Election Results Perspective | Current Sunsetting and Trump’s Tax Proposals

Published on November 8, 2024 by Laura Hunter in State Local Tax, Tax Services

The Tax Cuts and Jobs Act (TCJA) of 2017, introduced under former President Donald Trump’s administration, substantially altered the U.S. tax landscape. However, many of its provisions are set to expire at the end of 2025, leading to speculation about how these changes may affect taxpayers and the broader economy – and what proposed changes could mean. As President Trump prepares for a return to office in 2025, we delve into the implications of these expiring provisions and possible new tax policies.

The expiring provisions of the TCJA

The TCJA incorporated several key measures that will sunset on December 31, 2025 unless extended by Congress. These provisions include:

1. Standard Deduction and Personal Exemption: The TCJA raised the standard deduction while eliminating personal exemptions. If this provision expires, the standard deduction would decrease significantly, and the personal exemption would be reintroduced.
2. Individual Income Tax Rates: The TCJA lowered marginal income tax rates, including reducing the top tax rate from 39.6% to 37%. If not extended, these rates will revert to pre-2017 levels.
3. State and Local Tax (SALT) Deduction: The TCJA imposed a cap of $10,000 on the SALT deduction. If this provision expires, all state and local property and income taxes will be fully deductible again.
4. Child Tax Credit: The TCJA increased the child tax credit from $1,000 to $2,000 for each child under the age of 17. If it expires, this credit will fall back to its pre-2017 value.
5. Small Business Income Deduction: The TCJA introduced a 20% deduction for qualified pass-through income. This would no longer be available if the TCJA expires.
6. Alternative Minimum Tax (AMT): The TCJA increased the AMT exemption amounts, resulting in fewer taxpayers liable for the AMT. If this provision expires, the exemptions would decrease.
7. Estate Taxes: The TCJA doubled the estate tax exemption. If it expires, the exemption will be halved.

Trump’s proposed tax policies

As Trump gears up for a second term, he has proposed several significant tax changes:

1. Extension of the TCJA: Trump plans to make the TCJA’s individual and estate tax reductions permanent, except for the $10,000 cap on SALT (effective January 1, 2026).
2. Restoring the TCJA business tax provisions: Trump’s plans include allowing 100% bonus depreciation, R&D expensing, and the Interest Expense Limitation being based on EBITDA.
3. Reduction of Corporate Tax Rate: Trump proposes reinstituting the Domestic Production Activities Deduction (DPAD) at 28.5% to lower the effective corporate tax rate for domestic production from 21% to 15%.
4. Elimination of Income Taxes on Social Security Benefits: Trump’s new proposal aims to eliminate taxes on Social Security benefits, potentially benefiting retirees.
5. Exemption of Tips and Overtime Pay: Trump plans to exempt tips and overtime pay from income tax, which could aid service industry workers.
6. Universal Tariff Policy: Trump has suggested a universal tariff on all U.S. imports, with higher rates for products from countries with trade imbalances, to encourage domestic manufacturing.
7. New Tax Deductions and Credits: Trump’s tax agenda includes new deductions and credits such as an auto loan interest itemized deduction and a family caregiver tax credit.

It’s worth mentioning that vice presidential-elect Senator JD Vance (R-OH) has also suggested an increase to the child tax credit to $5,000, but the incoming Trump administration has not yet confirmed support of the proposal. There has also been mention of an informal proposal to end double taxation of Americans abroad. These policies do not yet have enough detail to be included in the formal plan, but are worth keeping an eye on as we move into 2025.

Implications and potential impact

The expiration of the TCJA provisions and the implementation of Trump’s proposed policies could have significant effects on the economy. Proponents argue that these changes could stimulate economic growth, increase disposable income, and create jobs. However, critics warn of potential increases in the federal deficit, inflationary pressures, and complexity in tax administration.

In addition, the distributional impacts of these tax changes could be significant. The TCJA primarily favored high-income taxpayers, so its expiration could disproportionately affect this group. Trump’s new proposals, on the other hand, target a broader demographic, potentially benefiting middle-income families, retirees, and service industry workers.

Ask the Experts

As we approach the end of the TCJA and the potential implementation of new tax policies, individuals and businesses alike need to stay informed and plan strategically. The final impact will depend on the specifics of the policy changes, the broader economic landscape, and the response of markets and consumers.

If you have questions about the TCJA and President Trump’s tax plan, how either might impact your business or your tax situation, contact us to set up a free consultation with one of our experienced professionals. You can also register for our Annual Tax Update virtual event for a deeper dive into the current tax environment, and what to expect in the coming year. As always, we’re here to help.

---