Over the next few weeks, we will discuss potential election outcomes and the big-picture impact of each on next year's battle over the Tax Cuts and Jobs Act (TCJA) and other broad swaths of the tax code. We will analyze the potential impact of: (i) a Republican sweep of Congress and the White House; (ii) a sweep by the Democrats; and (iii) divided government with the president facing an opposing majority in one or both chambers.

If Republicans win control of the House, Senate, and White House, will it be back to the future for the TCJA in 2025? In some ways, the answer is yes. 

Republicans last held all three power centers in Washington during the 2017-2018 congressional session. It was then that GOP majorities in Congress used the filibuster-proof reconciliation process to get the TCJA to the president's desk. Since then, Republicans have fended off attempts to reverse the TCJA's rate reductions for individuals and businesses. It's hard to picture a Republican-controlled Congress in 2025 that doesn't pull out all the stops to extend, if not make permanent, most of the law's expiring provisions. 

The size of a potential GOP majority in the next Congress could determine the scope and length of any tax reductions in 2025. If Republicans gain control of the Senate it will likely be by only a seat or two, so ensuring even a 51 vote majority in reconciliation will largely require party unanimity with each Senator holding tremendous power. And Republicans may need a significant majority in the House to avoid having the most conservative factions of the party temper tax relief given their emphasis on deficit reduction. Further, former President Trump wants to do more on tax policy in a possible second term than just TCJA permanency. Following this lead, the 2024 GOP platform promises to "eliminate taxes on tips for millions of restaurant and hospitality workers." The president has also referenced a potential further reduction in the corporate rate from 21 percent to 20 percent.

The Republican platform also urges support for tax incentives that promote home ownership. This appears to align with support for the enhancements to the low-income housing credit included in the House-passed TCJA extender bill (H.R. 7024) still languishing the Senate. Other Trump tax proposals would expand 529 education savings accounts and "support unpaid family caregivers through tax credits," the platform states. Each of these would get serious attention under a GOP-controlled White House and Congress.

No matter who controls Congress, deficit concerns are expected to loom large over tax policy in 2025. Higher tariffs, a key component of Trump's trade agenda, could potentially serve as a significant revenue source to fund tax relief. Some tax increases may also be considered by Republicans. House Committee on Ways and Means Chairman Jason Smith (R-MO) has cited interest from GOP colleagues in raising the corporate tax rate. Retaliatory taxes directed at jurisdictions that impose a digital service tax could also be in play. Republicans may also look to rescind IRS funding and repeal green energy incentives enacted by the Inflation Reduction Act (IRA) as revenue offsets. Finally, the cap on the deduction for state and local taxes (SALT), which also raises revenue, is set to lapse next year and looks to remain a complicating factor for both parties.

Next week, we'll take a closer look at the potential impacts of a Democratic sweep in November. #TaxTake

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