2025 Budget Passes, Tax Reform Next

2025 Budget Resolution Passed, Paving Way for Tax Reform

On April 10, 2025, the U.S. House of Representatives approved the final version of the Fiscal Year (FY) 2025 budget resolution (H. Con. Res. 14) by a razor-thin margin of 216 to 214, which will incorporate amendments passed by the Senate on April 5. While the resolution does not change tax law itself, it lays the groundwork for potentially significant tax cuts and spending reductions that will directly impact businesses.

The budget resolution functions as a blueprint for Congress’s tax and spending priorities. With this vote, lawmakers have opened the door for follow-up reconciliation legislation, which can be passed with a simple Senate majority (verses 60 votes that are normally required) and used to implement real policy changes, including updates to the tax code. But they still face an uphill battle, as there are already signs of dissent in the House over details of the Senate framework.

Key Takeaways:

• Potential Section 174 Fix: There is renewed momentum to restore full expensing for domestic research and experimental (R&E) costs. Since 2022, businesses have faced increased compliance burdens and cash flow strain due to the mandatory five-year amortization of R&D expenses. This resolution signals a path for reinstating immediate expensing, which many in the business and accounting communities view as critical.
• Tax Cuts: The resolution emphasizes tax policies, and reconciliation legislation could include extensions of the Tax Cuts and Jobs Acts, and expansions of other tax incentives, such as bonus depreciation, the Section 179 deduction, and qualified business income (QBI) treatment.
• Spending Restraint: Expect proposals to reduce non-defense discretionary spending, which could affect certain federal programs such as Medicaid (which the White House has given assurances won’t be touched) and SNAP benefits.

What’s Next?

With the resolution finalized, the focus now shifts to the House Ways and Means Committee and the Senate Finance Committee, which are expected to begin drafting reconciliation bills over the coming weeks. These bills are where the actual tax code changes will take shape.  For business owners, the prospect of lower taxes and fewer compliance burdens is welcome, but the legislative outcome remains uncertain.

Here is a quick look at what the Senate and House plans would accomplish, and what to expect in the days ahead as lawmakers move to the next phase.

An extension for Trump’s 2017 tax cuts

All together the Senate plan would allow for more than $5 trillion in tax cuts. The blueprint would extend the Tax Cuts and Jobs Act passed in 2017 under Trump’s first term. The program is set to expire by year end, which would mean a tax hike for millions of Americans.  The bill also provides for an additional $1.5 trillion in new tax cuts. Republicans are hoping the new cuts can make good on several of Trump’s promises from the campaign, like no taxes on tips.

The House, by comparison, has passed a budget framework that sets aside $4.5 trillion for tax cuts.

Paying for tax cuts

One of the biggest differences between the Senate plan and the House plan is how to pay for tax cuts. The bill directs both chambers to cut the deficit through spending cuts. While the Senate spending cuts are set at just around $4 billion, the House intends to cut at least $1.5 trillion. That includes a directive to the House Energy and Commerce Committee to cut $880 billion in spending, which has raised fear that those cuts can’t happen without a significant hit to Medicaid benefits.

The plan would lift the debt limit

To avoid a financial default this summer, the Senate plan would raise the U.S. debt limit by $5 trillion. Without an increase, the government would be unable to issue new debt, which means it wouldn’t have money to pay its bills, including the interest it owes to bondholders. The Congressional Budget Office, Congress’ nonpartisan scorekeeper, predicts that if lawmakers don’t act, the U.S. may breach the debt limit by August or September.

Money for the border and the Pentagon

The Senate plan also calls for an additional $521 billion in spending for a range of GOP policy priorities. There is as much as $175 billion that’s expected to be used for border enforcement, plus $150 billion for defense spending.

Conclusion

The two chambers are likely headed for a clash over how deep to go on deficit reduction, versus the cost of extending the Trump tax cuts and whether they’ll have to cut into key areas like Medicaid to make it work. The FY 2025 budget resolution doesn’t directly change the law, but it sets the stage for real tax relief measures that could materialize in the coming months. We will keep you informed regarding reconciliation developments, especially around tax law changes and other small business incentives.

Questions?