Early on November 6, former President Donald Trump was declared the winner of the presidential race, reclaiming the Oval Office for a second, nonconsecutive term. The Republican Party also secured control of both chambers of Congress, setting the stage for significant legislative shifts. This election outcome and the transition period sets the stage for debates over tax policy, particularly regarding the future of the Tax Cuts and Jobs Act (TCJA) and other expected proposed reforms.
Revisiting the Tax Cuts and Jobs Act (TCJA)
Central to the tax policy discussion is the TCJA, Trump’s landmark legislation from his first term. While many of its corporate provisions are permanent, its individual tax cuts are set to expire in 2025. These include reduced income tax rates, an increased child tax credit, and expanded standard deductions. Trump has expressed his intent to make these provisions permanent, a move estimated by the Congressional Budget Office to cost $4.6 trillion over the next decade. This looming “fiscal cliff” poses a formidable challenge for the incoming administration and Congress.
Uncapping the SALT Deduction
Trump has proposed eliminating the $10,000 cap on state and local tax (SALT) deductions, a limitation introduced in his 2017 tax reform. While the cap is scheduled to expire after 2025, Trump has made its early repeal a priority, citing its popularity among constituents in high-tax states like New York. The proposal, first mentioned on his Truth Social platform on September 17 and reaffirmed during a rally in Uniondale, underscores his focus on tax relief for middle- and upper-income households in regions heavily impacted by the SALT cap. Repealing this provision could alleviate tax burdens but would also raise questions about its fiscal implications in the broader tax reform landscape.
Taxes on Individuals: Rate Cuts, Child Tax Credit, and Standard Deduction
On the individual tax front, Trump has advocated for making the temporary provisions of the Tax Cuts and Jobs Act permanent, including reduced income tax rates, an expanded child tax credit, and a higher standard deduction. These measures have continued to provide substantial relief for middle-class families and are central to his vision of fostering economic growth. The expanded child tax credit has been particularly impactful, doubling to $2,000 per child under the TCJA, while the increased standard deduction has simplified tax filings for many households. By extending these provisions, Trump aims to solidify the benefits of his first-term reforms, though their estimated $4.6 trillion cost over the next decade presents a significant challenge for fiscal policy.
Corporate Tax Reforms and Protectionism
Trump’s campaign highlighted proposals to reduce the corporate tax rate from 21% to 15% for companies manufacturing in the U.S., paired with substantial tariffs on imported goods. This protectionist approach aims to bolster domestic production and penalize offshoring. However, the specifics of implementing such measures remain vague, raising questions about their feasibility and potential economic impact. Trump acknowledged this week in a press conference, that his tariffs plan will be reciprocal, meaning they tax US companies we tax imported goods at the same rate.
Addressing Taxpayer Unfavorable Provisions
Trump has also pledged to reverse certain TCJA provisions that have faced criticism, such as the phased reduction of bonus depreciation and the capitalization of R&D expenses. Bipartisan support exists for restoring these measures, but legislative action has been stalled. The path forward will depend heavily on Congress’s willingness to prioritize these changes.
Proposals for Individuals and Small Businesses
On the individual tax front, Trump has proposed eliminating taxes on tips and overtime pay, ending the double taxation of U.S. citizens abroad, and introducing deductions for auto loan interest on domestically manufactured vehicles. Small businesses could benefit from an increased expensing limitation under Section 179. These proposals, while ambitious, lack detailed implementation plans, leaving their practicality in question.