By Jonathan Traub, Tax Policy Group managing principal, and Anna Taylor, Tax Policy Group deputy managing principal, both with Washington National Tax, Deloitte Tax LLP and as appearing in the Wall Street Journal
Early on November 6, the Associated Press and other media outlets declared that former President Donald Trump has been elected to serve a second, nonconsecutive term in the Oval Office. On Capitol Hill, Republicans have secured a majority in the Senate and the House of Representatives.
Following is a summary of a report issued on November 6 by the Tax Policy Group in Deloitte Tax LLP’s Washington National Tax Office, summarizing comments by President-elect Trump related to key tax policy proposals, made mostly during the closing months of the campaign. The full report also includes summaries of other tax policy proposals, which are not included in this article. Many of these proposals could have significant cost and revenue-generating implications for companies across industries if enacted, making it crucial for CFOs and other C-suite leaders to stay on top of the anticipated tax policy debate as the new Congress gets underway.
Tax Policy’s Role in the Campaign
Tax played a largely subordinate role during the general election campaign. When it did emerge as an issue, both Trump and his Democratic challenger, Vice President Kamala Harris, tended to present their respective visions in broad strokes.
One underlying component of the tax policy discussion was the future of the Tax Cuts and Jobs Act of 2017 (TCJA, P.L. 115-97), the signature legislation of the first Trump administration that moved through a Republican-controlled Congress under fast-track budget reconciliation rules. That law fundamentally changed the tax treatment of U.S.-based multinationals, lowered corporate and personal tax rates, doubled the child tax credit, and broadened the tax base for both businesses and individuals, among other provisions.
The bulk of the TCJA’s corporate changes are permanent law; however, because of long-term fiscal constraints baked into the budget reconciliation process—namely, that legislation moved under the special parliamentary procedure cannot increase the deficit in the years beyond the budget resolution that includes the underlying reconciliation instructions—many of the provisions on the individual side of the tax code are temporary, with sunset dates at the end of 2025. Lawmakers also included revenue-raising provisions with delayed effective dates, some of which have since come into effect, as well as other changes that will further raise revenue from multinational corporations and are scheduled to take effect after next year.
All of this sets up the prospect of a massive fiscal cliff for President-elect Trump and the incoming 119th Congress as they grapple with how to address the pending expiration of marquee TCJA provisions such as reduced income tax rates for individuals, increased exemption amounts for the individual alternative minimum tax and the estate and gift tax, the doubled child tax credit, the increased standard deduction, and the 20% deduction for permanent passthrough business income.
During the campaign, Trump generally supported making these temporary provisions permanent. The nonpartisan Congressional Budget Office estimated in May that the 10-year cost (including additional debt service costs) of permanently extending the TCJA’s expiring tax relief will come in at $4.6 trillion—a $1.1 trillion increase from similar projections the agency issued in 2023. Adding to the magnitude of that challenge for the incoming presidential administration and Congress is the scheduled expiration next year of some significant temporary non-TCJA tax benefits, such as the new markets tax credit and the look through rules for controlled foreign corporations in section 954(c)(6). And, of course, the additional tax code changes that former (and future) President Trump outlined on the campaign trail all will come with costs of their own.
As we contemplate the direction in which President-elect Trump proposes to take tax policy, it is important to note that tax legislation generally originates in Congress, not the White House, so any new tax laws enacted in his second administration will necessarily also carry the imprimatur of the legislative branch with its many competing interests and priorities. With that in mind, this report also considers how Trump’s tax policy ambitions—including the extent to which revenue raisers are used to offset the cost of any TCJA extensions and other proposed tax relief—are likely to be shaped by the make-up of the incoming 119th Congress.
President-elect Trump did not release a detailed tax policy blueprint during the general election campaign, although he has called for making the TCJA permanent. Since the presidential nominating convention in July, he continued to tout the benefits of the 2017 legislation but also weighed in on several other tax policy issues beyond the TCJA.
Corporate Tax Rates and Tariffs
The Tax Cuts and Jobs Act permanently reduced the corporate tax rate to 21% (from 35% under prior law). In remarks to the Economic Club of New York on September 5, Trump proposed to cut that rate even further—to 15%—although that lower rate would apply “solely for companies that make their products in America.”
He indicated that the proposal is intended to spur domestic production, but cautioned that companies that “outsource, offshore, or replace American workers” would be ineligible for the lower rate and that products imported into the United States would be subject to “a very substantial tariff.” “Our message is simple: make your product here in America. Only in America,” he said.
Trump did not elaborate how this proposal would work. Previously, he had discussed the possibility of cutting the corporate tax rate to 20% or even 15%, but he offered no additional specifics until his September 5 speech.
During a September 24 speech in Savannah, Georgia, he put a finer point on the issue of tariffs for domestic companies that offshore their production activities, stating that his new proposed 15% rate would make the United States “the most competitive [country] . . . anywhere on the planet, but only for those who make their product in the USA.” In one particular example of how a tariff might be structured, Trump stated that automobiles brought into the United States from plants situated in Mexico would be subject to a levy of 100%.
Taxpayer-Unfavorable TCJA Tax Code Changes
In what appeared to be a call for reversing certain taxpayer-unfavorable changes that were enacted under the TCJA, Trump also told the Economic Club of New York that his tax plan “calls for expanded R&D tax credits [and] 100% bonus depreciation.”
Under the TCJA, the 100% rate for bonus depreciation has been phasing down in annual increments of 20 percentage points since 2023. The TCJA also provides that R&D expenditures paid or incurred in taxable years beginning after December 31, 2021, are subject to capitalization over five years for research conducted within the United States and 15 years for research conducted outside the United States. Trump made a similar pledge to reinstate pre-TCJA treatment of bonus depreciation and R&D expenditures during his September 24 remarks in Savannah.
There have been bipartisan calls from lawmakers to restore 100% bonus depreciation and the immediate deduction of domestic R&D expenses; however, legislation from House Ways and Means Committee Chair Jason Smith, R-Mo., and Senate Finance Committee Chair Ron Wyden, D-Ore., that would address those and other items, including changes to interest deductibility rules and an expanded child tax credit, is currently stalled on Capitol Hill. The Tax Relief for American Families and Workers Act (H.R. 7024) passed the House in January but failed to clear a procedural hurdle in the Senate on August 1, shortly before Congress adjourned for a weeks-long recess ahead of the elections. It is unclear if the Senate will attempt to take up the bill again when lawmakers return to Capitol Hill for a post-election lame duck legislative session.
Income Tax Exclusions and Deductions for Small Businesses
On the individual side of the tax code, in addition to expressing support for making the expiring TCJA tax cuts permanent, Trump broadly pledged over the course of the presidential campaign that his administration would eliminate federal taxes on several specific types of income and create new targeted deductions related to certain consumer purchases. He also proposed to increase current-law expensing limitations for small businesses, although additional details on how these proposals would operate have not been provided.
Tip income. During a June 9 campaign rally in Las Vegas, Nevada, Trump proposed to end taxes on tips for individuals working in the restaurant and hospitality industries, although he did not specify whether the exemption would apply only to federal income taxes or also would apply to employment (Social Security and Medicare) taxes.
Overtime pay. Similarly, Trump told the audience at a campaign event in Tucson, Arizona, on September 12 that his administration would end all taxes on overtime pay, arguing that such a move would create incentives to work while providing needed tax relief for individuals such as “police officers, nurses, factory workers, construction workers, truck drivers, and machine operators.”
Worldwide income of U.S. citizens living abroad. In a statement to The Wall Street Journal on October 9, Trump called for “ending the double taxation of overseas Americans.”
Although he did not provide additional details, the former president presumably is seeking to eliminate or narrow current federal tax rules, which provide that the worldwide income of a U.S. citizen is generally subject to U.S. income tax regardless of where that individual is living. Under current law, certain exclusions apply to foreign earned income, and an exclusion or deduction may apply for housing expenses under certain circumstances.
Deduction for auto loan interest payments. In remarks to the Detroit Economic Club on October 10, Trump proposed to make interest on automobile loans “fully deductible” from federal income taxes, but he has offered no details since then on how such a deduction would be structured. There is no deduction under current law for personal interest, which the IRS describes as interest paid on a loan to purchase a car for personal use, credit card and installment interest incurred for personal expenses, and interest and certain other expenses related to tax-exempt income. Trump explained that his proposed new deduction would “stimulate massive domestic auto production” and make vehicle ownership more affordable for consumers.
Trump did not elaborate on his proposal in his Detroit remarks, but at a rally in Greensboro, North Carolina on October 22, he clarified that the deduction would be available only for interest incurred in purchasing vehicles that are “manufactured in the United States.” Questions still remain on issues such as whether the deduction would be available for loans on vehicles that are manufactured in the United States by foreign-owned automakers or for U.S.-manufactured vehicles that include foreign-produced components. In conjunction with this proposal, Trump has called for substantial new tariffs intended to prevent Chinese automobile manufacturers and auto parts manufacturers from locating plants in Canada and Mexico and then exporting their products into the United States.
Increase in small business expensing limitation. Trump also proposed in his Detroit remarks to “double the amount of equipment investment [taxpayers] can deduct under section 179”—a move that he said would encourage vehicle purchases by small businesses. The TCJA permanently set the small business expensing cap at $1 million in a given year for qualifying property, subject to a phase-out when the cost of qualifying property exceeds $2.5 million.
Uncapping the SALT deduction. Trump proposed in September to eliminate a provision of his signature 2017 tax law that imposed a $10,000 cap on the deduction for state and local taxes (SALT). The cap is currently set to expire after 2025. He initially raised the issue of restoring the SALT deduction in a post on his Truth Social platform on September 17 and reiterated that pledge the following day at a rally he held in Uniondale, New York, on Long Island, where SALT cap repeal has been a popular issue.
In addition to potential benefits for many sectors of the economy, the overall business and corporate tax proposals, combined with the underlying long-term imbalances between spending and revenue, present risks that Congress and the president will need to address. How these proposals are funded, if Congress chooses to fund them, could have major implications going forward for companies in many sectors, adding to the need for CFOs and other leaders to pay close attention as they are debated and move closer to potential legislative enactment in the months and years ahead.
Read the full report at Scaling the cliff: Tax policy implications of a Donald Trump presidency.
The preceding article originally appeared on November 13, 2024 at the Wall Street Journal’s website and is made available here for educational purposes only. This constitutes a ‘fair use’ of any such copyrighted material as provided for in Title 17 U.S.C. section 106A-117 of the U.S. Copyright Law. The views expressed here are those of the authors and do not necessarily reflect those of the Carolina Leadership Coalition.
