Timing
As of March 30, 2025, the Trump administration, alongside congressional Republicans, is actively pursuing significant tax legislation aimed at extending and expanding upon the 2017 Tax Cuts and Jobs Act (TCJA). The exact timing and provisions are influenced by economic considerations and dynamics within the Republican Party. The goal is to finalize before the mid-April recess and have on the President’s desk by the end of April.
Why the rush?
The urgency is heightened by the approaching “x date,” when the U.S. Treasury is projected to run out of cash and emergency strategies, potentially as soon as May. This situation creates pressure for the GOP’s tax reforms, which amount to over $4 trillion and could balloon to more than $11 trillion, including additional cuts. The tax plan hinges on budget reconciliation, requiring just 50 Senate votes, but timing is crucial as raising the debt ceiling may need bipartisan support. The “x date” affects market volatility, as seen in prior debt ceiling crises, and could disrupt bond markets. The Bipartisan Policy Center and CBO estimate the default could happen between mid-July and October.
Likely Components of the Tax Bill
The proposed tax legislation is expected to encompass several key components:
- Extension of the 2017 Tax Cuts: A primary objective is to make permanent the individual income tax reductions introduced in the TCJA, which are set to expire at the end of 2025. This includes maintaining lower marginal tax rates and expanded income brackets.
- Corporate Tax Rate Reduction: Discussions include further reducing the corporate tax rate from the current 21% to potentially 15%, aiming to enhance U.S. competitiveness and stimulate domestic investment.
- Deductions for Pass-Through Entities: The legislation may seek to extend or expand the 20% deduction for qualified business income from pass-through entities, benefiting small businesses and partnerships.
- Changes to Individual Deductions: Proposals include modifying or eliminating the cap on state and local tax (SALT) deductions, which has been a point of contention, particularly in high-tax states. Additionally, there is consideration of reinstating deductions for unreimbursed employee expenses and other miscellaneous itemized deductions.
- Family and Education Tax Benefits: The bill may propose enhancements to the Child Tax Credit, including increasing the credit amount and making it fully refundable. Adjustments to education-related tax benefits, such as expanding 529 savings plans and modifying deductions for student loan interest, are also under consideration.
- Retirement Savings Incentives: To encourage retirement savings, the legislation might introduce new incentives or expand existing ones, such as increasing contribution limits for IRAs and 401(k) plans or providing tax credits for low- and middle-income savers.
- International Tax Provisions: The bill is expected to address international tax rules to further discourage profit shifting and ensure that multinational corporations pay a fair share of taxes. This could involve modifications to the Global Intangible Low-Taxed Income (GILTI) provisions and the Foreign-Derived Intangible Income (FDII) deduction.
- Immediate R&D Expensing: Another anticipated item is the immediate expensing of research and development (R&D) costs, which are currently required to be amortized under the TCJA
- Estate and Gift Taxes: The legislation may propose further increases to the estate and gift tax exemption amounts or seek to repeal these taxes, aiming to facilitate wealth transfer and succession planning.
It is important to note that while these components reflect current discussions and priorities within the administration and Congress, the final bill will be subject to negotiations and legislative processes.
