With the Republicans gaining control of the White House and Congress, elected officials are busy planning for new tax legislation once President-elect Donald Trump takes office again. Republican leadership began laying the groundwork for a 2025 reconciliation bill over the summer, with efforts to continue through the end of the year. Trump included tax proposals in his election campaign, which we highlighted here.
In addition to Trump's new tax proposals, he and Congress are expected to focus on extending various provisions of the Tax Cuts and Jobs Act of 2017 (the "TCJA"), which Trump signed into law in his first term and many of which are scheduled to expire on December 31, 2025.
Some of Trump's most significant new proposals include:
- Reducing the corporate income tax rate from the current 21% to as low as 15% for corporations that make their products in the United States.
- Imposing a universal 20% tariff on imported goods and raising the tariff to 60% on all imports from China.
- Eliminating taxes on tips, overtime pay, service and hospitality workers, and social security benefits.
The effect of some notable TCJA provisions that will expire or change absent new legislation include:
- The top marginal individual income tax rate would increase from 37% to 39.6%.
- The standard deduction would revert back to lower pre-TCJA levels.
- The deduction for miscellaneous itemized expenses above 2% of adjusted gross income would return.
- The alternative minimum tax would again apply to a larger group of individual taxpayers.
- The qualified business income deduction of 20% of qualified passthrough income would be eliminated.
- The $10,000 cap on state and local tax deductions tax would be eliminated.
In terms of timing, the Republican members of Congress have given mixed signals. On December 3, 2024, the Senate Majority Leader John Thune (R-SD) proposed a two-bill approach to the Senate Republican caucus. Under this approach, the first bill in early 2025 would focus on energy, defense, healthcare and border security issues and is expected to move through quickly. With the momentum of passing the first bill, the second bill would tackle the more complex tax issues, likely by the end of 2025. Other officials, such as the House Ways and Means Committee Chair Jason Smith (R-MO), criticized the two-bill proposal, citing the thin Republican majority in the House of Representatives, the need to prioritize the TCJA provisions expiring at the end of 2025, and the historical challenges to Congress passing two reconciliation bills in one year. Trump himself recently said that he would seek to extend the expiring TCJA provisions within the first 100 days of taking the office. At this time, lawmakers emphasize that they are merely in the early stage of brainstorming ideas and that nothing has been officially decided.
Another recent update making headlines is Trump's announcement of his intent to nominate former Missouri Republican Representative Billy Long as the IRS Commissioner, suggesting that he will fire the current IRS Commissioner Danny Werfel before his term expires in 2027. Critics are voicing concern over Long's lack of tax or management experience and his ties to the Employee Retention Credit, a controversial pandemic-era tax break that many say has been a magnet for abuse.
With all of these new proposals and the possibility of extending TCJA provisions, 2025 should be a headline-making year for tax.
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