2024 Elections: Outlook on Tax Legislation with Republicans in Control

In the 2024 presidential election, former President and now President-Elect Donald Trump secured 312 electoral votes, winning the race to the White House. Republicans, further, were able to flip four seats in the Senate, with a final breakdown of 53 Republicans and 47 Democrats (including two Independents that caucus with the Democrats) for next year. In addition, Republicans retained control of the House by a 219-213 margin with 218 needed for a majority (there are also three races that have not been called yet).

The Republicans were able to gain control of all three groups of the tax legislative process. Possessing this control will have a significant impact on what tax changes are proposed and how tax bills move through Congress.

Budget Reconciliation: Republican Control of Congress

When a party controls both Congress and the White House, the party often uses what is referred to as “budget reconciliation” to pass tax legislation. Use of reconciliation is a special rule in Congress to enact certain legislation. It allows a bill to pass with only a simple majority in both the House and Senate. Meaning, the use of a filibuster (which requires 60% or 60 votes) is not an option for the Senate to stop a reconciliation bill.

Reconciliation is a political power play – one party controls the entire process with a bill, and the other party cannot stop it. While there are many detailed rules that must be followed to pass a bill under this approach, the party with majority control usually crafts the reconciliation bill in such a way that it will obtain all the necessary votes within its party to push through the bill.

Look for the Republicans to use reconciliation to pass its tax bill next year. Top Republicans in Congress have already indicated their intention to use the reconciliation route for a tax bill. A key part of the reconciliation process is for House and Senate Budget Committees and top leaders to adopt a budget resolution that provides the amount of the tax cut during the budget period and the reconciliation instructions. They must decide if the tax cut will be large enough to cover all the items on their tax wish list or be a more modest amount due to concerns over the federal debt. The tax writing committees, House Ways & Means and Senate Finance, then draft a tax bill that fits within these parameters.

Outlook for Tax Provisions in 2025 Tax Bill

While still early in the process, we wanted to cover the provisions that might make up next year’s tax bill. These can be broken down into two categories.

First is the Tax Cuts and Jobs Act (TCJA). We have addressed the 2025 sunsetting of the TCJA in other articles (read up here, here and here), as this will be a major task facing Congress next year. Look for Republicans to extend the individual income tax cuts enacted under the TCJA. However, it is uncertain how many years the tax cuts will be extended for. It is also unclear now if an extension would address the following:

• Will the $10,000 SALT cap be removed or increased? It is unlikely it will remain at $10,000 after 2025. It is also unclear when the SALT cap change would be effective and how long it would last.
• Will the $2,000 child tax credit be increased, as discussed during the campaign this year? If so, to what amount, and when will the change first apply?
• It is likely a tax bill will focus on and adopt these key business provisions: research expenditures, interest deduction limits and bonus depreciation. However, what will the specific changes be and when will they be effective? This could impact businesses in 2025 and possibly 2024.  

Second are the tax proposals unveiled during the 2024 campaign that are likely to be part of next year’s tax bill:

• No tax on tips. The details and effective dates of this are uncertain.
• No tax on overtime. The details and effective dates of this are also uncertain.
• No tax on Social Security benefits. According to reconciliation rules, it is unlikely this item could be part of a tax bill using reconciliation. Therefore, if no tax on social security benefits is to move forward, it may need to be part of a separate bipartisan bill.
• Corporate tax rate cut to 15% for products made in the U.S. Uncertain of the details and effective dates of this provision.
• Tax deduction for interest on auto loan for vehicles made in the U.S. No specifics yet on this item.
• Tax deduction for home generators. No specifics yet on this item, as well.
• Tax credit for family caregivers. No details yet.
• IRS funding for enhanced tax audits could be curtailed.
• Scaling back energy incentives from the Inflation Reduction Act of 2022.
• “Pillar 1” and “Pillar 2” of foreign tax policy that are being negotiated now with other countries might be in doubt.

One area that often surfaces with a tax bill is whether there will be any “offsets,” or tax increases, to help pay for the tax cuts in the bill. It has been suggested that some of the tariffs floated by the new administration could be considered an offset, although it is unclear how the reconciliation rules will view tariffs. Other possible offsets might be (as noted above) cutting back on energy incentives from the recent Inflation Reduction Act legislation.

Once the House and Senate leaders set their mark for the net tax cuts in their budget resolution, the reconciliation process moves forward, and the tax writing committees must determine what of the above tax changes they can afford to include in the tax bill.

Timing for the Tax Bill

Generally, reconciliation tax bills take time to garner consensus among the key players in Congress, and this pushes the bill to the latter half of the year. For next year, this timing could differ. House Majority Leader Steve Scalise indicated soon after the election results came in that the Republicans may try to move the tax bill using reconciliation and do this in the first 100 days of the new administration. This is an ambitious goal with all the tax items laid out above, but they would like to push the tax bill sooner in the year than let it fall too close to the TCJA sunset at the end of 2025.

There is also discussion that a second tax bill might be pushed next year that would be bipartisan and not follow the reconciliation route noted above. Congressional leaders from both sides would need to agree on the items and terms of such a bill. 

We will continue to keep you posted as the tax bill moves ahead. Please contact your Sikich advisor if you have any questions.

About Our Authors

Jim Brandenburg, CPA, MST, possesses extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions, and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies. You can contact him at jim.brandenburg@sikich.com.

Tom Bayer, CPA, CExP, has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He has deep experience providing a range of accounting, tax, and business advisory services to commercial clients across industries. You can contact him at tom.bayer@sikich.com.

Jenny Kramer supports closely-held businesses and their owners with their tax planning and compliance needs. She takes the time to understand her clients’ overall business strategies so that she can provide a clear understanding of the tax implications of their goals and develop tax planning opportunities that will coincide with and enhance their objectives. You can contact her at jenny.kramer@sikich.com.

Daniel Lutz, CPA, MPA, has experience advising private companies and high net worth families on tax strategies and helping them to make sound financial decisions. Dan provides tax compliance, planning, consulting, and related wealth management services to support individuals, closely held businesses, and tax-exempt organizations. He also has expertise in trust and gift taxation. You can contact him at dan.lutz@sikich.com.