Tax Agenda Builds on Capitol Hill — But Legislative Path Narrows
Reconciliation limits, election timing, and regulatory action shape the outlook for further tax changes
Lawmakers in both parties are signaling continued interest in reshaping the tax code, even after last summer’s passage of the “One Big Beautiful Bill.” Republican tax writers are actively exploring follow-on legislation to extend or refine key provisions, while Democrats remain divided between sweeping structural overhauls and more targeted efforts aimed at limiting what they characterize as tax advantages for high-income households.
Despite the growing volume of proposals, the likelihood of major tax legislation advancing before the November midterm elections remains low. The legislative calendar, combined with narrow margins in Congress and political sensitivities, continues to constrain movement on large-scale tax packages.
A central point of debate is the potential use of budget reconciliation — a powerful procedural tool that allows legislation affecting taxes, spending, and the deficit to pass the Senate with a simple majority, bypassing the 60-vote filibuster threshold. However, reconciliation is not unlimited. Under current budget rules, Congress can typically pursue one reconciliation bill per budget resolution, though that bill can include multiple components — traditionally one each for spending, revenue (taxes), and the debt limit. In practice, this has allowed lawmakers to package broad fiscal changes into a single measure. Congress may adopt multiple budget resolutions in a fiscal year, which in theory opens the door to additional reconciliation bills, but doing so is politically and procedurally difficult.
Recent history underscores both parties’ reliance on the tool. Republicans used reconciliation to pass both the 2017 Tax Cuts and Jobs Act and the One Big Beautiful Bill, while Democrats employed it for major fiscal packages when they controlled both Congress and the White House. Still, each use requires strict adherence to rules such as the Byrd Rule, which limits provisions that do not directly impact federal revenues or outlays.
Republicans are currently advancing a new reconciliation measure, though President Donald Trump and GOP leadership are signaling a narrower scope focused primarily on border security funding — including Immigration and Customs Enforcement and Customs and Border Protection. While some lawmakers have floated the idea of pursuing an additional, tax-focused reconciliation bill — effectively a third effort tied to a separate budget resolution — prospects for that approach before the midterms are uncertain and face significant logistical hurdles.
With legislative avenues constrained, the Trump administration is increasingly turning to regulatory authority to advance elements of its tax and retirement policy agenda.
One major focus is expanding access to alternative investments within retirement accounts. An executive order issued in August directed federal agencies to reduce barriers that have historically limited 401(k) exposure to assets such as private equity and real estate. In response, the Labor Department has proposed updated fiduciary guidance emphasizing flexibility and discretion for plan managers when selecting investment options.
The administration is also pushing to broaden retirement savings participation. Building on provisions in the SECURE 2.0 Act, which includes a federal matching contribution of up to $1,000 annually for eligible low-income savers, Trump has proposed expanding access to retirement accounts for workers without employer-sponsored plans. A recent executive order outlines the creation of “Trump IRAs,” a new government-facilitated savings option expected to launch by January 1, 2027.
Meanwhile, outside advocacy groups are pressing the administration to pursue more aggressive tax changes through executive authority. One prominent proposal involves indexing capital gains to inflation — a move that would allow taxpayers to adjust the purchase price of assets such as stocks or real estate for inflation when calculating taxable gains. While this would reduce tax liabilities on asset sales, implementing such a policy through the Treasury Department without congressional approval would be highly controversial and likely face immediate legal challenges.
Taken together, the outlook for U.S. tax policy in the near-term points to incremental change driven more by regulatory action than by sweeping legislation — at least until the political landscape becomes clearer after the midterm elections.
| Housing and Childcare Tax Relief Gains Momentum — But Faces Pre-Election GridlockEfforts to expand tax policy into housing and childcare are very much part of the current conversation — but like broader tax changes, they face the same political and procedural constraints Housing Affordability — Targeting First-Time and Younger BuyersTax incentives and savings tools gain traction, but legislative path remains narrow There is growing bipartisan interest in using the tax code to help younger Americans break into the housing market, particularly as elevated mortgage rates and home prices continue to sideline first-time buyers. On the Republican side, discussions have centered on expanding tax-advantaged savings vehicles and reducing regulatory barriers. One concept under consideration is allowing penalty-free withdrawals from retirement accounts — such as 401(k)s or IRAs — for first-time home purchases, building on existing but limited exceptions. Lawmakers have also explored enhancing tax-preferred savings accounts specifically earmarked for down payments, similar to past proposals for “first-time homebuyer savings accounts.” Another area of focus is supply-side incentives. Some GOP policymakers favor tax credits or accelerated depreciation for homebuilders to encourage construction of entry-level housing — an approach aimed at easing structural shortages rather than directly subsidizing buyers. Democrats, meanwhile, have leaned more toward direct support for buyers. Proposals have included first-time homebuyer tax credits that could be refundable and usable at the point of purchase — effectively functioning as down payment assistance. Some plans have suggested credits in the range of $10,000–$15,000, though none have advanced in the current Congress. Despite this activity, housing-related tax measures face long odds before the midterms unless they are folded into a broader legislative vehicle. Budget reconciliation could theoretically be used — since these provisions affect revenues — but they would need to fit within deficit targets and compete with higher-priority items like border funding and existing tax provisions. Childcare Tax Credits — Expansion Debated, but Divisions PersistCost, structure, and refundability remain key sticking points Childcare tax policy is another major area of focus, with both parties acknowledging affordability challenges but differing sharply on solutions. Democrats have pushed to revive and expand elements of the pandemic-era Child Tax Credit (CTC), which temporarily increased benefit levels and made the credit fully refundable — meaning families could receive the full value even with little or no tax liability. Many Democrats also support expanding the Child and Dependent Care Tax Credit (CDCTC), potentially increasing the percentage of eligible expenses covered and making the credit refundable to benefit lower-income households. Republicans have generally taken a more targeted approach, favoring policies that encourage work and family formation while limiting fiscal cost. Some GOP proposals would modestly increase the CTC or adjust eligibility thresholds, while others emphasize expanding dependent care flexible spending accounts (FSAs) or offering employer-based incentives for childcare benefits. There has also been bipartisan discussion around increasing the maximum CTC — currently $2,000 per child — though disagreements over refundability and income phaseouts remain unresolved. From a legislative standpoint, childcare credits are well-suited to reconciliation because they directly affect federal revenues. However, they must comply with the Byrd Rule and broader budget constraints, meaning any expansion would likely need offsets or be temporary. Bottom Line — policy interest is high, but timing is the constraint. Both housing assistance for younger buyers and expanded childcare tax credits are firmly on the policy radar in Washington. However, absent a major legislative package, movement before the midterm elections is unlikely. That reality reinforces the broader trend: incremental changes — whether through limited tax provisions in reconciliation or regulatory actions — are more likely in the near term than sweeping reforms. |
