For tax practitioners following the political landscape, a unified Republican government signals potentially sweeping changes—especially with key provisions like Section 199A approaching expiration and the SALT cap’s future in doubt. However, as revealed in a recent Federal Tax Updates podcast episode with host Roger Harris, EA, and Thad Inge, Vice President at Van Scoyoc Associates, the gap between political promises and real-world implementation is often substantial. Navigating the complexities of budget reconciliation, regional divisions, and administrative obstacles will be critical for practitioners advising clients through the next year.
The Reconciliation Reality Check
Budget reconciliation will guide the path to tax reform under Republican control of the House, Senate, and White House. The budget reconciliation process allows the Senate to pass legislation with a simple majority instead of the usual 60 votes. Yet, according to Inge, this process comes with significant limitations that practitioners need to consider when forecasting changes for clients.
“The Congressional Budget Office has said if you just extend everything that’s in place now—both cuts and revenue raisers—it could cost as much as $5 trillion,” Thad noted.
This stands in stark contrast to previous major tax reforms. During the Bush tax cuts, lawmakers had a surplus to work with. Even the Tax Cuts and Jobs Act started on a revenue-neutral footing before ultimately settling on a $1.8 trillion deficit increase.
Today, no such cushion exists. Republicans must decide upfront how much deficit expansion they can tolerate, which creates intense debate within the party. Fiscal conservatives demand restraint while others push for broader tax cuts. This tension will likely shape the final scope of any legislation.
Understanding the constraints of reconciliation is crucial for tax practitioners. Campaign promises may advocate broad extensions, but the reality of reconciliation math could lead to a more targeted approach, with certain provisions ultimately left out or scaled back.
Regional Divisions and Competing Priorities
Even with Republican control, regional interests can have a big impact on tax legislation, and narrow majorities in Congress make these regional concerns impossible to ignore. The state and local tax (SALT) deduction cap debate illustrates this dynamic. Moderate Republicans from high-tax states such as New York, New Jersey, Illinois, and California have called for the $10,000 SALT limit changes.
“They’ve really pushed this issue and said, ‘We’re not voting for anything unless it fixes this,’” Thad explained.
Although President Trump has signaled support for abolishing the SALT cap outright, compromise proposals suggest raising the limit to between $20,000 and $60,000. Corporate tax rates present another flashpoint. While Trump has floated a 15% corporate tax rate, some House Republicans are discussing 24–25% as a more feasible compromise, given the need to offset other priorities. This debate reflects broader shifts within the party, with some members less focused on corporate interests than in previous years.
For tax practitioners working in high-tax states, carefully monitoring these regional divisions can allows for more accurate advice to clients. Although the SALT cap is set to expire at the end of 2025, its long-term fate hinges on complex negotiations that balance regional demands with party-wide objectives.
Implementation and Administrative Realities
Beyond legislative battles, tax policy must also contend with practical implementation challenges. Two examples—IRS funding and beneficial ownership reporting—underscore how even bipartisan measures can run aground on administrative constraints.
IRS Funding
While the Inflation Reduction Act allocated $80 billion to modernize and strengthen IRS enforcement, $20 billion has already been clawed back. According to Roger:
“You don’t get elected by promising to give the IRS more money. But the reality is, we’ve all seen in the last few years that the additional funding has led to some improvements.”
Despite political reluctance, a well-funded IRS is crucial for effective administration and enforcement. Practitioners must stay aware of these funding debates to anticipate possible delays or changes in service levels.
Beneficial Ownership Reporting
The new beneficial ownership reporting requirement is another example of administrative complexity. Although it aims to combat money laundering, compliance rates hovered around 10% leading up to the December 31 deadline, and a federal court in Texas temporarily blocked enforcement of the BOI reporting rules while it conducted a more thorough review of the rule’s constitutionality.
Unlike most regulations that exempt small businesses, this one specifically targets them.
“Most regulations exempt small businesses. This is the opposite because it says if you’re over a certain size, you’re good to go, but if you’re the small mom and pop, that’s you,” Thad said.
For practitioners, this means guiding smaller clients through a regulatory environment designed without many of the usual carve-outs. Implementation challenges may persist, underscoring the need for proactive education and outreach.
Navigating the Path Forward
As Republicans prepare to wield unified power, tax practitioners should brace for significant yet unpredictable policy shifts. Budget reconciliation constraints, regional disputes, and administrative complexities will all help determine how campaign promises shape real-world outcomes.
Caution and clarity are paramount for anyone advising clients through the next two years. While proposed changes to Section 199A or the SALT cap may be substantial, they could also be watered down or delayed due to fiscal and political constraints. Balancing expectations with practical realities will be key to providing informed, strategic guidance.
For deeper insights into the political and administrative factors shaping tax policy, we encourage you to listen to the full Federal Tax Updates podcast episode.