Tax policy in 2025 is clearer after elections of Trump and Republican Senate

Business and individual taxpayers have a clearer sense of the direction tax policy will go in 2025 now that Donald Trump is president-elect of the United States and Republicans have won control of the Senate. However, for the tax policy picture to come into sharper focus, there needs to be certainty about which party will control the House of Representatives, as well as the size of the majorities in the House and Senate.

The House majority will determine whether the Republicans have a unified government that can pursue tax legislation early in 2025 through the budget reconciliation process, or whether Democrats will be able to influence tax policy outcomes through negotiations that would likely last much deeper into 2025.

While we expect to know more in the coming days, we invite you to register for our two post-election webcasts. We will cover the implications of dynamics in Congress next year; potential shifts in the taxation of corporations, pass-throughs and certain individuals; the outlook for expiring TCJA provisions; and actionable strategies with which to prepare for tax changes.

• Wednesday, Nov. 13, 2024: Understanding the new balance of power 
• Monday, Nov. 18, 2024: Actionable strategies for businesses 

Meanwhile, it is not premature to focus on what these election outcomes mean for tax policy dynamics in 2025.  

With Trump as president and a Republican Senate, at least, here’s what we know or anticipate: 

• Republican control of the House would enhance the Trump administration’s ability to continue policies implemented in the Tax Cuts and Jobs Act of 2017 (TCJA), which sought to broaden the tax base and lower tax rates for both individuals and businesses.
• The size of governing margins in Congress will affect the ability of the leaders in the House and Senate to pursue policies that the majority of their party’s members support without having to negotiate extensively and make concessions within their own party.
• The nonpartisan Congressional Budget Office in May 2024 estimated that extending the TCJA would cost the government $4.6 trillion, including interest. Given some Republicans’ focus on the size of the existing federal debt and the continuing annual federal deficits, it remains to be seen how they would balance their tax priorities with debt and deficit concerns.
• More than 30 provisions out of the 124 in the TCJA are set to expire Dec. 31, 2025. If Democrats win a majority in the House, and if that divided Congress does not act on those provisions, it is estimated that approximately: 
  • 60% of individual taxpayers would have a tax increase
  • 30% would have their taxes stay the same 
  • 10% would get a tax cut 
• Whether tax proposals initiated by the Biden administration and supported by Kamala Harris feature prominently in policy discussions will depend largely on whether Democrats control the House. Generally, those tax proposals focused on increased corporate and capital gain tax rates and relief for taxpayers earning less than $400,000 per year, with a specific focus on other middle-class tax credits.

Notably, both Republicans and Democrats have expressed at least some support for enhancing the child tax credit.

• Any form of wealth tax is highly unlikely to pass. Additionally, the likelihood of an extension of the TCJA-increased estate exemptions has increased with Republicans taking control of the Senate and the White House.

Looking ahead

The House of Representatives is a vital piece of the 2025 tax policy puzzle, which has started to come together now that Trump has been elected and Republicans have flipped control of the Senate.

Whether Republicans or Democrats control the House will determine whether Republicans can quickly pursue their tax agenda without Democratic opposition, or whether Democrats can exert more significant influence on federal tax policy and how new legislation addresses the expiring TCJA provisions.

Continue to monitor election results and work with your tax advisor about the tax policy implications for your business or individual tax profile.