With the threat of a government shutdown averted, Congressional Republicans are turning their attention to negotiating a major tax bill that could extend and expand provisions from the 2017 tax reform law. The discussions represent a significant legislative effort requiring alignment across both chambers of Congress.

Key administration officials, including Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett, are scheduled to meet with House and Senate leaders this week to address differences over the scope and structure of the proposed tax cuts.

At the center of the negotiations is the overall size of the package and how it will be funded. House Republicans have proposed $4.5 trillion in tax reductions offset by $2 trillion in spending cuts. However, reaching consensus on those figures is proving challenging, with concerns that deeper spending cuts could affect widely used programs.

To offset the cost of the proposed cuts, lawmakers are considering a range of options, including ending certain tax preferences. Proposals under discussion include eliminating the carried interest tax break, adjusting deductions for state and local taxes paid by corporations, and expanding taxes on university endowments. Another idea under review is reducing or eliminating select green energy tax incentives.

Despite these efforts, these measures would only cover a small portion of the cost. As a result, some lawmakers are exploring alternative accounting approaches, such as using a “current policy baseline” that assumes existing tax rates will continue—potentially allowing the tax package to appear cost-neutral. This approach remains under review and could face procedural hurdles in the Senate.

Budget experts have raised concerns about the long-term fiscal impact of extending the tax cuts without sufficient offsets. Recent projections from the Congressional Budget Office indicate that such extensions could significantly increase the national debt over the coming decades.

While tax policy remains the primary focus, some lawmakers have proposed pairing the tax legislation with other policy priorities, such as adjustments to the federal debt limit or additional funding for border security. How these issues are bundled—or separated—could influence the timing and content of the final bill.

As for the contents of the tax package, lawmakers broadly support extending individual rate cuts and small business deductions introduced in 2017. Additional proposals include tax relief for tips, overtime pay, and Social Security benefits, as well as new deductions for domestic manufacturing and auto loans.

Other high-profile items on the table include potential changes to the state and local tax (SALT) deduction cap and expansion of tax incentives for investment in underserved areas.

With a wide range of policy ideas under consideration and narrow majorities in both chambers, lawmakers will need to make difficult decisions in the coming weeks. The outcome of these negotiations will shape the direction of tax policy heading into 2025 and beyond.

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