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Every quarter, RIA Washington Watch brings you the most up-to-date information on registered investment advisor news and policy changes to help your firm make informed decisions.

This report is current as of February 13, 2025

With the inauguration of Donald Trump as the 47th president and narrow majorities in the Senate and House of Representatives, Republicans will have full control of Washington for the first time since 2018. The president and Republican leaders on Capitol Hill have outlined a massive policy agenda, including sweeping immigration reforms, wide-ranging tariffs on imports, a major tax bill, significant cuts to government spending, raising the debt ceiling, reducing regulations, and more. But narrow margins in Congress and internal party divisions could complicate the agenda.

Here's a look at the new lay of the land in Washington and some of the key issues advisors and investors should follow in 2025.

Republicans must navigate narrow majorities

The razor-thin margins on Capitol Hill may be the biggest threat to the policy agenda. Republicans have a workable 53–47 majority in the Senate. That's short of the 60-vote supermajority needed to overcome a filibuster, and there are perhaps a half-dozen Republican senators with an independent streak that will mean not every issue is a slam dunk.

But the more complicated situation is in the House of Representatives. Republicans will soon have a 217–215 majority, with three vacancies. It's a one-seat margin: If just one Republican bucks the party line and votes with unified Democrats, there would be a 216–216 tie—and ties lose in the House. Effectively, this gives every House Republican veto power. Keeping all House Republicans aligned on key issues has been a huge headache for party leaders in recent years, but alignment will be needed to move legislation forward. Two vacancies will be filled by special elections in early April, which may give Republicans additional breathing room.

"Budget reconciliation" process will be key

Republicans plan to use budget reconciliation to move their priorities through Congress. Designed to expedite consideration of budget-related legislation, budget reconciliation limits debate time and amendments and, crucially, requires just a simple majority vote in both chambers, bypassing the need for a 60-vote supermajority in the Senate.

It's a common strategy when there is unified government in Washington. Republicans used it in 2017 to pass the Tax Cuts and Jobs Act, the sweeping tax-cut bill that was a hallmark of Trump's first presidency. Democrats used it in 2021 to pass the American Rescue Plan, the $1.9 trillion post-COVID economic stimulus package, and again in 2022 to approve the Inflation Reduction Act, which lowered some prescription drug prices and boosted green energy, among other provisions.

Is one big bill better than two?

Republicans have been debating whether to use budget reconciliation to pass one gigantic bill or two smaller ones. House Republican leaders, cognizant of their tiny majority, are pushing the one-bill strategy, arguing that a massive "something for everyone" bill that encompasses taxes, border security, government spending cuts, a debt ceiling increase, energy measures, and other priorities has a better chance of passing the House.

Some Republican senators, however, have advocated for a two-bill approach, favoring quick passage of a bill with immigration/border, energy, and other provisions that puts a win on the board in the administration's first 100 days. That would allow more time to negotiate a second, more complicated bill dealing with taxes, government spending, and the debt ceiling, which could be approved later in the year.

Tariffs and immigration top early priorities

Tariffs and immigration policy were two cornerstones of the Trump campaign. He spoke regularly of imposing across-the-board tariffs of 10% to 20% on all imports, with higher tariffs on imports from China. But economists generally agree that tariffs, which are not paid by foreign countries but by U.S. companies that import goods and materials from overseas, can increase inflation and impede economic growth. Consumers tend to bear the brunt of tariffs, as companies pass on the cost by increasing prices.

Companies were encouraged that Trump's first executive orders have demonstrated a more measured approach. Instead of imposing broad tariffs right away, he ordered government agencies to scrutinize trade issues and report back by April. Since then, he has imposed and then delayed tariffs on imports from Canada, Colombia and Mexico. New tariffs were imposed on imports from China, but at a lower-than-expected 10% level. Tariffs on imports from the European Union are under consideration, but details have not been finalized.

Trump was more aggressive on immigration policy, issuing a series of executive orders that amount to a broad crackdown on all immigration, with a focus on aggressive deportations of undocumented individuals. But deportation will be logistically difficult, costly, and subject to time-consuming legal challenges.

The economic impact may take a while to be felt, but businesses that rely on immigrant workers, such as agriculture, construction, hospitality, and manufacturing, could be particularly impacted.

Major tax legislation is coming

A large tax bill is expected to pass in 2025, because every individual provision in the Tax Cuts and Jobs Act of 2017—including lower individual income tax rates, a higher standard deduction, and a larger exemption from the estate tax—is set to expire at the end of this year. The price tag is high, however: an estimated $4.6 trillion over 10 years, according to the Congressional Budget Office. Lawmakers are considering a shorter extension of perhaps four to five years to lower the budget impact.

Less certain is what will happen to a variety of tax proposals President Trump floated on the campaign trail. He proposed ending the taxation of tip income, overtime pay, and Social Security benefits. He also called for a corporate tax reduction and lifting the cap on the state and local tax (SALT) deduction. Including all these ideas is not realistic, but eliminating the tax on tip income is reportedly a top priority. The SALT tax deduction debate will also be one to watch, as Republican lawmakers representing districts in high-tax states like California, New Jersey, and New York have said they won't support a tax bill unless it includes an increase in the current $10,000 cap. Doubling it to $20,000 for married couples seems to have momentum, but some Republicans would like to see a larger increase.

Spending reduction efforts could encounter pushback

Significant spending cuts are likely to be paired with tax cuts. Elon Musk's Department of Government Efficiency (DOGE) is spearheading the effort to reduce government spending, with small teams embedded in federal agencies with the goal of improving technology, finding efficiencies, and reducing waste. Those efforts have already resulted in the near-total shutdown of the U.S. Agency for International Development (USAID) and the Consumer Financial Protection Bureau. Those and other DOGE initiatives, including a buyout offer to every federal employee, have been challenged in the courts, and several have been at least temporarily stayed pending further court action. And some efforts to slash programs could encounter pushback on Capitol Hill, where lawmakers are generally always for reducing government spending—until those cuts begin to affect their constituents.

Congress will need to raise the debt limit

The debt ceiling, the congressionally mandated cap on the total amount of debt the United States can accumulate, was suspended in mid-2023 as part of a bipartisan agreement. But that suspension expired on January 1, 2025.

The Treasury Department began taking "extraordinary measures" earlier this month to ensure that the nation does not default on its debts. Those measures, however, are temporary, typically buying Congress four to six months of additional time. By mid-2025, Congress will have to raise the debt limit, something that will be tricky in an all-Republican Congress.

Debt ceiling battles have been ferocious in Congress in recent years, with the debt recently exceeding $36 trillion. In 2023, Congress came within a day or two of the first-ever U.S. default before a last-minute bipartisan deal was reached to suspend the debt ceiling. Market volatility has typically increased if there is uncertainty about when and whether Congress will lift the cap.

Republican leaders have discussed attaching a debt ceiling increase to a bill with emergency aid for California's fire victims, attaching it to a must-pass March government funding bill, or including it in the large tax package. But no matter what path they pursue, it won't be easy. Seventy-one House Republicans voted against the debt ceiling agreement in 2023. A handful of congressional Republicans have never voted for a debt ceiling increase. That creates an uncertain atmosphere as another vote approaches this year. Yet despite years of complaints and frustration on Capitol Hill, Congress has never failed to raise or suspend the debt ceiling before the default date. While the exact path to that end in 2025 remains unclear, expect lawmakers to ensure that default is avoided once again.

A new SEC will have a very different agenda

After four years of aggressive rulemaking under former Chairman Gary Gensler, expect a very different SEC in 2025. Paul Atkins, who served as a commissioner from 2002 to 2008 and has run a well-respected financial services consulting firm in Washington since, has been tapped as the next SEC chair. Expect a host of pending rules to be shelved. Rule proposals overhauling equity market structure, requiring mutual funds to use "swing pricing," and limiting the use of predictive data analytics in investment advice interactions remain in limbo. Rules related to climate disclosure and other ESG initiatives are likely be mothballed. For RIAs, it's uncertain whether the revised Custody Rule ever comes back to life, but advisors can expect any actions from the SEC to be less focused on a one-size-fits-all, prescriptive regulatory approach and more focused on giving businesses the opportunity to innovate, effectively "letting the market decide."

Cryptocurrency is an area of particular focus for the SEC, and efforts there are likely to have bipartisan backing in Congress. There is a growing consensus in Washington that strengthening investor protections, reducing fraud, and clarifying the roles of various regulatory agencies in the cryptocurrency space is a top priority. Expect that to be a rare area of common ground for the two parties.

Don't be surprised by market volatility

There will be a lot to keep track of in 2025, with executive orders, new regulators, major tax legislation, trade tensions and more on the horizon. Don't be surprised if market volatility is a regular feature this year as investors and companies sort out the short- and long-term impacts of sweeping policy initiatives.