- Republicans campaigned on extending the Tax Cuts and Jobs Act (TCJA), and many support certain business provisions within the currently tabled 2024 tax bill.
- The nation’s fiscal health may be considered, potentially hampering some tax-cutting promises.
- Moving forward, understand what to look for when new tax legislation is introduced and indicators of a bill’s viability for progression.
America has voted, ushering in a new—yet familiar —government as Republicans lay claim to the presidency and majorities in both houses of Congress—just as they did in President-elect Donald Trump’s first presidential election. The years during which Trump was last in office were colossal for tax policy as the Tax Cuts and Jobs Act of 2017 (TCJA) was enacted during that time frame. Now on the backside of the landmark legislation, as many of its provisions are expiring at the end of 2025, the party will have a better chance at determining which provisions will be extended, which will be terminated, and how to fulfill myriad campaign promises.
Campaign Promises
Throughout the campaign trail, Republicans by and large rallied around the promise to extend the TCJA provisions. Notably, the continued provisions may include reduced individual income tax rates, an increased Child Tax Credit, increased exemption and phaseout amounts of the individual alternative minimum tax, a historically high estate and gift tax exemption, and the deduction on pass-through qualified business income.
On top of the TCJA extenders, Trump introduced a plethora of potential additional tax changes from exempting tip, overtime, and Social Security income from taxation to lowering the corporate tax rate to 15% for domestic manufacturers. He also pledged to address housing shortages by opening federal lands to development, end double taxation for American citizens living abroad, make car loan interest tax deductible, and—in response to recent natural disasters—make the purchase of home generators deductible.
There also were several other TCJA-related changes to the tax code that Republicans showed interest in changing as contained in the 2024 Tax Relief for American Families and Workers Act (the Act). Last winter, the Republican-led House of Representatives passed the bill by a large bipartisan majority. Although the measure did not muster enough Republican votes in the Senate to date, many of them supported much of what was in it. Some of the Act’s proposed changes include the reinstatement of immediate deductions for Section 174 research and development deductions, 100% bonus depreciation, a more favorable calculation for the §163(j) business interest deduction, Taiwan tax relief, and natural disaster relief.
Considering Congress is still deadlocked through the end of the year, we may not see the Act revived. Given the majority in both chambers of Congress, it may appear that Republicans could take the reins next year and craft new legislation to their liking. However, even with the majority, bills could face an uphill battle depending on the topic and strategies pursued for passage of proposals. If not passed in 2024, the measures within the Act will need to be reintroduced as part of a new bill during the 119th Congress, beginning January 2025.
The Nation’s Fiscal Trajectory
Even with lopsided legislative power, Republicans may run into headwinds implementing their campaign platforms and promises. The ever-increasing debt burden will soon eclipse levels not seen since the years right after World War II, when debt was 106% of gross domestic product (GDP). The nonpartisan Committee for a Responsible Federal Budget has estimated that by 2035, debt will reach 142% of GDP if Trump’s campaign proposals are enacted.1 Not only does the sheer magnitude of debt weigh on the economy, but the interest cost to service such debt is expected to reach 3.4% of GDP in 2025, exceeding outlays for defense, nondefense discretionary spending, and Medicare.2 The nation’s fiscal trajectory may need to be addressed to bring certain members of Congress on board.
While some Republicans have conceded the possibility of needed additional revenue raisers such as an increase in the corporate tax rate, there have been other ideas, including a rescission of funding for some clean energy tax credits enacted in the Inflation Reduction Act of 2022 (IRA) and the imposition of tariffs on foreign goods. That being said, the asserted revenue generated by tariffs cannot be used by the Joint Committee on Taxation when estimating the cost of proposed tax legislation unless they are to be enacted by Congress.
Planning Considerations
Considering that the election results have placed one party “in control” to pass legislation, it makes planning for the impending 2025 tax legislative “Superbowl” a little easier; however—even with one party control—there are differences of opinion that may shape legislation in unpredictable ways, not to mention the nation’s fiscal predicament and the effect it will have on the coming debate. One thing that seems certain is that significant changes will be debated and considered by the end of next year.
What to Focus On
As tax legislation begins to be introduced, it may be difficult to determine which bills have a serious chance of being debated and voted on, versus bills that are more political messaging statements. Inevitably, this makes it harder for taxpayers to decide when and how to execute tax planning strategies that affect themselves and their businesses. Legislation introduced by congressional leadership such as leaders of the House Ways and Means Committee or the Senate Finance Committee may provide a good indication that the bill will receive consideration. Often, tax bills are packaged in a single “omnibus bill,” requiring only a single vote for a variety of legislative measures. However, the form or vehicle for passage of 2025 tax legislation may largely depend on the debate unfolding in the coming year.
Estate & Gift Planning
Currently, the estate and gift tax exemption is historically high, which may change if action is not taken. In 2025, taxpayers can transfer assets up to $13.99 million per individual tax free. While many Republicans are for extending this TCJA provision, if it is not extended due to negotiations or budgetary constraints, the exemption will drop roughly in half—between $6 to $7 million. Regardless of what legislators can agree on, 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 taxpayers and estate planning professionals to modify it if needed, depending on the legislative results. There is still time since any changes to the exemption are not expected to take place until the end of 2025. Acting now may be the only way to get it done in time, considering the time required to draft necessary legal documentation and the availability of legal and tax advisors due to the probable influx of estate planning engagements. 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.
Timing
Significant tax legislation passed within the last decade has primarily been done so through reconciliation—a budgetary maneuver that can ultimately result in tax legislation passing with simple majorities in both chambers of Congress. This approach has been done in years when a single party has had control—even by the narrowest of margins—of both Congress and the White House. In recent memory, both parties used the legislative maneuver to pass the IRA and the TCJA. Considering the election’s results, reconciliation may be an avenue that Congress pursues for passage of legislation in 2025.
Forvis Mazars’ Washington National Tax Office is keeping a close eye on all things tax. For more content like the above, subscribe to our weekly “From the Hill” emails. Also be on the lookout for our FORsights™ articles focusing on tax-related developments from Congress, our annual Year-End Planning Guide, and webinars.