House Republicans began work this week on a “clean” short-term continuing resolution to fund the government, setting up a potential showdown in the Senate that could shutter the government. The contentious spending fight is sapping the chances for a bipartisan tax package later this year.
Government funding is set to expire on Sept. 30, and Republicans and Democrats remain far apart on how to prevent a shutdown. House Republicans released a proposed continuing resolution on September 16 that would fund the government through Nov. 21. The bill would generally be a “clean” extension with additional funding for member security, but it was crafted without input from Democrats after President Donald Trump told Republicans, “Don’t even bother dealing with them” on a Fox and Friends interview.
Republicans cannot pass a spending bill on the Senate side – which would require 60 votes -- without Democratic support, and Democrats are threatening to block any spending bill that doesn’t reflect bipartisan negotiations. Democrats are pushing to include an extension of the enhanced premium credits for the Affordable Care Act, which are scheduled to expire at the end of the year. There is some support in the Republican caucus for extending the credits, but Senate Republican leadership wants to handle the issue separately.
It's unclear how willing Democrats are to shut down the government if their demands aren’t met. Senate Minority Leader Chuck Schumer, D-N.Y., was criticized by many Democrats for helping Republicans pass an extension of government funding in March. He appears to be taking a harder line for now, though Democrats have expressed some concern that a shutdown plays into Trump’s hands by giving the administration broad discretion over government operations under a lapse of funding.
Congress will be out the week of Sept. 22 to 26, so lawmakers may have only two days before the Sept. 30 deadline to resolve the standoff if they don’t agree on a bill by Sept. 19. The chances of a shutdown appear to be increasing, though a compromise remains possible.
Year-End Tax Deal
With the spending fight growing more contentious, the outlook for a year-end tax package appears to be dimming. There are very few traditional “tax extender” provisions set to expire at the end of 2025. The most significant include the work opportunity tax credit, the seven-year recovery period for motorsports entertainment complexes, and expensing for film and other productions. Other noncontroversial bipartisan priorities include:
- Conferring tax treaty-like benefits on Taiwan
- Enacting another round of retirement changes
- Removing the 90% limit on deducting gambling losses that was recently enacted as part of the One Big Beautiful Bill Act
There is also bipartisan interest in addressing the taxation of digital assets, though that is a more complex issue unlikely to be settled quickly.
While action before year-end on the tax extenders is possible, none of the provisions in play have large constituencies, and there does not appear to be much urgency around them. With the spending fight taking center stage, and the potential for the ACA tax credits to be handled separately, it may be hard for lawmakers to move another tax bill this year.