Whenever there has been single party control of the White House, Senate and House, there is the potential for a major tax bill, according to Dustin Stamper, managing director at Grant Thornton's Washington National Tax Office.
"One of the reasons is that tax is one of the few things that can be accomplished through the reconciliation process," he observed. "That allows the Senate to pass legislation with fewer than 60 votes."
This is critical for the fate of the Tax Cuts and Jobs Act, many of the provisions of which expire in 2025. "I don't think Congress is looking to blindly extend the TCJA in its current form," said Stamper. He believes lawmakers will instead use the expiration as a trigger event to proceed with broader reform.
"They will be faced with some hard decisions to make between priorities," he said. "Like most campaigns, they probably overpromised. Just extending the TCJA in its current form is estimated to cost $4.6 trillion, assuming the SALT cap is extended. If they end the SALT cap while extending everything else, the cost will approach nearly $6 trillion, and that's before any of the tax cut promises made on the campaign trail. There were times over the summer when it felt as though a new tax cut was proposed at every campaign stop. Tips, overtime, Social Security, Americans living abroad, a deduction for loans to purchase domestic cars — they can't afford everything, so they will need to make some tough choices."
"The campaign themes are sometimes more important than the details, because campaign platforms have one purpose — to get the candidate elected," he said. "They don't have to be politically feasible or technically sound or administratable. Everything will change or evolve as they go through the legislative process. One of the important themes is that Trump was very focused on more populist tax proposals benefiting individuals, and that's different from his message in 2015, when he was focused on making corporations more competitive globally. That's more of an afterthought this year. So despite a business-favorable Republican majority, there should be some concern in the business community that some of the individual tax cuts get prioritized over business proposals."
There are separate issues from a SALT perspective, according to Jamie Yesnowitz, principal and state and local tax leader at Grant Thornton's Washington National Tax Office. First, in a ballot initiative, voters in Washington State decided not to repeal a long-term capital gains tax put into place in 2022. Oregon rejected an increase in the corporate minimum tax, North Dakota voters rejected a potential repeal of the property tax, and South Dakota rejected a repeal of a grocery tax on grocery items.
"The common theme of these decisions was that the voters were willing to leave legislative choices alone," said Yesnowitz. "They were not willing to adopt new provisions that would impact states significantly. From the state perspective, that's important. Most states are controlled by one political party — the governor and both houses. In that situation, when there is control of the whole governing apparatus, there is more likely to be consideration of significant tax reform."
"In Louisiana, the legislature is currently in special session, where there is Republican control with a potential of significant tax cuts and a potential expansion in sales taxes," he continued. "In the recent state elections, there were no changes in governors, but in the state legislatures, Democrats in Michigan lost their trifecta, and the House in Minnesota appears tied."
Changes in the corporate income tax on the federal side might have a significant effect on state corporate income taxes, since nearly all states are tied to the federal tax, Yesnowitz observed.
"It will cause states to rethink their conformity to the federal tax," he said. "It's similar to what we saw with the TCJA and the CARES Act in response to the pandemic. And to the extent to which cuts on the federal side are significant, there will necessarily be some level of cuts on the federal side, which could cause cuts on the part of states, since the federal government subsidizes a certain amount of state activity. That pressure may force states to reconsider their tax issues, potentially leading to an increase in state income tax as well as sales tax in many jurisdictions."
