Donald Trump’s return to the White House combined with Republican control of the Senate, and perhaps the House, will place taxes high on the policy hit parade. Trump will get much of what he promised during the campaign. But some elements of his agenda likely will be sidetracked, either because he does not seriously pursue them or because of resistance—including from Republicans—on Capitol Hill.
Expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA) almost certainly will be extended, largely intact, though not without a prolonged battle over key details. Trump will enact substantial new tariffs, though at first they may be more modest than he suggested during the campaign.
The IRS budget will face stiff new headwinds.
Many of Trump’s campaign tax cut promises are likely to be left on the cutting room floor. However, the federal debt will almost surely balloon.
While we await a resolution of the battle over control of the House, here is a prognosis for tax policy in 2025.
The TCJA: The expiring individual provisions of the TCJA will be extended sometime in 2025. If Democrats control the House, they’ll battle over funding the tax cuts and expanding the Child Tax Credit (CTC). But even with full Republican control of Congress, the TCJA debate likely will be long and arduous, and continue until late next year.
GOP lawmakers will fight over the state and local tax (SALT) deduction and the corporate tax rate. But they too will struggle over how to pay for at least some of the more than $4 trillion cost of extending the TCJA’s expiring provisions.
Other tax cuts. During the campaign, Trump promised a lengthy list of highly targeted tax cuts, including a corporate rate cut to 20 percent and, for some companies, 15%. For households, he proposed, among other ideas, exempting tips, overtime, and Social Security benefits from tax; a tax credit for family caregivers; and a tax deduction for loans to purchase domestically made vehicles. It remains to be seen which of these he’ll really pursue.
The Child Tax Credit. It is one issue that could generate a bipartisan consensus, if Trump wants to try for one. His running mate, Sen. JD Vance, would substantially increase the credit but Trump never endorsed the idea. And the other Republican leader on the issue, Sen. Mitt Romney (R-UT) is retiring.
A Sleeper: While Trump did not discuss it in the campaign, Hill Republicans may try to repeal the 3.8% Net Investment Income Tax on capital gains and certain other forms of income that was included in the Affordable Care Act.
And speaking of the ACA, what will happen to the additional ACA premium tax credits that also are due to expire in 2025? The fate of these tax provisions will be tied to whatever Trump decides to do about the insurance provisions of the ACA itself. During the campaign, he said he had a “concept” for replacing the laws but never described it.
Tariffs: Major new tariffs were a centerpiece of Trump’s campaign. And, unlike most of the rest of his agenda, Trump can enact them without congressional approval. But Trump may get significant pushback even from Republicans on an aggressive import tax.
Manufacturers with worldwide supply chains will demand help from friendly lawmakers while farm state legislators may worry about retaliatory tariffs on US agricultural products, which happened after Trump imposed more limited tariffs in his first term.
Green energy tax credits: Trump proposed fully repealing the credits for the purchase of electric vehicles and many other products, which would raise about $700 billion over 10 years. But many of the individual credits have strong support on Capitol Hill and killing them all will be a struggle.
IRS Funding and staffing: Budget increases that President Biden succeeded in ramming through Congress will be in serious jeopardy. Republicans will push hard to roll back that funding, especially for enforcement and the agency’s Direct File program. And Hill Democrats, with so many other battles to fight, are unlikely to resist very hard.
A separate but related issue: Will Trump push political appointees on the IRS? The historically non-partisan IRS has only two political appointees, the commissioner and its chief counsel. But Project 2025, the plan for reorganizing government developed by many Trump allies although publicly disavowed by Trump, would bring many more loyalists into the IRS as well as other federal agencies.
Trump’s tax plans are ambitious and aggressive. He’s laid out a broad, controversial agenda that goes well beyond taxes. But the expiration of many provisions of the TCJA will force him to focus on taxes in his first year.
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