While it seems that presidential candidates receive the most election coverage as they communicate tax policy idea after idea, we are reminded of a constitutional truth; only Congress can write a tax policy into law. The president does wield the singular power to veto or sign such legislation and can possess great influence within their party; however, ultimately only Congress is authorized to create the “ways and means” to fund the federal government and introduce tax proposals. The new president may find themselves powerless to enact any promised tax proposal without the backing of Congress, so it is important to understand the congressional election outlook.
Background: The Lay of the Land
In the House of Representatives, Republicans currently hold a nine-seat majority not including four vacant seats, of which three were previously held by Democrats and one by a Republican. Legislative consultants of Forvis Mazars consider 39 Democratic seats that may flip Republican, while Republicans have 32 contested seats to defend. Republicans currently hold 17 seats in districts that voted for President Joe Biden in 2020 as compared to five seats occupied by Democrats in districts that voted for former President Donald Trump.
As for the Senate, Democrats and caucusing Independents hold a two-seat majority over Republicans. Senate Democrats face a more difficult election cycle as 23 of the 33 seats (34 counting Nebraska’s special election) up for election are currently held by the party. Three of these seats are in states won Trump in the 2016 and 2020 elections, while no Republican seats are up for election in states won by Biden. The 11 Republican seats are considered safe. Republicans would need to pick up one more seat to gain control of the chamber if the Republican presidential ticket were to also win considering the vice president’s tie breaking vote. In turn, Democrats could afford to lose one seat if they retain the presidency.
What They Are Saying
At the forefront of congressional tax debate is what to do with the expiring provisions of the Republican-crafted Tax Cuts and Jobs Act (TCJA) of 2017. TCJA was one of the most significant legislative tax overhauls, if not the largest, since the 1980s. The sunset of the legislation takes effect December 31, 2025, and will impact many facets of taxation including individual tax rates, deductions on business income, and estate and gift taxes. Senator Mark Warner (D-VA) has labeled the looming sunset and related debate as “Tax Armageddon.”1
Democrats see the forthcoming changes to the tax landscape as an opportunity—rallying around a “pay their fair share” mantra—to raise taxes on the wealthy and provide more tax benefits to those who are not. Members of the party have suggested maintaining beneficial TCJA provisions, or passing their own similar provisions, for those making under $400,000 while raising individual and corporate tax rates, slashing the estate and gift tax exemption, and instituting a minimum income tax on those with over $100 million in net worth.
Commentary from legislators in congressional tax committees give an indication of what the rhetoric will be in the coming year. At an event hosted by the Washington Center for Equitable Growth, Senator Elizabeth Warren (D-MA) said, “If the 2025 tax bill doesn’t call on wealthy people and giant corporations to shoulder a bigger share of what it costs to run this country, Democrats should reject it outright.”2
Republicans are doubling down on TCJA, hoping to extend a majority of its tax-cutting measures. The party has found itself on the defense after the Congressional Budget Office (CBO) estimated the extension of TCJA to add more than $4 trillion to the deficit over ten years. The ever-increasing national debt and its indefatigable interest burden has become a stumbling block for any tax cutting proposals. More and more Republicans are asking, “How do we pay for it?”
In response to the CBO projection of the TCJA cost, House Committee Chair Jodey Arrington (R-TX) and Ways and Means Committee Chair Jason Smith (R-MO) stated, “[TCJA] resulted in economic growth that was a full percentage point above the CBO’s forecast, and federal revenues far outpaced the agency’s predictions. In fact, under Trump tax policies in 2022, tax revenues reached a record high of nearly $5 trillion, and revenues averaged $205 billion above CBO predictions for the four years following implementation of the law.”3
Planning Considerations
Once the dust settles on the election, keep in mind that taxpayers will be jockeying for time with their CPAs, investment advisors, and estate planning attorneys. Perhaps first and foremost, taxpayers should make sure they are on their professionals’ radars, have time scheduled with them, and have contingency plans in place for the outcome of the election.
Currently, the estate and gift tax exemption is at a record high. Taxpayers can transfer assets up to $13.61 million per individual, tax free. If TCJA is not extended, the exemption will drop roughly in half—between $6 to $7 million. Regardless of the outcome of the election, having an estate plan in place is of utmost importance. This priority is only amplified with the possible exemption reduction. With a plan already in place, it makes it easier for estate planning professionals to modify it depending on the election results. There is still time since any changes to the exemption are not expected to take place until the end of 2025, but acting now may be the only way to get it done in time. Forvis Mazars stands ready to help our clients navigate the various and often complex strategies taxpayers may employ to pass on their wealth to the next generation.
Forvis Mazars’ Washington National Tax Office is keeping a close eye on tax-related updates when it comes to the election. For more analysis like the above, subscribe to our weekly “From the Hill” emails. Also be on the lookout for our FORsights™ series focusing on the tax aspects of the election, our annual Year End Planning Guide, and the accompanying webinar. Ask your trusted Forvis Mazars professional for a copy of our Election Guide for a deeper dive on tax considerations for the ballot box.
- 1“Senate Democrats Start Developing Priorities for 2025 Tax Cliff,” news.bloombergtax.com, June 20, 2024.
- 2“Keynote Speech – Washington Center for Equitable Growth,” warren.senate.gov, June 17, 2024.
- 3“Despite CBO’s Predictions, Trump Tax Cuts Were a Boon for America’s Economy and Working Families,” budget.house.gov, May 9, 2024.