Baseline vs. the Byrd Rule: What’s Next for the Gift and Estate Tax? – KJK

On April 10, 2025, the House of Representatives narrowly approved the Senate’s version of the FY 2025 budget resolution, which it passed on April 5, formally aligning both chambers on President Trump’s legislative tax agenda. This critical step unlocks the budget reconciliation process, allowing Republicans to pursue major tax and spending legislation—including a potential extension of the Tax Cuts and Jobs Act (T.C.J.A.) estate and gift tax exemption—with a simple majority in the Senate.

But while this procedural victory gives the G.O.P. control over the reconciliation track, it does not resolve one underlying policy dilemma: whether the estate tax exemption can be made permanent under the rules governing reconciliation. In short, although the current policy baseline makes an extension easier to score politically, the Byrd Rule remains a serious constraint—and one that likely means any estate tax relief enacted under reconciliation will be temporary, not permanent.

Here’s where things stand now and what estate planners should watch next.

The House Adopts the Senate’s Baseline—and Its Instructions

The Senate’s FY 2025 budget resolution used a current policy baseline for Congressional Budget Office (C.B.O.) scoring purposes. This baseline assumes that temporary provisions in the tax code—including the elevated TCJA estate and gift tax exemption—remain in effect indefinitely.

By voting to adopt the Senate’s version, the House accepted this baseline for C.B.O. scoring and also inherited the Senate’s reconciliation instructions, which require only $4 billion in spending cuts—far less than the House’s originally proposed $1.5 trillion.

With this move, the reconciliation process is now procedurally unlocked. Committees in both chambers can begin drafting legislation to implement the TCJA extension and other components of the tax agenda, including provisions related to the estate and gift tax exemption.

Next Steps in the Reconciliation Process

Now that both chambers have adopted an identical resolution, Congress proceeds to the next phases of reconciliation:

(1)  Committee Drafting Begins

• In the House, the Ways and Means Committee will draft tax legislation, including estate and gift tax provisions.
• In the Senate, the Finance Committee will prepare parallel tax legislation.
• These committees will draft proposals consistent with reconciliation instructions—especially the spending and revenue impact within the 10-year budget window (FY 2025–2034).

(2)  Consolidation and Debate

• Each chamber’s budget committee will package the proposals into a single reconciliation bill.
• In the Senate, the bill is subject to a 20-hour limit on debate (no filibuster), followed by a “vote-a-rama” of amendments.
• Only provisions that affect spending or revenue may be included; others are subject to procedural challenge.

(3)  Final Passage

• Both chambers must approve the same reconciliation bill.
• The bill is then sent to the president for signature.

This process could play out over the next several months, with votes expected by late summer or early fall—timed to shape year-end tax planning.

Baseline vs. Byrd Rule: A Critical Distinction

With the Senate’s budget using a current policy baseline, the scoring of T.C.J.A. extensions may seem easier. But many estate planners and policy professionals have asked: does this allow for a permanent extension of the estate tax exemption under reconciliation?

Unfortunately, the answer is no—not without running afoul of the Byrd Rule, a procedural guardrail in the Senate.

The Core Issue:

• C.B.O. scoring (and baseline choice) determines how legislation appears on paper in terms of budget cost.
• The Byrd Rule, however, is enforced based on current law, regardless of the baseline used for scoring.

Following is a table that outlines the distinctions between the two:

Because the Byrd Rule prohibits provisions that increase the deficit beyond the budget window, its practical implication on the gift and estate tax is that any permanent extension of the estate tax exemption will likely be stripped from the reconciliation bill unless it:

• Includes long-term offsets (unlikely under the current framework), or
• Is made temporary, sunsetting by the end of FY 2034.

What’s Likely to Happen?

Given the reconciliation constraints and the current fiscal posture of the GOP:

• Congress will almost certainly pursue a temporary extension of the TCJA’s estate and gift tax provisions, likely through 2033 or 2034—the end of the budget window.
• A permanent extension is unlikely under reconciliation unless additional offsets are introduced or the Byrd Rule is waived (requiring 60 votes in the Senate, which Republicans do not currently have).
• The reconciliation bill may also include provisional or conditional extensions, depending on future deficit benchmarks or economic triggers.

Implications for Estate Planners

For estate planners and their clients, the message remains consistent:

• The current exemption is still scheduled to sunset at the end of 2025.
• Even if Congress acts, permanence is unlikely under the current legislative strategy.
• Clients with estates that may exceed the post-2025 exemption (~$7 million per individual) should:
  • Review existing estate plans for exposure
  • Consider lifetime gifting strategies
  • Utilize irrevocable trust structures (SLATs, GRATs, dynasty trusts)
  • Incorporate charitable giving to reduce taxable estate size
  • Position assets now so that responsive action can be taken quickly if Congress passes time-limited relief

Conclusion: The Path Is Open, But Not Clear

The adoption of the Senate’s budget resolution has formally opened the reconciliation process, setting the stage for one of the most consequential tax debates in recent history. But even with alignment on a current policy baseline, the Byrd Rule ensures that the law—not the C.B.O.’s ledger—ultimately controls what Congress can include in a reconciliation bill.

Unless lawmakers offer long-term fiscal offsets, any estate tax relief passed through reconciliation is almost certain to be temporary. Planners must continue preparing clients for the scheduled sunset, even while watching Congress closely for developments. Preparing for expiration and adapting to extension is better than being caught off guard by inaction.

For questions, contact KJK Estate Planning attorney, Gregory Williams (GLW@kjk.com).