If Donald Trump returns to the White House, coupled with Republican control of the Senate and potentially the House, taxes will likely take center stage on the policy agenda. While Trump is expected to achieve several campaign promises, some elements of his tax policy may face delays or resistance from both sides of the aisle on Capitol Hill.
Here’s a closer look at what the tax policy landscape might look like in 2025:
Extending the 2017 Tax Cuts and Jobs Act (TCJA)
The individual provisions of the TCJA, set to expire by 2025, are almost certain to be extended. However, this extension is likely to involve intense debates over key details. If Democrats control the House, negotiations will focus on funding the tax cuts and potentially expanding the Child Tax Credit (CTC). Even with Republican control, the process may be prolonged, with internal GOP disputes over issues like the state and local tax (SALT) deduction and the corporate tax rate. Additionally, lawmakers will wrestle with how to offset the over $4 trillion cost of extending these provisions.
Other Proposed Tax Cuts
During his campaign, Trump proposed several targeted tax cuts, such as:
- Reducing the corporate tax rate to 20%, and for some companies, as low as 15%.
- Exempting tips, overtime, and Social Security benefits from taxation.
- Introducing a tax credit for family caregivers.
- Providing a tax deduction for loans to purchase domestically made vehicles.
While these proposals align with Trump’s campaign promises, it remains uncertain which of them he will actively pursue once in office.
The Child Tax Credit (CTC)
The CTC has the potential to garner bipartisan support. Trump’s running mate, Senator JD Vance, has advocated for a substantial increase in the credit. However, Trump has not endorsed this idea explicitly. Complicating matters, Senator Mitt Romney, a key Republican supporter of the CTC expansion, is retiring, potentially leaving the initiative without strong bipartisan champions.
Repealing the Net Investment Income Tax
A less-discussed but significant possibility is the repeal of the 3.8% Net Investment Income Tax on capital gains and other forms of income. This tax, introduced under the Affordable Care Act (ACA), could become a target for Hill Republicans looking to reduce taxes further.
Additionally, the ACA’s premium tax credits, also set to expire in 2025, could be tied to broader decisions about the ACA itself. While Trump has floated vague ideas about replacing the ACA, no concrete proposals have been presented.
Tariffs
Trump’s campaign prominently featured new tariffs, a policy area where he can act without congressional approval. While these tariffs may initially be less aggressive than advertised, they are expected to grow over time. However, opposition is likely, even from Republicans, particularly from lawmakers representing manufacturing sectors with global supply chains and agricultural states that could face retaliatory tariffs.
Green Energy Tax Credits
Trump has proposed repealing green energy tax credits, including those for electric vehicles and renewable energy products, which could save an estimated $700 billion over a decade. Despite this proposal, many of these credits enjoy bipartisan support, making a complete repeal challenging
IRS Funding and Operations
The IRS budget, bolstered by President Biden’s administration, is likely to face significant cuts under Trump. Republicans may target enforcement funding and programs like the IRS’s Direct File initiative. Furthermore, the traditionally non-partisan IRS could face politicization if Trump pushes for more political appointees, as envisioned by Project 2025, a controversial plan for federal agency restructuring.
Debt Concerns and Legislative Battles
While some of Trump’s tax cut promises may fall by the wayside, the federal debt is likely to grow significantly. Republicans in Congress will face internal divisions over balancing tax reductions with fiscal responsibility, adding another layer of complexity to the legislative process.
Looking Ahead
Trump’s tax agenda is ambitious, touching on corporate, individual, and international policy areas. However, the expiration of key provisions in the TCJA will demand immediate attention in 2025. Whether Trump can navigate the political and fiscal challenges to implement his vision remains to be seen.
