who currently serve in Congress.” The only former Democrats on the Ways and Means Committee who will serve in the next Congress are Reps. Tom Suozzi (D-NY), Stacey Plaskett (D-VI) and Brendan Boyle (D-PA).
Crapo, Yellen Meet with Bessent: After meeting with Treasury Secretary nominee-designate Scott Bessent on Dec. 10, incoming Senate Finance Committee Chairman Mike Crapo (R-ID) said in a post on social media platform X (formerly Twitter) that he will seek to move Bessent’s nomination as quickly as possible through the committee, noting that Bessent “will play a pivotal role in preserving the Trump tax cuts and shaping additional policy to reignite the economy.” Also on Dec. 10, outgoing Treasury Secretary Janet Yellen stated that she spoke with presumptive Treasury Department nominee Scott Bessent on a call before Thanksgiving, reportedly congratulating him on his nomination and urging him to ensure that the Federal Reserve remains independent from political interference. She also expressed regrets for being unable to control the fiscal deficit, noting the importance of fiscal sustainability.
On Dec. 11, Bessent said that he would not seek to push out Jerome Powell, the current chairman of the Federal Reserve. Powell previously stated his intention to remain as Fed chairman for the remainder of his term, saying that he would refuse to resign if asked to do so by President-elect Trump. Trump later said on Dec. 8 that he would not seek to fire Powell and allow him to serve out his term, which expires in 2026.
Trump Considering Cutting Capital Gains and Dividends Taxes: In an interview on Dec. 12, President-elect Donald Trump said that he is open to considering cutting tax rates for capital gains and dividends. While short on details, his comments may indicate that he intends to resurrect plans for the Treasury Department and the Internal Revenue Service (IRS) to develop a regulatory framework to index capital gains to inflation. Similar efforts were explored in the first Trump administration and raised a host of issues regarding the scope and complexity of an indexing regime. Absent such an administrative approach, adjusting the tax rate on capital gains and dividends would require a statutory change, adding another issue for the tax debate among Republicans as the 2025 tax legislation comes together.
Tax Worldview
Canada Considering Options to Push Back against Threatened U.S. Tariffs and Tax Rate Cuts: With President-elect Donald Trump pledging to extend or make permanent various tax cuts and incentives in the Tax Cuts and Jobs Act (Pub. L. 115-97) and potentially enact new tax cuts and tariffs, Canada will be pressured to respond in order to maintain favorable terms in corporate tax and trade.
Though the corporate tax rate between Canada and the United States is similar after accounting for state and provincial corporate taxes, Trump’s proposal to cut the federal corporate tax rate to 15% for domestic manufacturing would give the United States a corporate-tax advantage. In response, Canadian officials are exploring ways to maintain tax competitiveness by extending incentives like favorable tax rates on new business investments and allowing businesses to write off certain assets more quickly.
In addition, if Trump were to impose blanket tariffs of up to 25%, Canada is exploring options to retaliate, including by imposing export taxes on major U.S. imports like uranium and oil, as well as potash for use in fertilizers. However, imposing retaliatory tariffs would drive up costs for Canadian producers, especially in provinces that provide a strong voter base for Pierre Poilievre, the leader of the Canadian opposition and the most likely candidate to unseat incumbent Prime Minister Justin Trudeau in the 2025 Canadian federal election.
The resignation of Canadian Deputy Prime Minister and Minister of Finance Chrystia Freeland on Dec. 16 exposed internal disagreements within the Trudeau administration on how to handle the threat of the potential Trump tariffs. In her resignation later, hours before she was set to address the Canadian Parliament on the country’s fiscal health, she accused Trudeau of engaging in “costly political gimmicks” instead of “pushing back against ‘America First’ economic nationalism ....” She criticized Trudeau for failing to “fight for capital and investment and the jobs they bring.” Freeland also expressed that Canada needed to keep its “fiscal powder dry” in preparation for a potential tariff war. Canada’s annual deficit for 2023-24 was assessed to be 61.9 billion Canadian dollars (43.2 billion U.S. dollars), far higher than Freeland’s promised goal to keep the country’s deficit below 40.1 billion Canadian dollars (28 billion U.S. dollars).
Republicans Consider Enacting Tariffs on Europe to Respond Against OECD Framework: With Republicans in control of the 119th Congress and the White House, the Organisation for Economic Co-operation and Development’s (OECD) two-pillar global economic framework will be in the crosshairs—and Republicans may seek not only to sink the deal, but to enact retaliatory tariffs against signatory countries that impose discriminatory or extraterritorial taxes on U.S. multinationals. House Republican Policy Committee Chairman Kevin Hern (R-OK) said that tariffs “will be a necessary way to respond” should Europe seek to enact digital services taxes (DSTs) or minimum taxes on U.S. multinational corporations operating in Europe, due to concerns that the imposition of these taxes would result in a large loss of revenue that would have otherwise flowed to the United States.
UAE to Impose 15% Minimum Tax on Large Multinationals, in Line with OECD: On Dec. 9, the Ministry of Finance of the United Arab Emirates (UAE) announced that it will impose a 15% minimum top-up tax on large multinational companies operating in the country, starting in January 2025. The new tax is part of the UAE’s efforts to diversify the country’s revenue away from oil-based sources. The 15% minimum tax is in line with the OECD’s two-pillar global tax framework.
Treasury Department, IRS Issue Regulations on Disregarded Transactions between QBUs and Owners: On Dec. 1, the Treasury Department and Internal Revenue Service (IRS) issued proposed regulations for the determination of taxable income and foreign currency gains or losses with respect to a qualified business unit (QBU). The regulations are intended to reduce compliance burdens for certain types of disregarded transactions. Comments and public hearing requests must be submitted to the Federal Register by March 11, 2025.
1111 Constitution Avenue
Smith, Edwards Call on Incoming Trump Administration to Terminate Direct File: On Dec. 10, Reps. Adrian Smith (R-NE) and Chuck Edwards (R-NC), along with 27 House Republicans, wrote a letter to President-elect Donald Trump urging the incoming administration to terminate the Direct File program, which was piloted by the Internal Revenue Service (IRS) for the 2024 tax filing season and was made “permanent” following the conclusion of the pilot program in May. The letter—which was also sent to Department of Government Efficiency (DOGE) heads Elon Musk and Vivek Ramaswamy, Treasury Secretary nominee-designate Scott Bessent and Office of Management and Budget Director-designate Russell Vought—states that the program presents a “clear conflict of interest” by allowing the IRS to “assert itself as the tax assessor, collector, preparer, and enforcer.” The lawmakers argue further that the IRS does not have the statutory authority to administer the program, and that the pilot program’s low take-up rate showed that Direct File was “not an efficient use of government resources.” The letter urges the Trump administration to end Direct File “on day one” and states that the IRS should instead focus on promoting existing programs (including the IRS Free File Program) and improving taxpayer service. In July, Reps. Smith and Edwards introduced the IRS Overreach Prevention Act (H.R. 9109), which would prevent the IRS from continuing to conduct the Direct File program or creating another free, public electronic tax return-preparation service.
IRS Continues to Approve Outstanding ERTC Claims While Lawmakers Call for Expedited Processing: On Dec. 9, Rep. Dan Goldman (D-NY) and Senate Majority Leader Chuck Schumer (D-NY) led a letter with other members of the New York Democratic congressional delegation to Internal Revenue Service (IRS) Commissioner Daniel Werfel, calling on the agency to expedite the processing of outstanding Employee Retention Tax Credit (ERTC) claims. The lawmakers state that though they “commend the agency’s work to resolve valid claims and protect against fraudulent ones,” the imposed processing moratoriums caused undue hardship for small businesses and nonprofits that filed legitimate claims and are still awaiting a payout. The letter encourages the IRS to expedite claims filed by professional employer organizations (PEOs), which are agency-certified and subject to additional scrutiny during the filing process, which the lawmakers state makes their claims more low- risk. The lawmakers also request the IRS to respond to several questions concerning claims processing activities, transparency and cooperation with Congress and the National Taxpayer Advocate.
Meanwhile, the agency has continued to process claims. At a conference on Dec. 13, Commissioner Werfel stated that the agency plans to approve 500,000 ERTC claims totaling roughly $10 billion by the end of the year. Werfel also said he expects the agency to approve another 500,000 to 600,000 claims in 2025 with the end of 2025 serving as the “year where [IRS] finish[es] this race in terms of the ERC.”
IRS Announces $4.7 Billion in Recovery of Income Tied to Overdue Tax Debt, Criminal Activities: In a press release on Dec. 12, the Internal Revenue Service (IRS) announced that the agency has recovered $4.7 billion from initiatives, including over $1.3 billion in past-due taxes from high-income and high-wealth taxpayers, $2.9 billion related to IRS Criminal Investigation Division work, and $475 million as a result of follow-ups on whistleblower activity. In addition, a new IRS initiative launched in February to pursue high-income, high-wealth taxpayers—namely those who have not filed tax returns since 2017 and whose returns include information contradictory to third-party information returns, such as Forms W-2 and 1099—has grossed $292 million in past-due taxes. Tax recovery efforts are part of the agency’s overarching initiatives to use Inflation Reduction Act funds to increase scrutiny on wealthy individuals, large corporations and complex partnerships through heightened tax enforcement, including by raising audit rates.
Treasury Department Provides Details on Technical Corrections in CAMT: At a conference on Dec. 13, Treasury Office of Tax Policy attorney-advisor Deborah Tarwaskono said that the Treasury Department will soon issue technical corrections to proposed regulations on the corporate alternative minimum tax (CAMT). Her comments suggested that the forthcoming guidance will go beyond normal “technical corrections” and include more substantive changes, including clarification of the basis for the amortization and depreciation of property and fixes to examples outlined in the regulations that do not match corresponding rules. Tarwaskono did not provide a timeline for when the corrections would be issued.
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.