A forward-looking Q&A with Jeff Bush, Principal of The Washington Update.  Jeff is widely regarded as the leader in nonpartisan political analysis within the financial industry.

Q. Where do we stand on passing a FY2026 budget by September 30th, and what are the prospects of a government shutdown?

Given that the budget appropriations require a majority in the House and 60 votes in the Senate (Republicans currently control only 53 seats), the legislative process appears to be lacking the necessary momentum to move forward smoothly. This isn’t a new phenomenon; it has been common over the last few decades. However, the FY2026 debate includes a few unique wrinkles.

With the House of Representatives choosing to end early for its August recess, much of the debate is left for the very short legislative window in September. I anticipate a continuing resolution to buy additional time for Congress to pass the bills. Debate is further complicated in 2025 because of the recently passed recissions bill. The recissions bill allows the President to decide whether to spend certain funds that were duly appropriated in the FY2025 budget. Democrats criticize this as an egregious executive overreach and dampen their willingness to cooperate with the GOP on the FY2026 budget, knowing anything they negotiate could simply fall victim to another recissions bill.

Additionally, the Epstein file controversy complicates the budget timeline because of the amount of attention the issue is likely to draw. I’m sure our elected officials are hearing plenty about it in their home districts this month, and I expect our representatives to return to D.C. with an aggressive stance to “get to the bottom” of the issue.

The main debate among the parties right now is which party voters will blame most for a government shutdown. It’s this judgment that will determine which party believes it has the edge in negotiations. In fact, both parties will suffer if a government shutdown occurs. But, again, I anticipate a continuing resolution to delay any shutdown.

Q. I’m hearing about prospects of another reconciliation bill in 2025. Didn’t Republicans already use their reconciliation opportunity for 2025?

You are right that the Republicans passed a reconciliation bill this summer, and typically, there is only one opportunity per fiscal year. However, because Congress passed multiple continuing resolution bills last fall and winter, extending the FY2025 budget deadline to mid-March 2025, they have two reconciliation bill opportunities this year. Additionally, the Republicans will have a third opportunity for FY27.

Q. What could be included in a second reconciliation bill later this year?

The debate is all over the place at this point. I’m telling audiences that the Republicans are still working on the framework of a deal. Proposals have included many things—some that won’t make it into the final bill, others that might drop in at the last minute; you just never know. What we do know about a second reconciliation bill is that it will reveal the promises made by the President, Senate Majority Leader Thune, and Speaker of the House Mike Johnson—promises made to secure votes for the tax bill that was signed into law on July 4, 2025.

Some of the things being discussed right now include:

  • Indexing basis for securities
  • Pharmacy Benefit Manager (PBM) reform
  • POTUS suggested he’s open to looking at tax-free gains on sales of primary residences
  • Significant new spending cuts, likely targeting Medicaid and the Department of Education
  • Increasing the number of Medicare-supported Graduate Medicine Education residencies
  • Restoring the 100% deduction for gambling losses (something that was just reduced to 80% in the 2025 tax bill)
  • Reversing the recent tax bill’s removal of enhanced Affordable Care Act premium subsidies.
  • SECURE Act 3.0

Q. That’s interesting. Do we have any details about what might be included in a SECURE Act 3.0?

Not much. There are opportunities to refine certain aspects of the SECURE Act 2.0, but I sense that Republicans are seeking more substantial changes.

Recently, there’s been a push toward the “Rothification” of retirement. While this may be a long-term benefit for investors, the reality is that it serves Washington’s interests. Post-tax savings for retirement generate tax revenue upfront for Washington. This allows them to spend that revenue immediately, without waiting 20 or 30 years for individuals to retire. I expect the trend of “Rothification” to continue with any SECURE Act 3.0.

Looking at it from an actuarial perspective, it’s even more problematic because we are currently double-dipping on revenues. Our industry knows well that the baby boom generation is now reaching its peak in retirement. Most of their retirement savings are tax-deferred in 401(k)s or traditional IRAs. This means the government’s revenue from these sources is peaking just as we are encouraging, and sometimes forcing, post-tax retirement savings. This creates an additional revenue bump. But what happens when the baby boom generation’s tax revenue diminishes? The government will face a loss in revenue. This issue is worsened by the country’s overall demographics and the funding shortfalls in Social Security and Medicare.

If the Republicans follow the same approach they used with the tax bill, I expect more opportunities for savings from increased limits for retirement contributions, along with further “Rothification”. Perhaps they will try to bring more consistency between IRA and 401(k) limits.

Other areas they are likely to consider (no promises)

  • More focus on lifetime income solutions
  • Expand emergency savings programs
  • Expand portability to make it easier to keep retirement savings consolidated
  • Long-term care integration

Q. Given the updates to the tax code, what opportunities do you see for advisors to add value between now and year-end?

The tax changes mostly made minor adjustments to the code. There aren’t any major game changers planned for 2026. However, there are some opportunities advisors should recognize.

For high-income clients who are charitably inclined, consider accelerating their donations into the 2025 tax year instead of waiting until 2026. Starting in 2026, a new 0.5% floor on charitable contributions will be in effect, along with a maximum deduction of 35%. By donating more this year, filers can benefit from the deduction from dollar one and receive a full 37% credit depending on their earnings.

For clients considering a life insurance solution, a new report shows that mortality rates have not yet returned to pre-COVID levels. Eventually, insurers will need to factor in shorter life expectancies when setting prices. This creates urgency to wrap up these opportunities sooner rather than later. The same reasoning applies to long-term care solutions.

ROTH conversions are a great way to diversify a client’s tax exposure in retirement. With the certainty provided in the new code, a longer-term plan for conversions is appropriate.

Review the totality of tax changes with your client’s tax professional to determine if they can lower their remaining quarterly estimated tax payments for tax year 2025.

Businesses have some special factors to consider.

Starting in 2026, corporations will face a 1% floor on philanthropic donations.  Given each business’s unique cash flow situation, it might be beneficial for them to make larger donations in 2025.

Bonus depreciation, R&D expensing, and interest rate deductions have all undergone changes, some of which are retroactive.  All business owners should meet with their advisor and tax professional to assess how these changes will impact their effective tax rate. In most cases, they will be pleasantly surprised, and it may change their business planning between now and year-end.

Additionally, there are new or expanded opportunities to offer tax-friendly employee benefits that they should explore. Also, corporations may need to adjust their payroll reporting to account for tax-free tips and overtime pay.

Q. It sounds like the remainder of 2025 will be busy in Washington, D.C.

You are right. I see no slowdown in the relentless pace this administration established earlier this year. The President understands history, and historically, voters have not been inclined to maintain single-party control for more than two years. Every President aims to be influential and leave a legacy, and Donald Trump knows he only has until the holidays of 2026 to do so. It’s possible we might see a more pragmatic approach in the second half of his term, given his desire to make deals. But the Democrats, feeling scorned, may prefer to pause on any dealmaking rather than cooperate with a lame-duck president. Time will tell.