Tariffs, 100-Day Timeline Pose Heavy Lift for Tax Cut Extension

Republicans are unlikely to use tariffs to offset an extension of Trump-era tax cuts in 2025, even though they’ll control both chambers of Congress, panelists said at a Bloomberg Government event Wednesday.

President-elect Donald Trump has promised to levy tariffs on foreign goods in hopes of rebalancing the trade deficit, and he has suggested they could offset some of the cost of extending individual provisions of the 2017 tax code overhaul during his first administration. Budget watchdogs estimate the 10-year cost of extending all the expiring provisions ticks in around $4.6 trillion.

But Republicans traditionally eager to eliminate obstacles to free trade are skeptical if not outright opposed to the notion as they weigh possible offsets for the multi-trillion-dollar package. A wide swath of tax cuts from that law expire at the end of next year, prompting Congress to act.

“Building a budget around tariff revenue is a little shaky,” said Rep. Adrian Smith (R-Neb.), chair of the House Ways and Means Committee’s Subcommittee on Trade. “That makes me a little bit nervous.”

Sen. Ron Johnson (R-Wis.), a member of the Senate Finance and Budget committees, pointed out that levying tariffs on imports wouldn’t offset the package’s projected cost and would end up cutting into projected revenues by encouraging domestic business.

“I can see where tariffs are used strategically in certain areas to discipline the bad actors, but I like to have as few as possible,” Johnson said.

100 Days Heavy Lift

Republicans have laid out an ambitious timeline for extending their tax cuts with the budget reconciliation process, which allows them to bypass an expected Democratic filibuster in the Senate. House Speaker Mike Johnson (R-La.) and others contend they want it done within the first 100 days of their reign.

But GOP lawmakers have yet to reach the kind of near-unanimous consensus required to pass such a package on a party-line vote through Congress, where Republicans are projected to enjoy only single-digit margins in both chambers.

“In reality, 100 days is not a real deadline,” said Alex Brill, a senior fellow at the American Enterprise Institute and former adviser to congressional Republicans. “If it happens on Christmas Eve, it would also not be surprising.”

Paying for the package by simply repealing laws enacted during the Biden administration also would run into opposition. Smith highlighted the sustainable aviation fuel tax credit created by Democrats’ 2022 tax-and-climate package and wished it had been implemented by now.

And then there’s Johnson, who proposed eliminating the corporate rate and capital gains tax altogether and shifting collection to the individual in order to “level” the playing field between different types of business. Johnson made his support for the 2017 package contingent on pass-through entities’ ability to write off 20% of their business income.

“There’s nothing simple about simplifying our tax code,” Johnson said Wednesday.

Lawmakers also hope to attach non-tax measures to an overall spending package, though the scope of those options has yet to be decided.

“It would be foolish to think that it’s going to be limited only to the expiring provisions,” said Aruna Kalyanam, global and Americas tax policy leader at EY and former adviser to House Democrats.

Lawmakers could opt to pass two different reconciliation packages, one for each year, that would allow them to pass a “smaller” package of Trump’s campaign promises paid for by rescission of Democratic priorities before turning to permanent extension of the 2017 tax policies, Johnson said.

Even after Republicans unveil their proposed legislation, political wrangling over the package will run concurrently with any legislative process. Regular hearings and markups will give lobbyists and lawmakers alike a chance to exert pressure for or against any number of provisions.

“Democrats also do have a voice in this process,” said Jorge Castro, tax policy co-lead at the Miller & Chevalier, and former aide to Senate Democrats.