2025 is expected to be a major year for tax legislation as Congress needs to address not only the expiring provisions of the Tax Cuts and Jobs Act (TCJA) but a host of other provisions that are also sunsetting next year. While anticipated legislation is commonly referred to as so-called "tax reform," this week we examine whether such legislation will in fact be "reform" or perhaps something less.

"Tax reform" is in the eye of the beholder, but at Tax Take we think of it as comprehensive legislation that impacts most (if not all) areas of the tax code. A true reform bill would likely have titles and subtitles dedicated to individuals, corporations, pass throughs, international tax, and other substantive areas and incorporate the extension (or permanency) of expiring provisions that are in keeping with the overarching policy goals of the reform. It would also include proposals from introduced bills and administration budget proposals aimed at not only extending current law but also at improving the tax code from an efficiency, effectiveness, and equity perspective.

Whether the existing and anticipated political and fiscal realities allow for a comprehensive tax reform effort is an open question that hinges on the following factors:

November Election Results. Recent comprehensive tax reform legislation has come about when one party controls of the White House and both houses of Congress and budget reconciliation (including the most important use of a narrow Senate majority vote) can be utilized. Without a sweep by one party in November, the prospects for tax reform are dim. Even with a sweep, Democrats or Republicans may need significant majorities in both chambers to ensure passage given the uncertainty associated with the most outspoken factions of their respective parties.

Revenue Offsets. In light of the current deficit, there will be significant pressure to fund any 2025 tax legislation with revenue offsets. Extending the TCJA's individual provisions alone would cost $3.3 trillion over 10 years, according to the Congressional Budget Office (CBO). Whether Congress can identify significant sources of revenue – through tax increases, spending cuts, or tariffs – will dictate whether comprehensive tax reform is a reality.

Congressional Time and Resources. Regardless of the November election results, the next Congress will have a host of immediate issues to address other than tax legislation, including government funding and the debt limit. Given these and other priorities, it is unclear whether Congress will be willing to dedicate its limited time and resources (including precious Senate floor time) to a comprehensive tax reform effort.

If the political and fiscal environments do not militate in favor of true tax reform, we may see more limited legislation focused on short-term extensions of expiring provisions and finding sufficient revenue to fund them. All the current talk of tax reform in 2025 may result in a less satisfying, although massive in size, tax extender bill. #TaxTake

In the News

Jorge commented in Law360 Tax Authority on the most consequential developments in federal tax policy from the first half of 2024 and the outlook for 2025. "I'm hearing from more and more chairs of the Ways and Means TCJA tax teams that as they're considering issues and options... for 2025, they're developing their own reading lists and meeting materials just to get educated."

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