President Trump’s 2025 Tax Proposals

Now that the 2024 election is over, let’s review the tax policy proposals Donald Trump highlighted on the campaign trail. President Trump proposes numerous tax changes that would, if enacted, significantly change taxation for most Americans. With a Republican majority in both the House & Senate, Trump will re-enter the White House with an opportunity to see many of these tax policy ideas become law in early 2025.

Trump’s History of Tax Policy

First, let’s reflect on President Trump’s tax policy from his first administration. Trump’s key tax policy achievement was the Tax Cuts & Jobs Act (TCJA) in 2017. TCJA altered the federal tax code on a scale not seen in the prior three decades. TCJA featured changes designed to benefit corporations, high net worth individuals, and pass-through businesses, while also including tax relief for middle class Americans. Some of the central features of 2017’s TCJA included:

• Corporate Tax Cuts: The corporate tax rate was reduced from 35% to 21%. This was designed to make the U.S. more competitive internationally, incentivize domestic investment and repatriate overseas profits.
• Individual Tax Cuts: TCJA lowered individual income tax rates across all brackets. The highest individual income tax rate was also reduced to 37%, down from 39.6%. The brackets were also expanded to benefit all individuals.
• Estate Tax Exemption: The exemption from the estate tax was doubled, reducing the number of estates that would be subject to the tax. Following TCJA, the lifetime exclusion from the federal estate tax is approximately $14 million per person. However, this increased exclusion is set to expire in 2026 under current law.
• International Tax Reform: TCJA introduced a territorial system of taxation, which meant that American companies would only be taxed on their domestic profits, while international profits would be subject to a lower tax rate.

President Trump’s New Tax Proposals

As President Trump takes office in January 2025, his new round of tax proposals reflect continued emphasis on similar themes. These proposals focus on the following areas:

Corporate Tax Cuts
President Trump will look to cut corporate tax rates again, arguing that a lower corporate rate leads to job creation, higher wages, and increased investments. His proposed corporate tax rate for 2025 would
be 20%. 

Trump proposes accelerating the tax deduction for R&D expenditures. The tax treatment of R&D expenses became less favorable in recent years. Under current law, companies must capitalize and amortize these costs over 5 years (15 years for R&D conducted abroad.) Reinstating immediate R&D expensing would reduce the financial burden companies take on when they invest in new products or technologies.

The Trump plan looks to revive 100% bonus depreciation for qualified asset purchases. Currently, bonus depreciation deduction is being phased down and will be eliminated for most property placed in service starting in 2027. Bonus depreciation provides an immediate federal tax deduction for the purchase of nearly all types of business personal property and some leasehold improvements.

Business’ ability to deduct interest expense became less favorable beginning in 2022. Business interest expense is limited to 30% of tax-basis EBIT (Earnings Before Interest and Taxes). This limitation challenges many companies that rely on debt financing. Such companies may also face other complex issues associated with debt refinancings, modifications and restructuring, which could trigger numerous tax issues, such as potential cancellation of debt income. The Trump proposal would change the limitation formula to a percentage of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

Trade Policy
President Trump proposes raising tariffs on foreign countries. In recent weeks, we’ve seen Trump suggest increasing tariffs by 10% on goods imported from Canada and Mexico. President Trump supports much higher tariffs on goods from China. Trump believes steep tariffs on these imported goods would drive increased domestic manufacturing. This proposal has profound implications for U.S. importers, and the overall economy.

Individual Tax Cuts
President Trump will push for additional individual tax cuts. He supports making the individual tax provisions from TCJA permanent. That’s timely because those cuts are set to expire in the coming months. This would keep the top individual income tax rate at 37%, along with extending the 20% qualified business income deduction available to pass-through business owners. Renewing TCJA also means continuing the expanded tax bracket system which provides tax relief for Americans across
various income levels.

For middle class households, Trump’s proposal would also expand the child tax credit, as well as provide other incentives for families and workers to increase disposable income. Trump has suggested excluding both tip income and overtime pay from federal income tax. He claims these tax breaks would bolster consumer spending, further stimulating economic growth. 

Trump proposes lower taxes on capital gains, especially for long-term investments. Under current law, long-term capital gains are taxed at a maximum rate of 20%, though this can rise to 23.8% when the Obamacare surcharge is included. Trump proposes reducing this tax to 15%, which he argues would encourage investment in stocks, real estate, and business ventures. Trump also proposes indexing capital gains for inflation. This would prevent the government from taxing inflationary increases in asset values.

Estate Tax Reform
President Trump’s tax proposal includes making the increased lifetime exclusion from
estate tax permanent. The higher exclusion would also be indexed for inflation. President Trump’s comments also suggest that he would be supportive of a complete elimination of the estate tax regime.

Summary
Trump’s tax proposals for the upcoming administration follow similar principles to his landmark 2017 tax reforms: tax cuts for businesses, wealthy individuals, and international tax policy reform. Trump believes reducing the tax burden is critical to fostering economic growth and job creation. 

With significant portions of the TCJA scheduled to expire at the end of 2025, Republican lawmakers have indicated a desire to act quickly on tax legislation after taking office in January. Under Republican majorities in both chambers, the budget reconciliation process would allow the Senate to pass legislation with a simple majority. This all points to President Trump’s new administration moving quickly to enact many of the tax policies he campaigned on in 2024.

About the Author

Jason Pritchard joined GreerWalker in 2017 and is a partner in the tax practice where he specializes in state and local taxation. Prior to joining the firm, Jason was most recently responsible for the oversight of state and local tax accounting and compliance at a global top five financial institution. In addition, Jason spent ten plus years at a Fortune 50 retail company where he was responsible for all aspects of federal, state and international taxation.

This article was originally published in the 2024 Catalyst Construction Journal.