2025’s Potential Tax-Writers
By Jan. 3, 2025, four of the 14 Democrats on the Senate Finance Committee will have departed. In contrast, all 13 Republicans will return to the Senate in 2025. How the Senate handles committee assignments will depend on the election results, who wins the race for Senate Republican leader, and whether either party changes how they select new members for approval by the chamber. The Finance Committee has grown from 20 members in 2000 to 27 members today, and though leadership has discussed shrinking the size of the committee in the past, it has not occurred. In 2025, Republicans are unlikely to agree to ratios that will require them to remove one of their current members for the 2025-2026 term; accordingly, GOP membership is likely to remain constant and grow by one only if the GOP wins a majority of Senate seats. If that majority is 52-48 or 51-49, then the most logical ratio would be 14 Republicans and 13 Democrats.
In September and October, Brownstein will preview some of the members that Senate leadership, as well as Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID), could consider for membership to the Senate Finance Committee, based on who would make significant contributions to the Committee if they were selected to serve. Our series will begin with Sen. Raphael Warnock (D-GA).
Sen. Raphael Warnock (D-GA)
Raphael Warnock serves as the junior senator from Georgia, having been concurrently elected with Sen. Jon Ossoff (D-GA) in a set of races that flipped the Senate to Democratic control in 2021. He is the first Black senator from Georgia and currently sits on the Senate Banking, Agriculture, and Commerce Committees.
| Sponsored Finance Committee Bills: |
Warnock represents a compelling pick, as he would be the first Democrat representing a Southern state since former Sen. Bill Nelson (D-FL) in the 115th Congress. He grew up as the 11th of 12 children in public housing in Savannah, Georgia, and rose to graduate from Morehouse College. He subsequently earned a Ph.D. from Union Theological Seminary and became a pastor at the influential Ebenezer Baptist Church in Atlanta, where he often blends religious teachings with calls to action for social justice. Warnock’s breadth of experience makes him a unique choice to champion the middle- and working-class as a member of the Finance Committee.
One of Warnock’s central issue areas is health care policy, including fierce advocacy for Social Security, Medicare and Medicaid preservation and expansion. He has led efforts in the Senate to pass the Medicaid Saves Lives Act (S. 2315), which would create a Medicaid-like mirror program that provides health care access to Americans in states that have not expanded Medicaid, as well as the Bridge to Medicaid Act (S. 4684), which would provide a stopgap for Americans in the Medicaid coverage gap.
Warnock highlighted his profile in his rousing speech delivered at the Democratic National Convention, where he praised the expansion of the Child Tax Credit in the American Rescue Plan Act (ARPA), stating that it contributed to “cutting child poverty nearly in half.” In 2023, Warnock joined as an original cosponsor of the Working Families Tax Relief Act (S. 1992), which would have made the Child Tax Credit and Earned Income Tax Credit provisions in ARPA permanent. He also criticized Senate lawmakers for voting against the Tax Relief for American Families and Workers Act (H.R. 7024), stating that politics was “getting in the way” of good governance.
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Legislative Lowdown
Legislative Lowdown
Harris Begins Detailing Economic, Tax Policy Proposals: Over the past month, Vice President Kamala Harris has introduced numerous economic and tax proposals as she seeks to balance her new position at the top of the Democratic ticket with policy priorities to win over voters and provide a preview of a potential Harris administration. One of Harris’s first packages of tax proposals is centered on lowering the costs of education, child care, health care, long-term care, housing, and groceries. She also proposed cutting taxes for middle-income families. She first presented many of these policy proposals at a rally in North Carolina on Aug. 16. More details on a few of Harris’s proposals are included below:
- Housing: Harris’ proposals include lowering the cost of housing by encouraging the construction of about 3 million housing units through tax incentives for both developers who build “starter homes” for first-time homebuyers, an expansion of existing tax credits for affordable housing, such as the Low-Income Housing Tax Credit, and a federal fund for local developments to encourage “innovative methods” of constructing affordable housing. To lower rents, Harris has called on Congress to pass the Stop Predatory Investing Act, which would remove tax benefits for investors who purchase large numbers of single-family rental homes.
- Middle-Class Tax Benefits: Harris also advocates for expanded tax benefits for middle- and lower-income individuals, adopting President Biden’s pledge not to raise taxes on families earning under $400,000 per year. Her plan includes the expansion of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) based on the thresholds enacted by the American Rescue Plan Act (Pub. L. 117-2), as well as an enhanced Child Tax Credit for families with newborn children valued at up to $6,000. Her plan also includes tax cuts for Americans who purchase health insurance through the Affordable Care Act Marketplace.
- Taxation of Tips: Harris has called for an end to federal taxation of tip income, introducing the proposal at a rally in Las Vegas on Aug. 10. Although her policy echoes a similar policy introduced by former President Donald Trump weeks earlier, Harris later clarified that her policy would only apply to service and hospitality workers and further called for an end to sub-minimum wage policies for tipped workers. Following the release of her proposal, Rep. Steven Horsford (D-NV) announced that he was drafting the Tipped Income Protection and Support (TIPS) Act, which would eliminate federal taxes on tips, end sub-minimum wages for tipped workers, and include guardrails to prevent abuse.
- Corporations and Small Businesses: Harris has taken a more conciliatory attitude towards businesses in recent weeks, proposing an increase in the corporate tax rate from 21% to 28%, consistent with the recent Biden budget proposals but down from the 35% she proposed during the 2020 campaign. At the same time, Harris has also proposed tax relief for small startup businesses by calling for an increase in the small-business startup deduction from $5,000 to $50,000 and allowing businesses to defer claiming the deduction for a number of years until they become profitable.
- Capital Gains: Harris has also moderated her position on long-term capital gains, proposing to increase the rate to 28% for taxpayers with an annual income over $1 million, compared to a 39.6% rate proposed by President Biden in his FY 2025 budget request. However, she has also floated the idea of enacting a capital gains tax on unrealized income to ensure high-income, high-wealth taxpayers pay a minimum effective tax rate. She has adopted the Biden proposal to increase and expand the 3.8% net investment income tax, which effectively would increase the capital gains rate for affected taxpayers to 33% under her proposed capital-gains regime.
Trump Adds to List of Tax Proposals: At a speech delivered at the Economic Club of New York on Sept. 5, former President and 2024 Republican nominee Donald Trump continued to outline numerous economic and tax proposals, as he seeks to draw a contrast from Vice President Harris, asserting that his proposals would lead to substantial economic growth in a current economy that shows some signs of a slowdown. He specifically discussed the following proposals:
- Corporate Tax Rate: Trump previously called for a modest reduction in the corporate tax rate from 21% to 20%, but in his New York speech, he proposed a further decrease in the corporate tax rate to 15% but “solely for companies that make their products in America.” Trump did not provide details on the domestic production requirements that would be required for companies to qualify for the lower rate.
- Tariffs: Trump reiterated his strong protectionist stance on tariffs, claiming that imposing tariffs would curb overseas job loss, help pay for the cost of child care, and prove to be a substantial revenue-raiser to pay for other federal programs.
- Sovereign Wealth Fund: Trump also called for the creation of a U.S. sovereign wealth fund, which countries like Norway and Saudi Arabia employ as a state-owned investment fund primarily focused on investments in financial assets. Trump proposed that the fund would be at least partially financed by tariffs and would be able to “pay down the national debt” and “fund great endeavors.” The Biden administration has also reportedly explored the possibility of creating a sovereign wealth fund.
Wyden-Smith Tax Package Fails on Senate Floor, Foreshadowing Difficulties for 2025: The Senate was unable to pass the Tax Relief for American Families and Workers Act (H.R. 7024) after Senate Majority Leader Chuck Schumer (D-NY) failed to obtain cloture on the motion to proceed to the bill on Aug. 1. The procedural vote on the bill was 48-44, with 60 votes needed to prevent a filibuster and proceed to consideration of the bill. Republican Sens. Josh Hawley (R-MO), Markwayne Mullin (R-OK) and Rick Scott (R-FL) broke ranks with Senate Republicans to vote in favor of the bill, while Sens. Joe Manchin (I-WV) and Bernie Sanders (I-VT) voted against the bill. Leader Schumer took procedural steps to preserve the possibility of bringing the bill up for a vote before the end of the Congress, although the chances of such a move appear slim.
The bill included numerous tax incentives for individuals and businesses, including the restoration of the research and development (R&D) amortization deduction, accelerated bonus depreciation, and the business interest limitation deduction provisions from the Tax Cuts and Jobs Act of 2017 (TCJA, Pub. L. 115-97) that began expiring after 2021. For individuals and families, the bill included an expansion of the child tax credit (CTC) as well as inflation adjustments for tax years 2024 and 2025. Other provisions of the package provided Taiwan double tax relief, disaster tax relief, tax credits for affordable housing, the sunsetting of the Employee Retention Tax Credit, and an increase in the reporting threshold for Forms 1099-NEC and 1099-MISC.
The Senate’s failure to advance the bill, a compromise package negotiated by Senate Finance Committee Chairman Ron Wyden (D-OR) and House Ways and Means Committee Chairman Jason Smith (R-MO) that passed the House with strong bipartisan support, bodes poorly for Congress being able to agree on a compromise for a much larger tax bill in 2025. At present, Republicans look more likely to take control of the Senate after the November elections, but the procedural vote on H.R. 7024 indicates that with narrow control, the party may fracture on crucial tax provisions of the TCJA that expire in 2025. A consensus on an overall 2025 tax bill, including the extent to which offsets will be included, has yet to emerge from either party.
House Republicans Unveil Stopgap Funding Bill: On Sept. 6, House Republicans released text for a stopgap continuing resolution (CR) that would fund the federal government through March 28. The legislation includes the Safeguard American Voter Eligibility (SAVE) Act, which would require individuals to show proof of U.S. citizenship to register to vote. Both the extension date and the SAVE Act drew immediate criticism from Senate Democrats, who stated that they would not vote for the bill, and President Biden, who said he would veto the bill. Some House Republicans also have raised objections, which is likely to lead Speaker Mike Johnson (R-LA) to reconsider the structure of the stopgap measure.
Tax Worldview
USTR Initiates Consultations with Canada Over DST Implementation: On Aug. 30, United States Trade Representative (USTR) Katherine Tai submitted a consultation request to the Canadian government under the terms of the United States-Mexico-Canada Agreement (USMCA), objecting to Canada’s implementation of a digital services tax (DST) based on the adverse effects the new tax will have on U.S. multinationals. Canada’s DST, enacted in June, affects companies with annual global revenues exceeding €750 million (approximately $830 million) and Canadian digital services revenue exceeding CA$20 million (approximately $15 million). USTR charges that the DST is a breach of the Cross-Border Trade in Services and Investment chapters of the USMCA due to its unfavorable treatment of U.S. companies compared to Canadian companies. In an accompanying press release, Ambassador Tai said that the United States is bringing the USMCA challenge in keeping with its long-held position against “unilateral digital service taxes that discriminate against U.S. companies."
1111 Constitution Ave
Six More States to Join Direct File in 2025: Throughout August and September, the Department of the Treasury announced that New Mexico, Connecticut, North Carolina, Wisconsin, Maine and Maryland would join the IRS Direct File program in 2025. They join New Jersey, Pennsylvania, Oregon and the 12 states that piloted the program in 2024. As all six of the new states levy a state income tax, taxpayers will be redirected to a state-operated system to file their state tax returns after completing their federal tax return using Direct File. Responding to the announcement, Treasury Secretary Janet Yellen said that the program will be available to 200,000 New Mexico residents, 290,000 Connecticut residents, 1.25 million North Carolina residents, 600,000 Wisconsin residents, 120,000 Maine residents, and 700,000 Maryland residents, and that it will “save … taxpayers time and money and help ensure they receive the tax benefits for which they are eligible.” Direct File proponents have not indicated how the government tax-preparation tool will save taxpayers time, particularly since those who use it may have to reenter their data a second time to complete a state tax return.
Senate Republicans Criticize IRS For Direct File Program: On July 31, 19 Senate Republicans, led by Sen. John Barrasso (R-WY) and Senate Finance Committee Ranking Member Mike Crapo (R-ID), wrote a letter to Internal Revenue Service (IRS) Commissioner Daniel Werfel, criticizing the agency for operating the Direct File program and questioning whether the agency has the statutory authority to operate the program. The letter states that Congress did not authorize the program, with the Inflation Reduction Act only giving the IRS the “narrow authority and funds” to study a pilot direct-filing program’s feasibility. The letter also states that the study conducted is biased. The letter states that Direct File is problematic because of the agency’s potential role as the “tax collector, tax auditor, tax enforcer, and tax preparer,” as well as concerns about the program’s implementation and efficacy in reaching out to target consumers. The senators also express concerns that many low-to-moderate income taxpayers are not eligible to use Direct File because of the limitations on the types of forms the program is capable of processing, and that lack of integration with state tax-filing systems leads to taxpayer resource and compliance concerns. The letter asks Werfel to answer several questions regarding the statutory basis for continuing and expanding Direct File, especially in light of Loper Bright Enterprises v. Raimondo.
IRS to Begin Processing Outstanding ERTC Claims and Reopens Voluntary Disclosure Program: On Aug. 8, the Internal Revenue Service (IRS) announced that the agency would begin processing outstanding Employee Retention Tax Credit (ERTC) claims filed between Sept. 14, 2023, and Jan. 31, 2024, partially lifting a moratorium that had been in place since September as the agency investigated the influx of improper and fraudulent claims and how to effectively combat them. The agency noted in its press release that it would continue to issue denials of improper ERTC claims and “intensify audits and pursue civil and criminal investigations” of fraudulent and abusive actors. In making this announcement, IRS Commissioner Daniel Werfel stated that “the tide is starting to turn on the Employee Retention Credit Program” and he anticipates the agency will process ERTC claims and award approvals or denials at a judicious pace.
On Aug. 15, the IRS also announced the reopening of the ERTC Voluntary Disclosure Program, which allows businesses to self-correct and repay 85% of the ERTC claims they received in error, and receive protection from ERTC-related audits, penalties or interest. Employers must apply to the program by Nov. 22. The program is only available for businesses that received an ERTC payout in error; any businesses that filed a claim they believe is erroneous, but have not received a payout, may still withdraw their claim without penalty.
Virginia Senators Express Concerns with ERTC Claims Processing: On Aug. 15, Sens. Tim Kaine (D-VA) and Mark Warner (D-VA) sent a letter to Internal Revenue Service (IRS) Commissioner Daniel Werfel expressing concerns with the backlog and slow processing of Employee Retention Tax Credit (ERTC) claims. The senators criticized the IRS for the “unacceptable” lack of clarity from the agency regarding when claims will be processed, citing an increased number of Virginia businesses and taxpayers expressing concern. The letter requests the IRS to address the timeline for outstanding ERTC applicants, and whether the agency will consider accelerating claims for taxpayers demonstrating financial hardship, among other requests.
Treasury Department, IRS Announce $1.3 Billion Recovery of Overdue Taxes from Wealthy Taxpayers: In a press release on Sept. 6, Treasury Secretary Janet Yellen and Internal Revenue Service (IRS) Commissioner Danny Werfel announced that the agency has received over $1.3 billion in past-due taxes, following outreach efforts aimed at taxpayers with more than $1 million in annual income and more than $250,000 in outstanding tax liabilities. In addition, a new IRS initiative launched in February to pursue high-income, high-wealth taxpayers—namely those who have not filed taxes since 2017 and whose returns include information contradictory to third-party information returns, such as Forms W-2 and 1099—has grossed $172 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, IRS Propose Guidance on Low-Income Communities Bonus Tax Credit: On Aug. 30, the Treasury Department and Internal Revenue Service (IRS) released proposed regulations on the Low-Income Communities Bonus Credit amount program, as part of the Section 48E Clean Electricity Investment Credit enacted by the Inflation Reduction Act (IRA, Pub. L. 117-169), which becomes effective in 2025. The new guidance relates to the competitive allocation of bonus credits of up to 20% of the cost of solar, wind, geothermal and other qualifying energy projects located in low-income communities. A similar bonus credit applies under the current energy investment tax credit in section 48(e). Only projects under 5 megawatts are eligible and applicants must meet prevailing wage and apprenticeship requirements to qualify for the full tax credit.
At a Glance
IRS Updates Draft Digital Assets Tax Form: On Aug. 9, the Internal Revenue Service announced updates to the draft Form 1099-DA, Digital Asset Proceeds from Broker Transactions, to reflect final regulations for the reporting of cryptocurrencies and other digital assets released in July. IRS Commissioner Daniel Werfel said that the form “will provide more clarity for taxpayers and give them another tool to help them accurately report their digital assets transactions.” Once the instructions for filing the updated Form 1099-DA are posted in the Federal Register, a 30-day public comment period will begin.
IRS Issues Interim Guidance on Employer Matching Contributions for Student Loan Payments: On Aug. 19, the Internal Revenue Service (IRS) issued Notice 2024-63, allowing employers to make matching contributions to employees’ retirement plans for any qualified student loan payments (QSLPs) employees make. The notice implements Section 110 of the SECURE 2.0 Act of 2022, allowing matching contributions to 401(k), 403(b), 457(b), or SIMPLE IRA plans for plan years beginning after Dec. 31, 2023. The notice details eligibility rules for contributions and reasonable procedures for making matching contributions. The Treasury Department and IRS have requested comments on several aspects of the notice, including passive certification and independent verification; additional guidance on reasonable procedures for QSLP matches; and further application of QSLP rules to SIMPLE IRA and SIMPLE 401(k) plans. Public comments will be accepted until 60 days after the notice is published in the Federal Register.
Senators Urge Treasury Department to Enact Restrictions on 45Z Credit: On July 31, Sens. Sherrod Brown (D-OH) and Roger Marshall (R-KS) joined 15 other senators in a letter to Treasury Secretary Janet Yellen urging the Treasury Department and Internal Revenue Service (IRS) to issue final guidance for the Section 45Z Clean Fuel Production Credit that restricts eligibility for the credit to fuels produced with only domestically sourced feedstocks. The lawmakers argue that the section 45Z credit, enacted as part of the Inflation Reduction Act, was originally intended to benefit only U.S. producers, and that Chinese imports of used cooking oil to produce biofuels is threatening the U.S. feedstock industry. The senators express their concern that the U.S. renewable fuel industry is “shift[ing] focus from domestically oriented feedstocks towards imports … put[ting] U.S. agriculture at the back of the line."
Hearings and Events
House Ways and Means Committee
On Sept. 10, the House Ways and Means Committee will hold a markup of several bills, including the Saving Gig Economy Taxpayers Act (H.R. 190); the USA Workforce Investment Act (H.R. 9461); and the Educational Choice for Children Act of 2024 (H.R. 9462).
Senate Finance Committee
On Sept. 12, the Senate Finance Committee will hold a hearing titled “The 2025 Tax Policy Debate and Tax Avoidance Strategies.”
Other
On Sept. 11, the House Education and the Workforce Subcommittee on Health, Employment, Labor and Pensions will hold a hearing titled “ERISA's 50th Anniversary: The Value of Employer-Sponsored Health Benefits.”
On Sept. 11, the Senate Budget Committee will hold a hearing titled “Social Security Forever: Delivering Benefits and Protecting Retirement Security."