2024 U.S. Election Creates a Large Menu of Tax Policy Choices for 2025
November 18, 2024
Nearly two weeks removed from Election Day 2024, we now have a clearer picture of the results: Former President Donald Trump has been re-elected as the 47th President, and Republicans will take majority control of the Senate with 53 seats.
The House of Representatives looks to remain in Republican control per NBC News, although the party’s majority is uncertain. According to the New York Times, ballot counting could take days for the remaining seats to be determined, with the party winning 218 or more seats controlling the House. In the last Congress, Republicans controlled the House with a small 220-212 majority.
Key Tax Policy Changes on the Horizon
With Republican control of the Presidency and Congress, there is a stronger likelihood of advancing their tax agenda. The Tax Cut and Jobs Act (TCJA) of 2017, President Trump’s signature economic legislation, is set to expire at the end of 2025.
Major provisions scheduled to sunset include:
- Income Taxes: All but the lowest tax rates will increase (up to 39.6% from 37%), with tax bracket thresholds reduced.
- Deductions: The standard deduction will shrink, the $10,000 cap on State and Local Tax (SALT) deductions will expire, and mortgage interest deductibility will revert to $1 million of debt (from $750,000).
- AMT: Lower thresholds will increase exposure to the Alternative Minimum Tax (AMT).
- Estate Taxes: Lifetime gift and estate exemptions will drop from nearly $14 million to $7 million per person.
President Trump’s Tax Agenda
On the campaign trail, Trump advocated making the TCJA provisions permanent, while eliminating the SALT deduction cap (a significant revenue source in the original bill).
Additional proposals include:
- Lowering corporate taxes on U.S.-manufactured goods to 15%.
- Exempting Social Security benefits from taxes.
- Exempting tipped wages and overtime pay from taxes.
While these proposals represent the Republican tax "wish list," fiscal constraints could force prioritization. A Wall Street Journal poll in September found that exempting Social Security benefits and tipped wages from taxes were Trump’s most popular proposals, signaling potential focus areas.
Challenges and Fiscal Considerations
Republicans face potential hurdles, including the budgetary cost of new proposals, the slim House majority, and market pressures. Larger budget deficits – whether from tax cuts or increased spending – often elevate borrowing costs, as evidenced by a 0.75% rise in U.S. 10-year Treasury yields since September.
Looking Ahead
Tax policy will take center stage in 2025: Congress must decide whether to extend TCJA provisions, implement new changes, or compromise amongst the menu of new and old tax cuts.
In the coming months, we will share updates on legislative developments, insights on how changes might affect clients, and strategies to minimize tax impacts. We will also explore the broader implications of fiscal policy on financial markets and investor portfolios.
