Did the enactment of the One, Big, Beautiful Bill (OBBB) in early July bring an end to tax policy developments? Not at all. The completion of that bill set in motion a massive project at the Treasury Department and IRS to provide technical guidance for the interpretation and implementation of the tax changes included in the OBBB. Additionally, Congress is gearing up for more legislative action, with challenging government funding negotiations unfolding and the looming prospect of another tax bill. Other tax policy developments this month include the continuing evolution of tariffs and global trade, as well as action in the courts.
Read on for a roundup on some of the most significant recent tax policy developments.
- Legislative update: A second OBBB?
- Rescissions and government funding: The broader dynamics at play
- Challenges for Treasury in implementing the OBBB
- Tariffs update: Patterns emerge and deals take shape
- The final say: Courts take up big questions with impactful answers
Legislative update: A second tax bill?
A little more than a month has passed since Congress delivered the OBBB to President Trump for signature on July 4. That development capped a legislative sprint that began in May and, ultimately, adhered to the ambitious timeline that Republican leadership promoted shortly after Trump took office. But even as the ink was drying on the OBBB, Congress began work on additional legislation. Both chambers are currently on their summer recess, so there are few confirmed details about new legislation. However, before the recess, House Speaker Mike Johnson confirmed that Republican lawmakers are aiming to complete a second “smaller” tax bill at some point this fall.
A second bill would be expected to advance by way of the budget reconciliation process. We detailed this process as the OBBB began picking up real momentum in April. At its core, reconciliation is a procedural tool that allows certain types of legislation to advance by simple majority on an expedited timeline. Importantly, reconciliation avoids the filibuster in the Senate. However, the downside to reconciliation is that it can only be used for issues related to spending, revenue, and the debt limit. That caveat is significant for the advancement of many nontax policy goals but leaves many doors open for the inclusion of meaningful tax policy items.
The outlook for another tax bill is challenging given the recent enactment of the OBBB and numerous federal spending bills that need to be passed within the coming weeks and months. Irrespective of the likelihood of passage, we do have some meaningful clues as to what’s likely on the table for discussion.
Expiring provisions: Bridging tax and healthcare
One obvious starting point for a second bill would be to address tax provisions that are set to expire at the end of the current year. Jason Smith, who chairs the House’s tax writing committee, Ways and Means, has gone on record as saying his committee’s focus since the passage of the OBBB has been on healthcare matters.
One key tax- and healthcare-related measure is enhanced premium tax credits for those buying health insurance on the Affordable Care Act (ACA) marketplace. These credits are set to lapse on December 31 of this year, and Republican lawmakers appear to be undecided on exactly how they want to handle them. The credits came into play under the ACA and benefit certain individuals who enroll in marketplace plans. These refundable credits were originally made available to lower-income taxpayers who weren’t eligible for coverage through their employers. But an enhanced version of the credit, created during the Biden administration, increased the income cap for eligibility, which expanded coverage for more households.
Smith has previously expressed concerns about the enhanced version of the premium tax credit, which indicates that a wholesale extension is unlikely if this is pursued through the budget reconciliation process. In that respect, the magnitude of benefits to be provided will likely be influenced by projected costs. Alternatively, the premium tax credit could be extended through bipartisan legislation later in the year. Although broader legislative dynamics related to spending and the budget, described below, may impact the likelihood of bipartisan negotiations over the premium tax credit.
Other healthcare-related items also might be included in a second reconciliation bill. One headline-generating aspect of the OBBB enacted last month was the various ways in which the OBBB will make changes to Medicaid. Medicaid isn’t a tax item, but any changes to the program that further reduce funding to states may trigger budgetary challenges within states. In that environment, it’ll be important to monitor how states approach OBBB conformity. Decoupling from federal tax law could be an expedient path to shoring up revenue.
Other tax policy items potentially on the table
Smith also noted the possibility of a second budget bill addressing Section 199A. Section 199A provides a key deduction, the qualified business income deduction (QBID), for owners of pass-through entities. QBID was created by the Tax Cuts and Jobs Act (TCJA) during the first Trump administration and helped to balance the difference in effective tax rates between corporations (21% rate) and pass-throughs (29.6% effective top rate when QBID fully applies).
The first iteration of the OBBB, as drafted by the Ways and Means Committee, would have increased QBID from 20 to 23%. The final version in the OBBB made QBID permanent but left the deduction percentage untouched at 20%. Last month, Smith resurfaced the idea of increasing QBID, perhaps to bring it more in line with his committee’s initial offer of 23%. While this would be a major boon to pass-through business owners, the likelihood of enactment may be low given the sizable revenue cost associated with such an increase.
Another more basic policy idea for the second bill would be to make various reductions to capital gains. This idea is being most publicly led by Steve Daines, who’s on the Senate’s tax writing committee and who wanted more cuts in the OBBB. One idea suggested by Daines is to index capital gains to inflation; that idea has been promoted in recent years but has never gained legislative momentum. A similar proposal, introduced by Marjorie Taylor Greene in the House, is the elimination of capital gains on home sales. Currently, there’s a limited gain exclusion for the sale of a home (capped at $250,000 or $500,000 if married filing jointly), but the proposal would remove that cap.
Another policy idea that has generated a lot of recent interest comes from Josh Hawley on the Senate side. Hawley has introduced legislation that would take revenue generated by tariffs and send it directly to individual taxpayers. The draft legislation would provide a minimum of $600 to taxpayers, which could be increased if qualified tariff revenue divided by the total number of eligible individuals and qualifying children is greater than $600. This rebate would be subject to an income-based phaseout, with reductions equal to 5% of the taxpayer’s adjusted gross income (AGI) that exceeds $75,000 ($112,500 for head of household; $150,000 for married taxpayers filing jointly). This policy idea is reminiscent of prior stimulus payments, such as COVID-19-era payments.
Cleaning up technical corrections
The OBBB moved at a remarkable speed through Congress. The House Ways and Means Committee released its text in mid-May, and the bill made it all the way to the president’s desk in well under two months’ time. The drafting, organizing, and reworking of various versions of the text were done in large part by technical experts, so any resulting drafting errors are expected to be limited. However, it would be natural for some technical missteps to have occurred along the way given the hundreds of pages of tax-related text included in the OBBB. Thus, there may be a need to complete technical corrections to the OBBB over the coming months.
The TCJA required its own share of these fixes. For example, a glitch included in the 2017 law regarding the eligibility of qualified improvement property for the 100% bonus depreciation deduction required a subsequent correction. The extent of potential technical corrections to the OBBB is currently unknown, but such details are expected to emerge over the coming weeks and months as taxpayers and advisors continue to examine the bill to identify tax-planning opportunities. One of the more complicated sections of the OBBB was the modification of tax credits and incentives that were expanded by the Inflation Reduction Act, and that section was revised late in the process. So, those modifications could very well require technical corrections.
Rescissions and government funding: The broader dynamics at play
Policymakers in Congress and in the White House quickly shifted focus from the OBBB to the president’s $9.4 billion rescissions package during July. On its own terms, the package was a proposal from the White House to rescind funds that were previously authorized by Congress. The package didn’t directly implicate tax laws but instead reduced funding for a variety of programs such as public broadcasting and foreign aid. However, when it comes to the future of tax policy in Washington, the package’s path through Congress suggests a complex future for legislation during the remainder of 2025.
The deadline for passage was July 18, after which it wouldn’t be possible to rescind these funds. After weeks of negotiations, the Senate passed it on July 17, setting the House up to pass the bill on July 18 exactly. The outcome in the Senate was uncertain until the end, and two Republican Senators did vote against final passage. This provides another example of the complexity of passing high-profile legislation, even on a one-party basis.
At its core, this legislation rescinded funding that had been previously authorized through bipartisan legislation in Congress. As such, it’s expected to have an impact on looming negotiations over government funding. As an example of this, the top Democratic member of the Senate Appropriations Committee, Patty Murray, went on record to warn about the impact of passing the rescissions package on any future spending deal. Despite this rhetoric from Murray, Congress has recently passed bipartisan legislation on disaster relief and continues to evaluate additional legislation.
All of this means that what’s considered basic — funding the government — is hardly simple. The government needs to be funded by September 30, which is when the federal government’s fiscal year-ends. Members of both parties will need to balance competing interests, including the impact of recent legislation, the potential for future rescissions to undo any bipartisan budget deal, and the impact of a government shutdown. Recently, House Republican members have largely been following a so-called skinny budget from the White House that asks for $160 billion in cuts to social programs and for increased spending on defense and border needs. However, there’s bipartisan effort on a separate funding deal that includes a 3% spending increase.
This will make life difficult for lawmakers, who have their work cut out for them in trying to both bring Democrats to the table to accomplish funding while working in concert with the Office of Management and Budget (OMB) to cut spending and tee up another reconciliation budget bill.
Challenges for Treasury in implementing the OBBB
The Trump administration and Republican leadership in Congress have been focused on cutting spending and transforming the federal workforce since taking office in January. That perspective shaped aspects of the OBBB, the rescission bill discussed above, and staffing changes across the federal government. From a tax lens, a meaningful focus of some of those actions has been on the Treasury Department and IRS.
On the funding front, House Republicans are seeking to cut the IRS’ budget by $2.8 billion for FY26. That position presages an era of lowered budgets for the tax agency, and that change is already apparent when it comes to staffing. A recent report from the Treasury inspector general for tax administration noted that over 25,000 workers have separated, took a deferred resignation offer, or used some other incentive to leave the IRS this year.
The turnover isn’t just overall numbers, as it’s also happening at the top. Billy Long, who was confirmed very recently as IRS commissioner, abruptly departed the agency on August 8. He was the seventh person to hold the job as either acting commissioner or confirmed commissioner over the past five years. Treasury Secretary Scott Bessent will serve double duty as the eighth. Around the time Congress went on recess, 10 of the IRS’ main operating divisions were led by acting, nonpermanent officials.
The enactment of the OBBB, which includes retroactive changes, triggered the need for a considerable amount of guidance. That includes detailed substantive issues, implementation of transition rules, and procedural guidance, such as forms and instructions. An updated Priority Guidance Plan has yet to be released, so the number of open projects remains unknown, but a recent notice soliciting recommendations confirms that an updated plan is being developed. The plan can cover quite a bit: the most recent plan, issued in October 2024, lists 231 priority projects.
Beyond issuing new guidance, a couple of executive orders, E.O. 14192 and E.O. 14219, mandate the elimination of older guidance. This will also require considerable effort on Treasury’s part. Notice 2025-22 represents these efforts to date, but there may be more to come.
What other guidance is needed? Much of it relates to the OBBB, which introduced a great deal of complexity into the Tax Code. For example, changes restoring domestic research expense deductions included transition rules providing for elective, retroactive deductions. Many process-related questions must be answered to implement those rules, including the impact, if any, on unfiled 2024 tax returns. Additional changes to energy-related tax credits created by the Inflation Reduction Act also require attention. Most pressing is forthcoming guidance related to the beginning of construction rules, as directed by a Trump executive order.
Treasury will also have its hands full concerning new laws that create deductions for overtime pay and tip income. Overtime pay is defined in the OBBB by reference to the Fair Labor Standards Act, but Treasury is required to issue regulations necessary to carry out the purpose of the deduction, with a view toward preventing abuse of the deduction. Treasury must also provide guidance for how to approach withholding. There’s a transition rule in the law that allows taxpayers to approximate a separate accounting of overtime amounts according to any reasonable method specified by Treasury. A similar set of guidance is expected as to the deduction for tips.
We’ll have to wait on these sorts of affirmative actions from Treasury. These may be contrasted with the most impactful move Treasury has made so far following the OBBB, which is saying what it will not do. Treasury will not adjust current withholding tables to account for the OBBB.
Tariffs update: Patterns emerge and deals take shape
To recap and level set, Trump announced a wide-ranging set of tariffs on April 2, or Liberation Day, as the White House styled it. The tariffs came in three groups: 1) baseline, universal tariffs; 2) sectoral tariffs, which are industry- or good-specific; and 3) reciprocal tariffs, which are country-specific and, in most cases, keyed off a simple formula that involves trade deficit amounts and the relative value of U.S. imports associated with a given country.
The first group of these — baseline tariffs — seem to be the most lasting feature of the bunch. As to the second, impacted sectors include steel and aluminum, automobiles, and, most recently, copper. A July 30 order as to copper directs new, Section 232 50% tariffs on copper imports and requires 25% of high-quality copper scrap produced in the United States to be sold into U.S. markets. U.S. Customs and Border Protection recently issued N351466 that ruled that gold bars would be subject to tariffs. However, a subsequent statement from Trump indicated that gold would not be subjected to such tariff.
The third group, reciprocal tariffs, have taken the most circuitous path to date. Tariffs as to China aside, these tariffs were paused for 90 days in April. That 90-day mark was July 9, just a few days after the OBBB was enacted. But that deadline was extended again to August 1. The buildup to the August 1 deadline was similar to what we said leading up to the original order, with the administration promising to place significant tariffs on other major economies like Canada, Russia, Brazil, Mexico, and the European Union (EU).
Looming tariffs have helped create an urgent deal-making space. The administration has struck deals with some major trading partners, including Japan, South Korea, the United Kingdom, and Vietnam. These agreements generally require other countries to, in exchange for a lower rate than originally proposed, agree to both increase access to their markets for U.S. exports and increase their inbound investments in U.S. markets.
The United States has also quickly negotiated a deal with the EU. On the tariffs front, the United States and the EU reached an agreement on July 27 that includes a headline rate of 15% on most EU goods entering the United States. This 15% rate is half of the 30% rate promised by Trump in the time leading up to the deal. Although higher sectoral tariffs on steel, aluminum, and copper were unchanged, pending further negotiations. Beyond the tariff rate, the deal contemplates the EU purchasing $750 billion worth of U.S. energy and making $600 billion worth of inbound investment to the United States.
On the Pillar 2 side, there has been an important development. Congress previously proposed a new Tax Code section, Section 899, as part of the OBBB. The proposed section would have imposed remittance taxes on foreign individuals and entities to the extent those individuals’ and entities’ home countries impose taxes on U.S. companies that Treasury considers discriminatory. Section 899 never materialized into law because Treasury struck an agreement in principle — an agreement to reach an agreement — with the G7. In exchange for dropping Section 899 from the OBBB, G7 countries agreed, in principle, to respect the U.S. GILTI regime (now known since the OBBB as NCTI, or net CFC-tested income) as a Pillar 2-equivalent. For now, because the agreement is in principle, U.S. companies operating in countries with a UTPR still need to pay the top-up tax. But a broader group of countries — the G20 — recently said that negotiations will continue on the basic question of whether U.S. companies should be shielded from Pillar 2. While G7 and the G20 carry a lot of weight, there are roughly 140 OECD countries, so it’s very hard to say at this point where we’ll land in the final U.S. international tax analysis. It’s even possible that Section 899 might come back.
The final say: Courts take up big questions with impactful answers
Thinking through tariffs on their own terms is complex enough. Businesses are very much still working on planning into the constantly changing trade policy environment. Transfer pricing experts are developing strategies in the closely related contexts in which they specialize. Adding to this complexity is that tariffs, as implemented by the Trump administration, are currently being challenged in the courts. The resolution of those challenges could further complicate matters.
The legal challenges to tariffs can be bunched into two categories. The first set of cases present issues about the president’s authority to issue tariffs under the International Emergency Economic Powers Act (IEEPA). These cases touch on the even more fundamental question of the nature and extent of the executive branch’s power relative to Congress’ power to make policy decisions into law. The second set of challenges relates to the first: If a court determines the executive has overstepped the limits of its constitutional power, then can the court prevent the executive action from occurring relative to everyone? Or is the court’s role more limited, such that it can enjoin only the parties involved?
Executive power to impose tariffs under IEEPA
So far, courts have said the president can’t invoke emergency powers under IEEPA to impose tariffs. Two of the first cases to garner national attention, V.O.S. Selections v. Trump, and Oregon v. Trump, have been consolidated on appeal to the Federal Circuit. The lower court in those cases found the administration’s tariffs really addressed balance of power deficits and were meant to create leverage over other countries. These reasons for the tariffs, the courts found, weren’t really emergencies, and so they fall outside the scope of the emergency powers contemplated by IEEPA, which doesn’t expressly reference tariffs.
A different lower court followed a similar analytical path in Learning Resources, which we’ve been following even more closely in recent days because the parties are now seeking review in the U.S. Supreme Court. The government has filed a brief in opposition to which the president has expressed his view that the court shouldn’t take the case.
Courts’ ability to impose universal, nationwide injunctions
Despite the government’s best efforts to stop it from doing so, the court may very well take Learning Resources. If it does, then it will have some of its own very recent precedent to draw on in the form of the June opinion in Trump v. CASA.
CASA is an intricate decision that spans roughly 120 pages and contains six separate opinions. But the case may be reduced to key points on both the issues noted above: 1) the limits of executive power; and 2) courts’ ability to issue universal, nationwide injunctions. As to the first issue, the court embraced a limited role for itself, saying, essentially, that it’s not the court’s job to serve as a general backstop to check executive power. Rather, the court’s majority emphasized that its role is limited to deciding the specific, narrow questions presented to it on a case-by-case basis. Consistent with this first point, the court on the second point held that courts likely don’t have the authority to enter universal, nationwide injunctions. However, CASA suggests that the U.S. Supreme Court itself may, unlike district courts, enter injunctions that are effective against everyone, not just the parties involved.
This second point will be crucial going forward when it comes to tariffs, as well as any other administrative tax actions taken by Treasury in the coming months. The lower court in V.O.S. and Oregon issued nationwide injunctions, while the district court in Learning Resources did not. As these cases continue working their way through the court system, potentially en route to the Supreme Court, we’ll be watching closely to see whether any higher courts move toward enjoining tariffs’ enforcement relative to all taxpayers, not just those involved in the cases at bar.
