*This article was published on September 13, 2024, with data and policy announcements current as of that date.
Welcome to the 2024 Election Series, where we will cover candidate policies, a congressional “state of the nation,” and report on election outcomes. Follow along to better understand the potential tax implications for you and your business this fall and into the coming year.
Tax policy is playing a more prominent role in the 2024 election narrative. After all, 2025 has been characterized as the tax legislative “Super Bowl.” With scheduled tax phaseouts and sunsets culminating at the end of next year, trillions of the federal deficit and of taxpayer dollars are in question. The Republican and Democratic candidates are taking different positions on key topics that may affect businesses and individual taxpayers alike.
Background: The Economic Environment
The federal budget and tax policy are intertwined, but they may especially be so in 2025. Whoever the winner, the 2025 State of the Union address will include the president’s budget priorities before their budget proposal is submitted to Congress in February 2025. From there, the timeline is unclear—Congress will take the proposal and work on a budget resolution and appropriations bills (or continuing resolutions). The federal deficit and national debt will be a guiding factor in this year’s process.
While the federal deficit is projected to be around $2 trillion, the national debt has surpassed $35 trillion. This poses a challenge as the related interest burden gets passed to the American public—projected to be around $1 trillion in 2025, according to the Congressional Budget Office.
The budget, deficit, and debt culminate in the debate about what happens with 2025 tax sunsets, phaseouts, and proposals. Given the environment, both parties may be hard-pressed to incur sizeable spending without offsetting revenue. Whether it be the Tax Cuts and Jobs Act of 2017 (TCJA) extension, or some proposed social initiatives, taxpayers should consider whether the budget or various tax proposals are more important.
Policy Comparison
Both presidential candidates have positions that will require funding. Coming in at an estimated $4 trillion over the decade 2025–2035, the congressional election results may prove to be the deciding factor as to how much of (if at all) TCJA provisions are extended or made permanent. Trump has discussed a number of funding mechanisms, including tariffs, the Inflation Reduction Act of 2022 (IRA) repeals, and the extension of the state and local tax (SALT) cap.
Meanwhile, Harris voted against TCJA back in 2017. However, she has said that instead of favoring a complete sunset of TCJA provisions, come 2025, she would implement extenders for those with earnings less than $400,000. From a tax perspective, her economic plan issued in August 2024 focused largely on affordable housing and the Child Tax Credit (CTC). However, she has since spoken about her proposed initiatives focused on small businesses. Namely, increasing the long-term capital gains rate to 28% for those earning over $1 million, increasing the Section 195 startup expense deduction to $50,000, and providing low-interest loans to small businesses specifically. All of this is geared at her goal of creating 25 million new small business applications in America were she to become president.
See below for a summary of key topics under discussion in the election and 2025, along with the positions both candidates have publicized either recently or in the past:
| Topic | Harris | Trump |
|---|---|---|
| TCJA | Extend TCJA provisions for those earning less than $400,000 | TCJA permanence |
| Tariffs | Increase tariffs on China & Mexico on specific items | Tariffs: 10% baseline on all goods and 60% on Chinese goods |
| 2024 Proposal | CTC expanded: $3,600/child or $6,000/newborn | Business provisions from 2024 bill |
| Corporate Tax Rate | Corporate tax rate increase to 28% | Corporate tax rate reduction to 20%, or 15% for domestic manufacturers |
| Housing |
|
|
| IRA | Maintain IRA credits, $100M in grants for Energy Department—electric vehicle (EV) manufacturing | IRA, at least partial repeal |
| Aid to Working Class | Tip taxation exemption |
|
| Personal Tax Effects | Increase top individual tax rate to 39.6% | 529 savings expansion |
Planning Considerations
Without knowing who will win the presidency and control Congress, what can taxpayers do now to plan for 2025? As with most tax questions, the answer is “it depends.” For example, if TCJA were not to be extended at all, partnerships may consider switching their formation to a C corporation. Without the Section 199A deduction, it may make more sense to take advantage of the lower tax rate (assuming the corporate rate does not also change). However, given the current discourse, it seems there could potentially be some TCJA extension regardless of the party in power. Therefore, prior to making such a change, it may be better to wait for further legislation updates.
Possibly the most urgent planning item to consider involves the estate and gift tax exemption. Transfers resulting from either gifts or estates are currently tax-free up to $13.61 million per individual (taking inflation into account). However, if the portion of TCJA that increased this exemption amount is not extended, 2026 could see a reduction to around $7 million per individual. Forvis Mazars can assist clients through various strategies in anticipation of this reduction. For more information, see our Estate & Gift Tax Exemption Sunsets After 2025 video.
For developers or those looking to invest in low-income housing, it may be a good time to explore new projects in 2025. Considering that the Low-Income Housing Tax Credit (LIHTC) isn’t going anywhere and that opportunities may be expanding, it may be helpful to discuss potential options with a tax advisor.
While some portions of the IRA were new with the bill, other credits have been present long before the legislation. For example, incentives for solar and wind facilities have been available to taxpayers for a while now. The prevalence of these alternative energy sources, coupled with the fact that much of the IRA-related clean energy development has occurred in states, such as Georgia, New York, Tennessee, and Texas, may provide taxpayers with some comfort in investment within these spaces. While EVs and some newer energy credits may be in question in 2025, it is relatively unlikely that the broader investment and production tax credits will be repealed all together. Therefore, taxpayers may consider either purchasing the qualifying clean energy property or the related credits in the coming years.
The Washington National Tax Office at Forvis Mazars is keeping an eye on tax topics related to the election. Stay up to date and subscribe to our Tax FORsights™ for tax resources, including weekly “From the Hill” emails, our annual Year-End Planning Guide with an accompanying webinar, other relevant tax updates and for additional election-related tax insights, view our forthcoming “2024 Election Guide.” If you have questions or need assistance, please contact a professional at Forvis Mazars.