Election results set the stage for extension of Trump tax cuts

Editor’s note: As of publication, Republicans are projected to gain a majority in the House of Representatives even though 25 races remain uncalled.

The results of the 2024 election are mostly in, and Donald Trump will return to the White House for a second term. While a few House and Senate races are still up in the air, it’s expected that Republicans will have a majority in both chambers. In the case of a Republican sweep, the direction that tax policy will take over the next several years becomes much clearer. Significant portions of the Tax Cuts and Jobs Act (TCJA) expire at the end of 2025, and Republicans generally support a broad extension of those expiring provisions. Still, there will continue to be uncertainty on the details until the new Congress begins its deliberations in January. Here are the key items that we know about the future of federal tax legislation.

How we got here: The expiring TCJA

The origin of the looming tax policy debate can be traced back to the enactment of the TCJA in December 2017. That bill advanced in Congress through a procedural mechanism known as budget reconciliation. The reconciliation process allowed for streamlined passage via a simple majority in the Senate but came with significant limitations. The content of a reconciliation bill is limited to spending, revenue, and the federal debt — nothing more. In addition, reconciliation bills can’t increase the federal deficit beyond a 10-year budget window. Since the TCJA was designed to be a net tax cut, this meant that many of the tax changes were enacted on a temporary basis, with Dec. 31, 2025, being the predominant expiration date. If nothing is done, some of the tax changes that would occur in 2026 include:

Individual tax

• The top tax rate increases from 37% to 39.6%. 
• The 12%, 22%, 24%, and 32% tax bracket rates increase to 15%, 25%, 28%, and 35%, respectively.
• The upper end of various tax brackets decreases, including a revival of the “marriage penalty.”
• The standard deduction decreases, but personal exemptions return.
• The deduction for state and local taxes (SALT) is no longer capped at $10,000. 
• Miscellaneous itemized deductions become available again, but the overall phase-out on itemized deductions also returns.
• The maximum loan balance on which mortgage interest can be deducted increases from $750,000 to $1 million, and the deduction of interest on certain home equity loans returns.
• The alternative minimum tax exemption and phase-out thresholds substantially decrease.
• The child tax credit decreases from $2,000 to $1,000 and its refundability narrows.
• Personal casualty loss deductions no longer limited to only losses incurred in a presidentially declared disaster.

Estate and gift tax

• Gift and estate tax exemptions decrease by approximately half (2025 exemption is $13.99 million).

Business tax (domestic)

• The 20% qualified business income deduction (QBID) on pass-through business income expires.
• The excess business loss limitation expires (this occurs in 2029 as a result of post-TCJA law changes).
• The New Markets Tax Credit (NMTC) expires.
• The credit for paid family and medical leave expires.
• The Work Opportunity Tax Credit (WOTC) expires.

Business tax (international)

• The tax rate applied to the base erosion anti-abuse tax (BEAT) tax base increases from 10% to 12.5%, and the research credit will no longer be able to reduce the BEAT tax liability.
• The effective tax rate on global intangible low-taxed income (GILTI) increases from 10.5% to 13.125%.
• The effective tax rate on foreign derived intangible income (FDII) increases from 13.125% to 16.406%.
• The look-through treatment of payments between related controlled foreign corporations will expire.

The TCJA also included several business tax provisions that were set to increase taxes on a delayed basis, which have already started to take effect. These include: a decrease in bonus depreciation (phase-out began in 2023 at 20% per year until it fully expires in 2027); the tightening of the interest expense limitation by no longer adding back amortization and depreciation to the base that the 30% limit is applied to (began in 2022); and a requirement to amortize research expenditures rather than immediately expensing them (began in 2022). These changes aren’t set to expire.

Many other TCJA provisions aren’t set to change or expire in 2026. Therefore, items such as the decrease in corporate tax rate to 21%, the 80% limit on the utilization of net operating losses, repeal of the alternative minimum tax as applied to corporations, and the small taxpayer methods of accounting for inventory and the cash method of accounting would all continue to exist under current law.

The election sets the cast of characters

The first question related to tax legislation is who will be involved in the deliberations over the coming months or even years. With the completion of the 2024 election, we now know most of the cast of characters that will be involved. 

• White House — President-elect Donald Trump will return to the White House for a second term. His reelection, along with strong down-ballot results, will position his administration to pursue its stated priorities. As a starting point, we know that Trump will push for a broad extension of the TCJA. He also mentioned many new tax proposals on the campaign trail, with various exclusions from taxation garnering the most attention. 
• The House of Representatives — The Republican party is expected to retain its majority in the House for another two years. Much like the existing Congress, this will likely be a single-digit majority that leaves little room for defections on any given legislative initiative. This narrow margin of control will likely allow more room for House members to exert their individual influence on potential legislation, which will likely make it difficult for Republicans to create easy consensus in the House relative to 2017, when Republicans outnumbered House Democrats by more than 40 seats. The current Speaker of the House, Mike Johnson (R-LA), is expected to retain his leadership position. Jason Smith (R-MO) is also expected to retain his role as Chair of the Ways and Means Committee, which is responsible for drafting tax legislation.
• The Senate — The Republican party will retake the majority in the Senate with a projected three-seat majority, which would be one more than when the TCJA was enacted in 2017. Since the Senate has fewer members than the House, individual senators have the ability to significantly impact legislation, so one additional Republican seat compared to 2017 provides more flexibility for complicated bills, including tax bills. Mitch McConnell (R-KY), the long-standing Republican leader in the Senate, is planning to step away from that role, so there will be a new majority leader. Mike Crapo (R-ID), the current Ranking Member on the Senate Finance Committee, which is responsible for tax legislation, is expected to remain in that role.  

The tax proposals so far

Neither President-elect Trump nor other Republican leaders in Congress have published comprehensive tax plans, but various proposals have been communicated in a variety of manners. Some of these have been expressed with specific details while others have been discussed at a very high level. Therefore, there is a lack of specifics on many proposals, but items that have been discussed include:

TCJA extension items

• Extending the individual tax changes.
• Allowing the SALT cap to expire.
• Extending the increased estate and gift tax exemptions.
• Extending the 20% QBID.
• Restoring the full expensing of Section 174 research and experimentation expenses.
• Restoring the depreciation and amortization addback to adjusted taxable income when measuring the business interest limitation.
• Restoring 100% bonus depreciation.

New proposals

• Corporate tax — President-elect Trump has proposed a 15% corporate tax rate but has suggested that it would only be for businesses that produce goods domestically.
• Exclusions from income — President-elect Trump has proposed excluding from taxable income tips, Social Security benefits, and overtime pay as well as entirely exempting from tax all U.S. citizens abroad, police officers, firefighters, veterans, and active duty military.
• Deductions — President-elect Trump has proposed an itemized deduction for auto loan interest and for home generators.
• Child tax credit — Various Republican leaders have supported expansions of the child tax credit with work requirements.
• Renewable energy tax incentives — President-elect Trump and various Republican leaders have proposed to repeal tax credits and incentives that were enacted as part of the Inflation Reduction Act.
• Corporate Alternative Minimum Tax (CAMT) — President-elect Trump and various Republican leaders have proposed the repeal of CAMT and the public-company stock buyback tax.
• Tariffs — President-elect Trump has proposed significant tariffs on both goods imported from China and on all imports into the United States, while some Republican leaders have expressed skepticism of such a plan.
• IRS funding — Republican leaders have expressed a desire to claw back the additional $60 billion of IRS funding provided by the Inflation Reduction Act, potentially decreasing the IRS budget even further, and preventing the IRS from taking certain actions such as further developing the Direct File Program.
• Not-for-profit political activity — President-elect Trump has proposed a full repeal of the “Johnson amendment” that prohibits certain not-for-profit entities that are exempt from federal income tax from directly participating in political speech.

Key issues at play

While the exact parameters of future tax legislation are unknown, we do know key issues that will shape the negotiations. Those include:

• Budget reconciliation. Similar to the TCJA, any tax legislation will need to be enacted through the budget reconciliation process to avoid a Democratic filibuster in the Senate. Most importantly, this prevents the legislation from reducing federal revenue beyond the 10-year Congressional budget window and prevents any changes to the Social Security program. This makes it almost a certainty that any tax legislation will contain numerous temporary provisions. It also complicates the various proposed tax exemptions since they wouldn’t be permitted to reduce payroll taxes dedicated to the Social Security program. 
• Cost considerations. Fully extending the TCJA would likely reduce federal revenues over the 10-year Congressional budget window by $3–5 trillion. The additional tax spending proposals could reduce federal revenues by another $5–10 trillion. That leads to two related considerations. 
  1. Tolerance for deficit spending: While the Republican party generally has a higher tolerance for deficit spending for tax cuts, that’s not true across the board. With relatively slim majorities in both chambers of Congress, even a few Republicans concerned about the federal deficit could force tax priorities to be reined in. Implicit in these considerations are whether or to what extent tax cuts create economic growth and whether increased government spending via tax decreases could impact inflation. To the extent that even a small number of Congressional Republicans prioritize budget deficits, choices will be required about which tax rules to extend/enact and for how long. For example, this could result in the core TCJA rules being extended while new proposals from the recent campaign trail may not be viable. As a recent example, when the TCJA was being negotiated among Congressional Republicans in 2017, the first decision that was made was that the legislation wouldn’t cost more than $1.5 trillion over the 10-year budget window. Only then were specific policy priorities laid out within that fiscal framework to make the math work. The total tax cuts in the TCJA were significantly larger than the $1.5 trillion, but revenue raisers were required to be added to fit the previously agreed to spending limit. Some Republican leaders in Congress have expressed concern about the level of the federal deficit so these considerations may come to a head very quickly.
  2. Revenue raisers: Congress may seek to pay for aspects of tax legislation by repealing other tax programs. Tax credits and incentives that were expanded by the Inflation Reduction Act could be modified or eliminated in this scenario. Congress could also add deferred revenue raisers to raise revenue in later years of the 10-year budget window that didn’t cause any immediate pain. The TCJA included deferred rules, such as required capitalization of research and experimentation expenses under Section 174 but only beginning in 2022. Alternatively, Congress could temper the magnitude of a change or sunset it earlier than the end of the 10-year budget window. For example, rather than permitting the SALT cap to expire completely, it could be limited to a dollar amount greater than the current $10,000 limit or could be made unlimited for only the next 3 years. On the nontax front, President-elect Trump has promised to significantly increase tariffs. While this might raise revenue that could be attributed to offsetting the cost of any tax cuts, it’s unclear how tariffs would impact the broader economy, who would bear the burden of those increased costs, and what impact they would have on geopolitical relationships and trade. In any event, a conclusion on the level of acceptable cost for tax legislation will inform the policy choices about which rules to include and how to include them.
• Constituencies for specific tax provisions. While some tax policies seemed to be embraced by large swaths of the Republican party, they may not be universally embraced. For example, modification or elimination of various energy credits and incentives has wide support within the Republican party. However, some Republican members of Congress have significant projects in their districts and may not favor repealing particular portions of those laws. Similarly, some Republicans in Congress may simply have personal philosophies on certain tax policies that cause them to draw a hard line on certain topics. With slim majorities in both chambers, a handful of Republicans that care disproportionately about a particular topic could force a significant narrowing of a policy.

Timeline on tax legislation

A unified government will result in general alignment over tax policy among the White House and Republican members of Congress. However, the path for tax legislation is often complicated by many different factors, several of which are noted above. The Tax Code has implications for social policy, employment, specific industries, the broader economy, and international trade, among others. Accordingly, the negotiations over specific legislative text could require an extended period of deliberation. As of now, there appear to be two potential paths for the timing of tax legislation during 2025.

• The early case — House Majority Leader Steve Scalise (R-LA) previously announced that Republican leadership would pursue an extension of the TCJA during the first 100 days of the Trump administration. President-elect Trump will be inaugurated on Jan. 20, 2025, so the first 100 days would stretch until the end of April 2025. If tax legislation advances on that timeline, it will result from Republicans in Congress coalescing quickly around the overall cost of tax legislation and the scope of changes to be included, combined with individual congresspeople settings aside personal priorities on specific policies. Much of this agreement may need to happen informally even before President-elect Trump is inaugurated, and procedural steps in Congress would also likely need to begin in earnest by early February. Factors working against early movement could range from policy disputes about specific tax proposals to practical considerations if other initiatives are considered higher priority by the White House or Republican leadership. Overall, actions during February and March will likely confirm whether tax legislation stands a realistic chance of enactment during the first half of 2025.
• The delayed case — A slower legislative process that’s completed during the second half of 2025 would mirror dynamics from the first Trump administration. In 2017, other legislative priorities were initially pursued during the first 100 days. Then, in late April, the administration outlined its intended goals for tax reform. Despite broad agreement about tax goals, it took another four months before Congress fully pivoted from repealing the Affordable Care Act to enacting tax legislation and even then, the congressional deliberations over the TCJA took another four months to complete, with enactment on Dec. 22, 2017. The first 100 days of a Congressional session also come along with various administrative functions, including electing leadership, enacting the rules for each chamber, and new congresspeople continuing to get their offices up and running.

Irrespective of whether tax legislation moves along the expedited path or slower path, it seems likely that Republicans in Congress will be highly motivated by the expiration of many TCJA provisions on Dec. 31, 2025, and that a tax bill will be completed during 2025.

What to do now

The general direction of tax policy has become clearer, but the precise details are still up in the air. That uncertainty makes it harder to take many specific actions just yet, but that doesn’t mean that there are no steps to take in the meantime: 

• Decide on what’s important to you (and it might not be taxes). While tax policy impacts every U.S. citizen and business, that doesn’t necessarily mean it’s the highest priority policy for each of them. For many businesses, President-elect Trump’s tariff and trade policies may be far more impactful than tax policies. For others, regulatory considerations for a particular industry may have far greater costs or benefits. While it may be possible to address multiple issues at the same time, it’s still often necessary to ensure that your available resources are focused in the most impactful direction. 
• Engage with Washington. While most individuals and businesses don’t have direct access to those in government, there are many organizations that do have that access and are looking for people to help them advance their policy goals. This includes trade organizations and industry associations. Tax policy is inherently complicated, particularly when a policy idea is converted into real rules on paper. Often, one of the most valuable actions that individuals and businesses can take is to help educate those with connections to Washington on how those items will actually impact them or their business. While those impacts may seem obvious to you, that’s not often the case when congresspeople who aren’t experts in tax policy are working through hundreds of different concepts in a comprehensive piece of tax legislation.
• Model the potential impacts. It’s important for many individuals and businesses to model the impact of various policies to see how they could impact budgets in both the short-term and long-term (and this modeling may extend beyond just tax policies as well.) Modeling can become complicated quickly, but that complexity shouldn’t stand in the way of starting the process. Oftentimes, the specifics of exactly how something should be modeled is less important than the bigger-picture impact. Even rough modeling of concepts can help to reveal particular points of emphasis. This can help inform specific actions to take, points of emphasis in engagement with trade organizations, or can help to make clear what types of contingency plans or budgeting pressure points could exist in the future. It may also help to reveal whether certain actions would need to be taken by a particular time to be most impactful depending on how and when tax legislation could be effective.

Keep an eye on developments in the coming months

Staying informed of developments is the best way to begin to prepare for the upcoming changes, particularly as tax policy ideas begin to be converted into actual legislative proposals. Keep an eye on our tax policy outlook and our financial/economic outlook to make sure you’re seeing all of the developments as they occur.