Trump Tax Plan – Dent Moses, LLP

When one party controls the White House, House, and Senate, it significantly increases the chances of passing major tax legislation. Republicans are expected to use budget reconciliation to bypass Senate filibuster rules, allowing them to enact legislation without Democratic support. However, with narrow majorities in both chambers, they’ll need near-unanimous support within their ranks.

Budget reconciliation requires Republicans to agree on a budget resolution, specifying spending, taxes, and deficits, which congressional committees must follow when drafting legislation.

Key Focus Areas for 2025 Tax Legislation

The 2025 tax legislation will likely center on extending provisions of the Tax Cuts and Jobs Act (TCJA), many of which are set to expire, and advancing tax proposals from President-elect Trump’s campaign.

Expiring TCJA Provisions

Trump has proposed extending most TCJA provisions, including:

1. Maintaining current tax brackets with a top rate of 37%.
2. Retaining the elevated standard deduction, used by around 80% of taxpayers.
3. Continuing the elimination of personal exemptions and miscellaneous itemized deductions exceeding 2%.
4. Keeping the $750,000 mortgage interest deduction limit and the $2,000 Child Tax Credit ($1,700 refundable).
5. Preserving the 60% AGI limit for charitable contributions and the reduced alternative minimum tax.
6. Extending the high estate and gift tax exclusion ($13,990,000 in 2025).

Trump has also suggested increases to the $10,000 state and local tax (SALT) deduction limit, including allowing $10,000 per spouse for joint filers.

Business Provisions

Several TCJA business provisions are phasing out. Republicans have proposed restoring these in prior legislation which failed to pass:

1. 100% deduction for research expenses.
2. Full bonus depreciation (phasing to 40% in 2025).
3. Adjusted business interest deduction limits.

Republicans have pushed to restore these provisions but faced Senate roadblocks. Additional provisions expiring post-2025 include:

1. The 20% qualified business income deduction.
2. Disallowance of moving expense deductions (except for military personnel).
3. Tax credits for Empowerment Zones, New Markets, and Opportunity Zones.

Trump’s Tax Campaign Proposals

Trump’s campaign featured several tax ideas, though many lack details:

• No Tax on Tip Income or Overtime: While novel, these proposals could complicate tax administration and be costly.
• No Tax on Social Security Benefits: This would reduce Social Security revenues but simplify tax rules for retirees.
• Car Loan Interest Deduction: Modeled after mortgage interest deductions, this could increase itemized deductions.
• Elimination of Double Taxation for Citizens Abroad: This may adjust existing tax credits and exclusions but challenges U.S. worldwide income taxation.
• End Clean Energy Credits: Particularly targeting electric vehicle credits, this proposal could face Republican opposition.
• Corporate Tax Rate Reductions: Proposing a drop to 18%-20% or 15% for manufacturers, this could face resistance due to deficit concerns.
• Sovereign Wealth Fund: Proposed as a revenue generator via tariffs.
• Tariffs: Plans include tariffs on imports (10%-20%), goods from China (60%), and vehicles from Mexico (100%). Critics doubt their revenue potential and note regressive effects.

Outlook for 2025 Tax Legislation

The 2025 tax discussions will revolve around balancing tax breaks with budget reconciliation constraints. Negotiations are expected to be complex, yet significant tax legislation appears likely. As with the TCJA, phasedowns and expirations may play a role in managing the fiscal impact.