Riding the 2025 Tax Legislation Roller Coaster

The Republican sweep of the November election creates an extraordinary opportunity for a wide range of tax legislation in 2025. The primary focus will be the extension of key provisions from the Tax Cuts and Jobs Act of 2017, particularly the lower tax rates for individuals. Tax cuts proposed during the campaign will also be considered, as will new initiatives that support an America First approach to manufacturing and trade.

Finding a way to include all of these opportunities will not be easy. The Republican majorities in both the House and the Senate are slim and could al- low a few members to impede the process at any time. Some members may resist allowing legislation to move forward if their specific concerns are not included, while the increasing size of the federal deficit may lead others to insist that new tax cuts not be considered until government spending in other areas has been reduced. A roller coaster ride with peaks, valleys, and plenty of sharp turns can be expected as Congress struggles to complete its work during 2025.

While riding this roller coaster, it is important to remember that the first priority will continue to be the extension of the tax rates for individuals. If the pre-TCJA rates and brackets were to return, all single individuals with taxable income above $12,250 (married couples above $24,500) would face a tax increase. Although much attention has been given to the increase in the top marginal rate from 37% to 39.6%, the percentage increase in tax liability is much greater at lower income thresholds. Neither party
will be willing to take the blame for such an increase across the board.

The prospects for other issues are less clear. Significant efforts will be made to increase the deductibility of state and local taxes, extend the passthrough deduction for partnerships and S corporations, limit the alternative minimum tax, and advance other priorities. How these issues are decided may depend on how much reduced federal spending can be found in other nontax areas. ABI