Tax Changes in 2025: Overview and Implications
Key Questions
Will expiring provisions of the Tax Cuts and Jobs Act (TCJA) be extended with revenue offsets?
How might international tax policy evolve?
What will be the impact of new or expanded tariffs on businesses and the economy?
With a Republican trifecta following the 2024 elections, tax policy changes are anticipated in 2025. President-elect Trump’s campaign proposals and the expiring TCJA provisions will likely dominate the policy agenda.
Tax Legislation Timeline
Potential Speed: Republicans, controlling Congress and the presidency, may use budget reconciliation to pass tax legislation without Senate filibuster hurdles.
Focus: Extending TCJA provisions and including tax cuts from Trump's campaign proposals.
Opportunities: Two chances in 2025 to use the reconciliation process.
Positive Effects
Swift passage of tax legislation could provide clarity and predictability for long-term business planning.
Extensions of TCJA provisions, including lower corporate tax rates, may reduce tax burdens and increase after-tax profits.
Negative Effects
Rapid legislative changes may leave businesses with limited time to adapt.
Partisan-driven policy shifts could introduce volatility if provisions are reversed in future political cycles.
Trump Tax Proposals and TCJA Extensions
TCJA Extensions
Estimated cost: $4.6 trillion over 10 years.
Focus on extending provisions for all income groups.
Campaign Tax Proposals
Eliminating taxes on overtime, tips, and Social Security.
Reducing the corporate tax rate to 15% for domestic manufacturing.
Combined cost of campaign proposals: $3.8 trillion over 10 years.
Revenue Offsets
Discussions include raising the corporate tax rate, spending cuts, or implementing tariffs.
Debate exists within the GOP on whether to prioritize offsets to address national debt and deficit concerns.
Positive Effects
Reduction in corporate tax rates, especially the 15% rate for domestic manufacturing, could incentivize investment and expansion in the US.
Elimination of taxes on overtime and tips may increase disposable income for employees, indirectly boosting consumer spending.
Continuation of individual tax cuts could enhance employee satisfaction and retention.
Negative Effects
Potential revenue offsets (e.g., increased corporate tax rates for some sectors) could negate benefits for certain industries.
Large-scale tax cuts could exacerbate national debt, leading to long-term economic instability that may affect business operations.
International Tax Policy Changes
TCJA Changes
Scheduled adjustments could increase US multinational enterprise (MNE) tax obligations.
Maintaining current provisions is projected to cost $140 billion over 10 years.
Global Minimum Tax
Trump administration is unlikely to support the 15% global minimum tax.
Potential revisions to the US rules on global minimum tax and research and development tax credits.
Retaliatory measures against countries enforcing Pillar Two taxes on US firms may be considered.
Positive Effects
Rolling back or resisting the 15% global minimum tax may reduce compliance costs for multinational businesses.
Potential revisions to global tax rules could benefit US-based research and development initiatives, enhancing innovation.
Negative Effects
Uncertainty in international tax provisions could complicate planning for multinational enterprises.
Retaliatory measures, such as targeted foreign taxes, could harm international operations or competitiveness.
Energy Tax Policy
IRA Energy Tax Credits
Wholesale repeal unlikely, given the success of renewable energy projects.
Possible rollback or reduction of credits for electric vehicles (EVs).
Unspent IRA funds could be redirected to other policy goals.
Positive Effects
Preservation of renewable energy credits supports businesses investing in green technologies and infrastructure.
Potential curtailing of certain credits (e.g., EV incentives) might redirect funds toward broader business tax relief.
Negative Effects
Reduction or removal of EV-related credits could hinder businesses relying on electric fleet expansions.
Changes in energy tax credits might disrupt investments already made based on existing incentives.
Trade Policy and Tariffs
Proposed Tariffs
10%–20% across-the-board tariffs on all US imports.
Specific tariffs on imports from China (10%), Mexico and Canada (25%), and countries associated with illegal immigration (25%).
Higher tariffs (60%–200%) on foreign automobiles and products from certain rivals.
Positive Effects
Tariffs on imports may protect domestic manufacturers from foreign competition, encouraging local production.
Revenue from tariffs could offset the costs of tax cuts, reducing pressure on other business taxes.
Negative Effects
Increased tariffs may raise costs for businesses reliant on imported materials or products, leading to higher prices for consumers.
Supply chain disruptions caused by tariffs could delay production, increase operational costs, and affect profit margins.
Retaliatory tariffs from trade partners could harm export-oriented businesses.
Implementation
Trump may use executive authority to impose tariffs without Congressional approval.
Congress could legislate tariffs, enabling their use as a revenue source to offset TCJA extension costs.
Economic Impact
These changes could significantly affect supply chains and GDP, with broad economic consequences.
Business Strategy and Preparation
Businesses should model potential tax changes and prepare scenario plans.
Advocacy plans and priority adjustments are essential before the new administration and Congress take office.
Conclusion
Tax policy changes in 2025 are poised to be swift and substantial, impacting domestic and international operations, energy sectors, and trade. Businesses must remain proactive in planning and adapting to these shifts.
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