The election of former President Donald Trump creates the potential for significant tax legislation in 2025, but the outlook will be complicated by the number of competing campaign tax promises and their potentially high costs.
Trump achieved a definitive victory on election night after campaigning on an ambitious tax agenda. That agenda will be bolstered by Republicans gaining control of both the Senate and House. Republicans will have fairly narrow majorities in both chambers, 53 to 47 in the Senate, and likely somewhere between 219 and 222 seats in the House (with 218 needed for a majority).
Single-party control of Congress and the White House will give Republicans a unique opportunity to control the future of tax policy eight years after they transformed the tax code with the Tax Cuts and Jobs Act (TCJA). Many aspects of that legislation are scheduled to change in 2025 because it was passed using the reconciliation process, which precludes revenue loss outside the 10-year budget window. With a projected Senate majority well short of the 60 votes needed to overcome filibusters, Republicans will likely need to use the reconciliation process again to pass tax legislation. This can impose important limitations on what’s possible. In addition, there are many other major factors that potentially complicate the Republican tax agenda:
- Cost: Extending the TCJA as currently written could cost upward of $4.6 trillion, and even more if the SALT cap is not extended. Add the costly new tax cuts Trump promised on the campaign trail, and the expense may be prohibitive for some conservatives. Republicans may be forced to make difficult choices between priorities.
- Congressional preferences: There are significant tax policy differences among some Republicans. The top GOP tax writers have already offered very different reactions to some of Trump’s campaign proposals. They have also differed on the question of revenue offsets.
- Narrow majorities: Republicans could control both the chambers with only a few votes to spare in each. The past several years have proven that a few holdout votes can wield significant influence over the rest of a caucus.
This article will discuss how these issues shape the outlook, with an analysis of what is scheduled to change, the Republican tax platform, the provisions likely to pick up the most traction, and the impact to tax planning.
Grant Thornton Insight:
The election outcome is not even fully resolved, and the tax legislative outlook will continue evolve over the next weeks and months as the balance of power crystallizes and members coalesce around key priorities. But Republicans are hoping to act quickly on a reconciliation bill, so taxpayers should already be considering the potential changes in their tax planning.
Coming changes
Built-in changes to the tax code at the end of 2025 will provide an opportunity for Republicans to pursue broader reform. Because of reconciliation rules, Republicans added sunsets to nearly all individual provisions in the TCJA and crafted several delayed business and international tax increases. In addition, lawmakers have since lined up several other temporary business provisions so they also expire at the end of 2025.
The following tables identify major changes to the tax code scheduled to occur in 2026 along with the estimated cost to extend them. All estimates are based on the cost of extending the provisions for 10 years in supplemental data provided by the Congressional Budget Office with their May 8, 2024, report, “Budgetary Outcomes Under Alternative Assumptions About Spending and Revenues.” Red numbers indicate the cost to the government of extending a provision, while black numbers indicate what revenue the government could raise by extending the provision.
In addition, there are several recent changes to the tax code that lawmakers have tried and failed to address over the last two years. Supporters could renew their effort to reverse these changes in 2025 (or in a lame-duck session in 2024), which include the following:
- Taxpayers are required to amortize rather than expense research costs under Section 174 over five years (15 years for foreign costs) for tax years beginning after 2021.
- The deduction on interest is limited to 30% of adjusted taxable income (ATI) under Section 163(j), and depreciation and amortization must be included in the calculation of ATI for tax years beginning after 2021.
- Bonus depreciation is only 80% for property placed in service in 2023 and 60% for 2024, and is scheduled to revert to 40% for 2025, 20% for 2026, and expire completely in 2027.
Trump tax platform
Defining the parameters of Trump’s tax platform can be difficult, as he has a long history of evolving tax positions from three straight campaigns and four years in office. He also often speaks off the cuff, with varying degrees of commitment, about new proposals or major governing decisions. As the campaign cycle peaked over the summer, it sometimes seemed that he was pledging a new cut at each campaign stop.
Trump broadly supports extending the TCJA, though he may be willing to re-examine certain aspects of it. He pledged to end the SALT cap at one campaign stop. Other new individual tax cuts he promised on the campaign trail include eliminating or reducing tax on:
- Tip income
- Social Security payments
- Overtime pay
- Income of Americans living abroad
- Military and first responders (said he would “think about”)
He also discussed creating a deduction for interest on loans for domestic automobiles, and a Republican platform document discussed “supporting home ownership through tax incentives.”
Trump was less vocal about new business tax cuts during this campaign than in the past. The signature proposal is a new 15% corporate tax rate on domestic activity, with no details offered on how it would operate.
Grant Thornton Insight:
The most likely model for a 15% rate on domestic activity would be the former deduction for domestic production activities under former Section 199. Republicans purposely repealed this provision as trade-off for a broader corporate rate cut in the TCJA. Any reduction in the corporate rate could also lead to calls for a similar change to benefit pass-throughs.
Trump has discussed raising revenue from only a few changes, including repealing the energy incentives from the Inflation Reduction Act (IRA), allowing the enhanced ACA premium tax credit to expire, and imposing a 10-20% tariff on all imported goods and 60% or more rate on Chinese goods. He has not specifically mentioned repealing the new corporate alternative minimum tax or stock buyback tax, though he has been critical of the IRA as whole and these provisions could be targeted. Repealing them would be expensive, however, and could be difficult to prioritize above tax cuts he has more vocally endorsed. He has also been very critical of IRS funding, but reductions in this funding would typically be scored as a net revenue loss by government scorekeepers.
Grant Thornton Insight:
Trump has repeatedly criticized the IRA’s energy incentives, particularly the electric vehicle credit. Repealing these incentives could be a source of revenue for other priorities, but could also prove difficult. Republicans typically have been reluctant to rescind tax cuts, and there is a group of House Republicans who openly support many of the energy measures for the investment it has brought to their districts. Eighteen House Republicans wrote to House Speaker Mike Johnson, R-La., earlier this year asking for the tax incentives to be preserved. In response, Johnson pledged to use a “scalpel” and not a “sledgehammer” to address the changes. It would also be unusual for lawmakers to rescind tax cuts for projects that have already begun construction.
Grant Thornton Insight:
Trump’s tariff proposals are intertwined with his tax policy in important ways. For one, he has openly discussed using tariff revenue to reduce income taxes, though there is some question of how realistic this is. Tariffs are often viewed more as behavioral levers than revenue generators. Perhaps more importantly, Trump’s tariff proposals are part of a broader protectionist theme that informs both his domestic corporate rate cut proposal and his views on international taxes. Trump has been deeply critical of Pillar 2 and has no interest in implementing it here in the United States. He appears more likely to pursue retaliatory tax or tariff measures targeting countries that use Pillar 2 rules to tax U.S. income or U.S. multinationals. Tariffs could prove to be an important policy option for his administration because the president has some authority to act unilaterally and bypass Congress altogether.
Trump has a long history on tax policy, and it is possible he circles back to ideas that didn’t get as much discussion on this campaign trail. Key tax proposals he flirted with in his first term, include:
- Offering a 10% “middle class tax cut” and reducing the 22% tax bracket to 15%
- Indexing capital gains to inflation
- Changing the tax treatment of carried interest
Grant Thornton Insight:
It’s important to remember that campaign platforms have one purpose: to get the candidate elected. Candidates generally are not overly concerned with any practical or political hurdles to enactment. The proposals don’t have to be administrable or consistent as long as they appeal to voters. Priorities and proposals will significantly evolve through the legislative process, so it is often more important to focus on themes. In addition to a protectionist focus on domestic investment, Trump appeared to take a fairly populist approach with a significant focus on individual tax cuts. This could put pressure on proposals with less sympathetic constituencies.
Congressional role
The role of Congressional Republicans will be very important. During the TCJA deliberations, Trump often deferred to Congress to turn themes into policy, allowing former House Speaker and top tax writer Paul Ryan, R-Wis., to play an outsized role. Top Republican tax writers have so far offered somewhat guarded reactions to some of Trump’s newest proposals.
House Ways and Mean Chair Jason Smith, R-Mo., was more supportive, saying, “we’ll be able to deliver on the overall themes of what he’s asking for. You know, the devil is in the details in anything — the no tax on tips, the overtime, the no tax on Social Security benefits. We have solutions and ideas, and we’ve been working back and forth, getting scores on different proposals. But we’re determined to deliver on the president’s priorities.”
Senate Finance Committee ranking minority member Mike Crapo, R-Idaho, was less enthusiastic. “I’m not ‘endorsing’ or ‘not endorsing’ any of those ideas,” he said. “I think that we are going to have a very broad, deep discussion.”
It’s also clear that both Smith and Crapo see the TCJA changes in 2025 as a broader opportunity to re-examine tax policy, rather than simply an exercise in extending current law. Both convened working groups to study policy options, and both have said they are considering everything.
“Whether you’re doing it through reconciliation or in a bipartisan approach, if you think the C corp(oration) rate is not on the table for discussion, every tax provision is on the table,” Smith said. “Nothing is permanent.”
Crapo added, “There are those who would like to see an entirely new type of tax code drafted; there are those who would like to see nothing changed; [and] there is everything in the middle. We’ll be looking at everything.”
Grant Thornton Insight:
Despite Smith’s comment that everything will be on the table, it is difficult to see a Trump administration and Republican Congress choosing to raise the corporate rate even if desperate to fund other priorities. At the same time, deficits and the cost of other priorities could make it very difficult for Republicans to implement a 15% rate for certain domestic activities. It remains to be seen how much Republicans tax writers will really seek to revisit policies from TCJA and how much they will simply seek to extend current policy.
One of the reasons Republicans may be more willing to revisit the TCJA is that the Republican caucus today is very different from the one that was in place in 2017 when the TCJA was crafted. Only five current Republican members of the Ways and Means Committee and six current members of the Senate Finance Committee were on the respective committees when the TCJA was crafted. Many current members don’t feel a large sense of ownership over the policy decisions made in 2017.
Debt
Federal deficits could play a major role in negotiations in 2025. The budget picture is only getting worse, with the Congressional Budget Office projecting annual deficits totaling $20 trillion from 2025 through 2034. The latest estimates from CBO show that extending the TCJA as currently written would add $4.6 trillion to that total.
There appears to be a split emerging between Republicans who believe tax cuts don’t need to be offset, and others who are growing more uncomfortable with growing deficits and unfunded tax cuts. Crapo represents the more traditional Republican view, arguing that “if you look at history, extending current tax law has never been offset by Congress.”
But it’s unclear if the rest of the caucus will have the stomach for a $4.6 trillion TCJA extension that could near $8 trillion or even $10 trillion once SALT cap repeal and other tax cut promises are layered on top. Republicans could be forced to make hard choices between priorities.
“Without a doubt one of the biggest challenges that will be discussed, debated, and decided in 2025 is, should (tax cuts) be paid for or should they not be paid for,” Smith has said.
Timing
Republicans have pledged to pursue a sweeping reconciliation bill immediately upon taking office. While single-party control could make such an aggressive timeline possible, it’s important to keep in mind that unexpected difficulties nearly always arise through the legislative process and delays are possible. In addition, non-tax items, such as trade and healthcare, could further complicate and lengthen the overall debate, even if it remains a Republican-only exercise. The end of 2025 may present a fallback deadline as lawmakers will be under tremendous pressure to enact legislation before the TCJA provisions expire.
Next steps
The lack of certainty can make planning difficult, but taxpayers should not be sitting idle. It may be prudent to hold off until policy priorities begin to emerge in the legislative process, but long-term business and tax planning should account for the potential for change. There are several important considerations taxpayers can start assessing now, including:
- Fixed assets, interest and research expense planning: There is some hope that with the election finished, lawmakers will convene a lame-duck session to reconsider retroactive legislation restoring research expensing under Section 174, 100% bonus depreciation, and the more favorable calculation for the limit on interest deductions under Section 163(j). There are many hurdles to this, including the difficulty of justifying retroactive changes or addressing just these priorities while the rest of the 2025 change loom. It seems more likely that these provisions would be considered only as part of prospective legislation along with broader legislative efforts. With the prospects for an immediate fix dimming, there may be opportunities to explore proactive elections and accounting methods to help mitigate the impact of the changes. Taxpayers facing a limit on their interest deduction, for example, could consider options to capitalize interest to other assets to remove the interest from the Section 163(j) calculation. With hopes for restoring 100% bonus depreciation flagging, taxpayers can consider other options to accelerate cost recovery. There are many accounting method and fixed asset strategies that can help, including identifying costs that can be deducted as repairs under the tangible property regulations.
- Pillar 2 implementation: Despite Trump’s opposition in the United States, other countries are moving ahead with the implementation of the global anti-base erosion(GloBE) model minimum tax rules under Pillar 2. U.S. multinationals with global consolidated financial statement revenue of 750 million euros or more will face a variety of compliance, reporting and planning challenges. It is past time to begin assessing potential changes to accounting systems and procedures needed to comply (see our recent Tax Insights for more information).
- International arbitrage: The rate under Section 250 for the deduction for foreign derived intangible income (FDII) and the tax on global intangible low-taxed income (GILTI) is scheduled to decrease in 2026. While Republicans could address these changes as part of extending the TCJA, there has been almost no talk of these provisions. The constituencies seeking relief may not be as sympathetic as those targeted by other Trump tax cuts. Taxpayers affected by these international provisions could consider timing changes and accounting methods that could effectively leverage the increased deduction before a potential change. Taxpayers should be cautious with mechanisms that will accelerate income, however, as there can be downside risk if the rate changes don’t occur as scheduled. Some efforts to accelerate income ahead of expected rate increases backfired when the IRA ultimately did not change the corporate, individual, or capital gains rates.
- Transfer tax planning: The $13.99 million lifetime exclusion for the estate, gift and generation skipping transfer taxes are set to be cut in half in 2026, and this is another extension that could be in jeopardy if Republicans have to balance it against more critical priorities. Taxpayers with large estates should consider leveraging the higher threshold before it potentially disappears. The IRS has issued helpful guidance allowing taxpayers to use the current exemptions without fear of future changes clawing back the benefit. Taxpayers who do not take advantage of the increased exemptions with gifts before 2026 could forfeit the benefit of the increased exemptions.
- Entity choice: The TCJA gave corporations a much bigger rate cut than pass-through businesses taxed at the individual level, changing the math on entity choice. The coming changes could further alter these decisions. Republicans will be considering whether to extend the Section 199A deduction and whether to restore the top individual rate to 39.6%. They could also consider reducing certain corporate rates to 15%. All these policy levers will affect the tax efficiency of pass-throughs versus C corporations. It’s important to keep in mind other considerations when choosing an entity, including taxes when exiting the business, state taxes, accounting methods, loss usage, alternative minimum tax, estate planning, legal considerations and financial statements.
- Rate arbitrage: If Republicans pursue rate cuts that benefit businesses, it presents an opportunity to look at ways to defer income and accelerate deductions to defer tax into the future when rates might be lower. The benefit of this planning is that there is less downside risk because if the rate cuts don’t materialize, the business still benefits from deferral.
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