2025 Tax Issues To Consider

In Lite of the Election Results

President-Elect Trump has increasingly touted new tax cuts for individual constituencies. Trump first proposed exempting tips from income tax, then discussed exempting Social Security payments from income. The focus on individual relief over corporate and business interests may reflect changes in voter sentiment.

The consensus seems to be that Trump, and the Republicans will extend the TCJA as currently written, which the Congressional Budget Office estimates will add $4.6 trillion in debt over the 10-year budget window. That figure doesn’t include the cost of expensive new Trump tax proposals, such as lowering the corporate rate to 15% and exempting tip income and Social Security payments for tax.

The traditional Republican view, popular among many Senate Republicans, is that tax cuts grow the economy and don’t need to be offset, particularly when lawmakers are only extending current policy. But growing deficits and the immense cost of the TCJA extensions is straining this view, particularly among many House Republicans. It’s one of the reasons some congressional Republicans have openly discussed corporate tax rate increases.

“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,” said Ways and Means Chair Jason Smith, R-Mo., recently.

With Republicans winning control of the White House and both chambers of Congress, reconciliation will be a key factor. Reconciliation is a special budget process that allows lawmakers to bypass 60-vote procedural hurdles in the Senate. It was used to pass both the IRA and the TCJA.

Republicans have already signaled they would use reconciliation aggressively and expansively to address not only tax policy but potentially other areas. Reconciliation, however, comes with key limitations. Reconciliation bills generally cannot lose revenue outside of the 10-year budget window. This restriction is the main reason why so much of the TCJA is expected to expire after 2025, and it could again prevent Republicans from making permanent tax policy even though they swept back the power.

The following considerations may be important for key aspects of the Republican platform:

• Corporate rate: It is hard to see Republicans raising corporate rates now that Trump has won the presidency and they control both chambers of Congress. At the same time, deficits and the cost of other priorities would make it very difficult for Republicans to cut the corporate rate any further despite Trump proposing a 15% rate for some domestic activities. Top Republican tax writers have said openly that the corporate rate may be on the table.
• TCJA extensions: Congressional Republicans have made it clear that they want to re-examine the TCJA rather than blindly extend it, but Trump and many Republicans would be expected to support extensions of much of the policy. Section 199A could emerge as top priority to help small and private businesses. Cost could become an issue, especially as some Republicans will be reluctant to extend aspects of the TCJA that actually would raise revenue, such as the cap on state and local tax (SALT) deductions.
• Energy incentives: Trump has been very critical of the IRA’s energy incentives, particularly the electric vehicle credit. Repealing these incentives could be a source of revenue for other priorities, but repeal could be 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.
• New tax cuts: Trump’s proposal to exempt tips from income quicky picked up traction, even among some Democrats. Its popularity could translate into serious consideration in 2025, though there may be concerns over cost and administrability. The proposal to exempt Social Security payments from income seems less likely based on the reaction so far. It would be very costly and could accelerate the insolvency of Social Security and Medicare.

Lawmakers will be under tremendous pressure to enact legislation in 2025 before the TCJA provisions expire, but there is no guarantee they will act in a timely manner. Congress has become increasingly tardy addressing expiring tax provisions in recent years, often acting retroactively to reinstate provisions even after taxpayers have filed returns. Many businesses are still hoping Congress will retroactively address Section 174 and other changes that took effect in 2022.

The major TCJA changes will not take effect until 2026, meaning it will be early 2027 before they impact most tax returns. Political stalemate could delay action until then, particularly if one party thinks they could gain leverage in the 2026 midterm elections. Pressure could also force action much sooner. Unlike many of the other tax provisions Congress has reinstated retroactively, the TCJA changes will affect individual withholding and could reduce paychecks immediately in 2026. This may be enough to prompt action. When the 2001 and 2003 tax cuts were scheduled to expire at the end of 2010 and 2012, Congress addressed them both times before they could affect withholding.

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