Now that the 2024 election is over, let\u2019s review the tax policy proposals Donald Trump highlighted on the campaign trail. President Trump proposes numerous tax changes that would, if enacted, significantly change taxation for most Americans. With a Republican majority in both the House & Senate, Trump will re-enter the White House with an opportunity to see many of these tax policy ideas become law in early 2025.<\/p>\n
Trump\u2019s History of Tax Policy<\/strong><\/span><\/p>\n
First, let\u2019s reflect on President Trump\u2019s tax policy from his first\u00a0administration. Trump\u2019s key tax policy achievement was the Tax Cuts\u00a0& Jobs Act (TCJA) in 2017. TCJA altered the federal tax code on a scale\u00a0not seen in the prior three decades. TCJA featured changes designed\u00a0to benefit corporations, high net worth individuals, and pass-through\u00a0businesses, while also including tax relief for middle class Americans.\u00a0Some of the central features of 2017\u2019s TCJA included:<\/p>\n
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Corporate Tax Cuts: The corporate tax rate was reduced from\u00a035% to 21%. This was designed to make the U.S. more competitive\u00a0internationally, incentivize domestic investment and repatriate\u00a0overseas profits.<\/li>\n
Individual Tax Cuts: TCJA lowered individual income tax rates\u00a0across all brackets. The highest individual income tax rate was also\u00a0reduced to 37%, down from 39.6%. The brackets were also expanded\u00a0to benefit all individuals.<\/li>\n
Estate Tax Exemption: The exemption from the estate tax was\u00a0doubled, reducing the number of estates that would be subject to the\u00a0tax. Following TCJA, the lifetime exclusion from the federal estate\u00a0tax is approximately $14 million per person. However, this increased\u00a0exclusion is set to expire in 2026 under current law.<\/li>\n
International Tax Reform: TCJA introduced a territorial system of\u00a0taxation, which meant that American companies would only be\u00a0taxed on their domestic profits, while international profits would be\u00a0subject to a lower tax rate.<\/li>\n<\/ul>\n
President Trump\u2019s New Tax Proposals<\/strong><\/span><\/p>\n
As President Trump takes office in January 2025, his new round of\u00a0tax proposals reflect continued emphasis on similar themes. These\u00a0proposals focus on the following areas:<\/span><\/p>\n
Corporate Tax Cuts<\/strong> \nPresident Trump will look to cut corporate tax rates again, arguing\u00a0that a lower corporate rate leads to job creation, higher wages, and\u00a0increased investments. His proposed corporate tax rate for 2025 would \nbe 20%.\u00a0<\/span><\/p>\n
Trump proposes accelerating the tax deduction\u00a0for R&D expenditures. The tax treatment of\u00a0R&D expenses became less favorable in recent\u00a0years. Under current law, companies must\u00a0capitalize and amortize these costs over 5 years\u00a0(15 years for R&D conducted abroad.) Reinstating\u00a0immediate R&D expensing would reduce the\u00a0financial burden companies take on when they\u00a0invest in new products or technologies. \n<\/span><\/p>\n
The Trump plan looks to revive 100% bonus\u00a0depreciation for qualified asset purchases.\u00a0Currently, bonus depreciation deduction is being\u00a0phased down and will be eliminated for most\u00a0property placed in service starting in 2027.\u00a0Bonus depreciation provides an immediate\u00a0federal tax deduction for the purchase of nearly\u00a0all types of business personal property and\u00a0some leasehold improvements. \n<\/span><\/p>\n
Business\u2019 ability to deduct interest expense\u00a0became less favorable beginning in 2022.\u00a0Business interest expense is limited to 30%\u00a0of tax-basis EBIT (Earnings Before Interest\u00a0and Taxes). This limitation challenges many\u00a0companies that rely on debt financing. Such\u00a0companies may also face other complex issues\u00a0associated with debt refinancings, modifications\u00a0and restructuring, which could trigger numerous\u00a0tax issues, such as potential cancellation of debt\u00a0income. The Trump proposal would change the\u00a0limitation formula to a percentage of EBITDA\u00a0(Earnings Before Interest, Taxes, Depreciation,\u00a0and Amortization).<\/span><\/p>\n
Trade Policy<\/strong> \nPresident Trump proposes raising tariffs on\u00a0foreign countries. In recent weeks, we\u2019ve seen\u00a0Trump suggest increasing tariffs by 10% on\u00a0goods imported from Canada and Mexico.\u00a0President Trump supports much higher tariffs\u00a0on goods from China. Trump believes steep\u00a0tariffs on these imported goods would drive\u00a0increased domestic manufacturing. This\u00a0proposal has profound implications for U.S.\u00a0importers, and the overall economy.<\/span><\/p>\n
Individual Tax Cuts<\/strong> \nPresident Trump will push for additional\u00a0individual tax cuts. He supports making the\u00a0individual tax provisions from TCJA permanent.\u00a0That\u2019s timely because those cuts are set to\u00a0expire in the coming months. This would keep\u00a0the top individual income tax rate at 37%, along\u00a0with extending the 20% qualified business income deduction available to pass-through\u00a0business owners. Renewing TCJA also means\u00a0continuing the expanded tax bracket system\u00a0which provides tax relief for Americans across \nvarious income levels. \n<\/span><\/p>\n
For middle class households, Trump\u2019s proposal\u00a0would also expand the child tax credit, as well\u00a0as provide other incentives for families and\u00a0workers to increase disposable income. Trump\u00a0has suggested excluding both tip income and\u00a0overtime pay from federal income tax. He\u00a0claims these tax breaks would bolster consumer\u00a0spending, further stimulating economic growth.\u00a0<\/span><\/p>\n
Trump proposes lower taxes on capital gains, especially for long-term investments. Under current law, long-term capital gains are taxed at a maximum rate of 20%, though this can rise to 23.8% when the Obamacare surcharge is included. Trump proposes reducing this tax to 15%, which he argues would encourage investment in stocks, real estate, and business ventures. Trump also proposes indexing capital gains for inflation. This would prevent the government from taxing inflationary increases in asset values.<\/span><\/p>\n
Estate Tax Reform<\/strong> \nPresident Trump\u2019s tax proposal includes\u00a0making the increased lifetime exclusion from \nestate tax permanent. The higher exclusion\u00a0would also be indexed for inflation. President\u00a0Trump\u2019s comments also suggest that he would\u00a0be supportive of a complete elimination of the\u00a0estate tax regime.<\/span><\/p>\n
Summary<\/strong><\/span> \nTrump\u2019s tax proposals for the upcoming\u00a0administration follow similar principles to his\u00a0landmark 2017 tax reforms: tax cuts for businesses,\u00a0wealthy individuals, and international tax policy\u00a0reform. Trump believes reducing the tax burden\u00a0is critical to fostering economic growth and job\u00a0creation.\u00a0<\/span><\/p>\n
With significant portions of the TCJA scheduled to\u00a0expire at the end of 2025, Republican lawmakers\u00a0have indicated a desire to act quickly on tax\u00a0legislation after taking office in January. Under\u00a0Republican majorities in both chambers, the\u00a0budget reconciliation process would allow\u00a0the Senate to pass legislation with a simple\u00a0majority. This all points to President Trump\u2019s new\u00a0administration moving quickly to enact many of\u00a0the tax policies he campaigned on in 2024.<\/span><\/p>\n