Trump tax policy 2.0: 11 proposed changes and impacts

November 26, 2024 5:09 PM

With the contentious 2024 elections behind us, we can finally focus on President-elect Donald Trump's agenda for the economy, taxes and jobs. With Republicans flipping the Senate (and White House) and also retaining the majority in the House of Representatives, the president-elect should have control and a voter mandate that could dramatically streamline the legislative process in his second term.

As you start year-end planning for your clients, you'll want to familiarize yourself with the many potential 2025 tax changes to ensure more thorough analyses and productive client discussions. Many tax policy experts believe Republicans are likely to use a process called budget reconciliation, which allows for budget legislation to be passed out of the House and Senate via a simple majority.

Trump's landmark tax legislation from his first term — the 2017 Tax Cuts and Jobs Act — remains intact even after Democrats won the White House in 2020. But most TCJA provisions are set to expire in 2026 as part of the original legislation passed seven years ago. As such, the TCJA will be the centerpiece of Trump's new tax and economic platform.

However, there are many new additions to the TCJA that you and your clients will want to keep an eye on. Let's look at the potential impact of 11 of the most important ones, thanks to a skillful analysis of the governmental impact by the Tax Foundation, a nonpartisan, nonprofit independent tax policy research organization. Below the Tax Foundation analysis, we have added our own take on what the proposed changes could mean for you and your clients.

1. Individual income tax provisions of the TCJA

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Proposal: Making permanent TCJA provisions associated with individual income taxes (effective Jan. 1, 2026), with the exception of repealing the $10,000 SALT cap on deductions for state and local taxes.

Impact on government*: The Tax Foundation projects this provision to result in a 1.4% increase in gross national product, an increase of over 1.3 million jobs and a $4.4 trillion reduction in tax revenue over 10 years.

Impact for clients**: This would provide upper-income taxpayers with significant tax savings, particularly those who live in high-tax states. It may also eliminate the need for SALT cap workarounds, which often require costly analysis.

* Tax Foundation, 2024
** HCVT, 2024

2. Gift and estate taxes provisions of the TCJA

Estate plan, living will and trust documents

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Proposal: Making permanent the TCJA provisions associated with gift and estate taxes (effective Jan. 1, 2026)

Impact on government: The Tax Foundation projects this provision to result in a 0.1% increase in GNP, an 8,000 increase in jobs and a $205.6 billion reduction in tax revenue over 10 years.

Impact for clients: This would potentially provide increased simplicity, flexibility and significant savings for high-net-worth families in terms of passing on wealth to younger generations through the continuance of the expanded lifetime gift and estate tax exclusion (currently $13.99 million per spouse) beginning Jan. 1, 2025.

3. TCJA business tax provisions

A printout of Congress's tax reform bill, "The Tax Cuts and Jobs Act," alongside a stack of income tax regulations

Proposal: Restoring the TCJA business tax provisions (effective Jan. 1, 2026), which would include 100% bonus depreciation, research and development expensing, and the IRC 163(j) interest limitation.

Impact on government: Federal bonus depreciation is currently 60% for the 2024 calendar year and set to drop to 40% in 2025. The Tax Foundation projects these restorations will result in a 0.5% increase in GNP, an increase of 119,000 jobs, and a $643 billion reduction in tax revenue over 10 years.

Impact for clients: Federal bonus depreciation is currently 60% for the 2024 calendar year and set to drop to 40% in 2025. The Tax Foundation projects these restorations will result in a 0.5% increase in GNP, a 119,000 increase in jobs, and a $643 billion reduction in tax revenue over 10 years.

4. Opportunity zone program extension

Daniel Acker/Bloomberg

Proposal: President Trump and the bipartisan supporters of the pending Opportunity Zones Transparency, Extension & Improvement Act will likely be fast-tracking passage of the bill.

Impact on government: OZ are a key tool for increasing investment in underserved communities and encourage various projects including housing, infrastructure and business formation and expansion that will help those living in underserved areas

Impact for clients: Investing in OZ funds can be advantageous if you have capital gains to defer. The OZ program also offers potential tax-free returns on investment in OZ businesses. For more, see HCVT Alert: Opportunity Zone Program.

5. Encouraging domestic production

Patrick Mouzawak/Bloomberg

Proposal: Bringing back the Domestic Production Activities Deduction at 28.5% would encourage domestic production by lowering the effective corporate tax rate to 15% on such activities. Corporations taking advantage of domestic production would experience a reduction from the current 21% corporate tax rate

Impact on government: The Tax Foundation projects the 28.5% DPAD to result in a 0.2% increase in GNP, a 38,000 increase in jobs and a $361.4 billion reduction in tax revenue over 10 years.

Impact for clients: The DPAD would be highly impactful for businesses across a variety of industries that currently rely on domestic production. Analysis of entity classification and business structuring could reveal additional tax savings. Shareholders of U.S. corporations may also experience greater returns on their investment due to lower taxes.

6. No tax on tips

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Proposal: Exempting tips from income taxes (employment taxes will likely still apply)

Impact on government: A tip income exemption or deduction is not projected to have any material economic impacts. The Tax Foundation projects it will result in less than a 0.05% increase in GNP and approximately 21,000 new jobs over the next 10 years, while the exemption would cut tax revenues by $118 billion over that time.

Impact for clients: This would benefit workers and families who rely on income from the service industry, but only if those people are generating enough income to be subject to taxes. Exempting taxes on tips increases cash in the pockets of employees, which could also benefit business owners in the service industry through lower wages.

7. Exempting Social Security benefits

Dennis Brack/Bloomberg News

Proposal: A federal income tax exemption for Social Security benefits

Impact on government: The Tax Foundation projects this provision would result in a 0.1% increase in gross national product, a 55,000 increase in jobs, and a nearly $1.2 trillion reduction in tax revenue over 10 years.

Impact for clients: Older taxpayers are often encouraged to delay Social Security benefits to maximize the value over time. An exemption for Social Security benefits could encourage people to draw Social Security earlier. Despite the timing of benefits, high-net-worth individuals in higher tax brackets are likely to see the greatest tax savings.

8. Exempting overtime pay

Proposal: A federal income tax exemption for overtime pay.

Impact on government: The Tax Foundation projects this provision to result in a 0.3% increase in gross national product, a 405,000 increase in jobs, and a $747.6 billion reduction in tax revenue over 10 years.

Impact for clients: This would create tax savings for hourly employees eligible for overtime pay (generally blue-collar workers) who often work extended hours. It could also attract employees into industries that typically require overtime hours.

9. Deducting interest on car loans

Proposal: A proposed Schedule A deduction for interest paid on personal automobile loans.

Impact on government: The Tax Foundation projects this deduction to result in a 0.1% increase in gross national product, a 50,000 increase in jobs, and a $61 billion reduction in tax revenue over 10 years.

Impact for clients: Taxpayers financing vehicles would be able to claim an itemized deduction for interest paid on their vehicle loans. This will mostly benefit taxpayers who already have other itemized deductions (state and local taxes, mortgage interest, charitable donations, etc.) in excess of their standard deduction. For those able to itemize, this would encourage financing over putting more cash down on vehicle purchases.

10. Repealing green energy subsidies

Proposal: Repeal of green energy subsidies granted by the Inflation Reduction Act. This would include credits for expenditures related to clean energy home improvement and clean energy automobiles.

Impact on government: Due to the temporary nature of the IRA, an elimination of green energy initiatives is not expected to have any long-run economic impact. However, the Tax Foundation projects the repeal would generate over $920 billion in tax revenue over 10 years.

Impact for clients: Green energy investments would be less desirable, as taxpayers would lose tax savings on solar installation, eclectic vehicles and other green energy products.

11. Tariffs

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Proposal: Raise tariffs to 20% on all U.S. imports, including a special 60% tariff on all Chinese goods.

Impact on government: Factoring in estimated foreign retaliation, the Tax Foundation projects that Trump's tariffs would result in a 1.9% decrease in GNP, a 1,435,000 decrease in jobs, primarily for lower- and middle-income households, and a $3.8 trillion increase in tax revenue over 10 years.

Impact for clients: Trump intends for higher tariffs to level the playing field between domestic and foreign production, hopefully resulting in more purchases of U.S.-made products, less dependence on foreign products, and more U.S. production activity. However, many economists believe U.S. companies will simply pass on the cost of the tariffs to U.S. consumers through higher prices of goods.

The scorecard

According to the Tax Foundation, Trump's proposed 2024 tax reforms altogether would create nearly 600,000 new jobs, increase GDP by 0.8%, and increase long-term wages by 0.8%. However, the foundation also estimates the plan would cost U.S. tax coffers over $3 trillion in revenue over a 10-year period. The Trump policy team anticipates to partially close this revenue gap through aggressive domestic oil production, elimination of many of the green credit programs, increased domestic manufacturing, reduced federal outlays for the large new immigrant population, and Elon Musk's new Department of Government Efficiency among other strategies.

With inflation moderating, interest rates finally falling, and the stock market and cryptocurrency at record levels, the Trump administration is inheriting a strong economic and investor landscape from which its tax policies could further accelerate growth, rather than derail it.

However, with ongoing wars throughout the world, a wide range of voters to satisfy, a heavy debt hangover thanks to massive federal entitlement programs during COVID, decades of excess spending by both parties, and endless social challenges to contend with, Trump's return to office will be anything but smooth sailing. Make sure your clients are not blindsided.