President-elect Donald Trump and his advisors made a series of tax cut proposals and promises both during the campaign and after the election. Congress will likely consider significant tax legislation in the coming year, as several of the provisions enacted under the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire at the end of 2025. Tax legislation could include renewal of the TCJA provisions along with additional proposals from Trump or from Congress.
Below is an update on Trump’s tax proposals:
Business Tax Proposals
Reduce corporate tax rate for domestic producers: Trump proposes to reduce the corporate tax rate from 21% to 20% and from 21% to 15% for companies that make their product in the United States. During a December interview, Trump reiterated his support for a 15% corporate tax rate for companies that manufacture domestically and stated that the 21% rate would stay for companies that outsources or otherwise do not manufacture their product in the United States. The rate reduction for domestic producers is part of a plan to support U.S. manufacturing. Trump did not provide detail on how this would be implemented.
Individual Tax Proposals
Exclude tips from taxation: Trump proposes to exempt tipped wages from taxes.
SALT: During the campaign, Trump announced that he would support eliminating the $10,000 limit on state and local tax deductions imposed under the Tax Cuts and Jobs Act (TCJA) of 2017. Trump’s economic advisers have since supported doubling the deduction limit to $20,000.
Exclude overtime pay from taxation: Trump proposes to exclude overtime pay from taxation. “We will end all taxes on overtime,” Trump said.
Exclude social security benefits from taxation: Trump proposes to exclude all Social Security benefits from tax regardless of income. Currently, Social Security benefits are tax depending on income.
End taxation of U.S. citizens living in abroad: During the campaign, Trump supported ending the income taxation of U.S. citizens living in other countries.
Increase child tax credit: Trump’s running mate J.D. Vance proposes to increase the child tax credit to $5,000 per child.
Reduce taxes on capital gains and dividends: Trump said in December that his administration will be “talking about” reducing capital gains and dividend taxes.
TCJA Extension
The TCJA made several changes to individual, estate, corporate, and international tax provisions with several of the provisions expiring at the end of 2025 Trump supports the permanent extension of the TCJA provisions. These include:
Individuals
All individual tax rates will increase, with top rates for ordinary income increasing from 37% to 39.6%.
The 20% qualified business income (QBI) under IRC 199A will expire
Enhanced child tax credit will fall from $2,000 to $1,000
The standard deductions will fall, with married filing jointly falling from $24,000 to $13,000; heads of household falling from $18,000 to $9,550; and the standard deduction for single filers falling from $12,000 to $6,500.
The $10,000 SALT deduction limit will expire.
Itemized deductions for high-income taxpayers will revert to 2017 limits.
Businesses
The GILTI rate will increase from 10.5% to 13.125%.
The BEAT minimum tax will increase from 10% to 12.5%.
The FDII rate will increase from 13.125% to 16.4%.