Scaling the cliff: Tax policy implications of a Donald Trump presidency

Tax policy’s role in the campaign

Tax generally played a subordinate role during the election campaign, and when it did emerge as an issue, Trump and his Democratic challenger, Vice President Kamala Harris, presented their respective policy visions largely in broad strokes. One underlying component of the tax policy discussion was the future of the Tax Cuts and Jobs Act of 2017 (TCJA, P.L. 115-97), the signature legislation of the first Trump administration that moved through a Republican-controlled Congress under fast-track budget reconciliation protections. That law fundamentally changed the tax treatment of US-based multinationals, lowered corporate and personal tax rates, doubled the child tax credit, and broadened the tax base for both businesses and individuals.

The bulk of the TCJA’s corporate changes are permanent law; however, because of long-term fiscal constraints baked into the budget reconciliation process—namely, that legislation moved under the special parliamentary procedure cannot increase the deficit in the years beyond the budget resolution that includes the underlying reconciliation instructions—many of the provisions on the individual side of the tax code are temporary, with sunset dates at the end of 2025. Among the more notable provisions scheduled to lapse are the reduced income tax rates for individuals, increased exemption amounts for the individual alternative minimum tax and the estate and gift tax, the doubled child tax credit, the increased standard deduction, and the 20% deduction for permanent passthrough business income. Lawmakers also included revenue-raising provisions with delayed effective dates, some of which have since come into effect, as well as other changes that will raise further revenue from multinational corporations and are scheduled to take effect after the end of next year.

All of this sets up the prospect of a massive fiscal cliff for former—and future—President Trump and the incoming 119th Congress as they grapple with how to address the pending expiration of marquee TCJA provisions. The nonpartisan Congressional Budget Office (CBO) estimated in May that the 10-year cost of permanently extending all of these provisions, as Trump has proposed, will come in at $4.6 trillion (including additional debt service costs). That represents a $1.1 trillion increase from similar projections the agency issued in 2023. Adding to the magnitude of the challenge ahead for the White House and Congress is the scheduled expiration next year of some significant temporary non-TCJA tax benefits, such as the new markets tax credit, the lookthrough rules for controlled foreign corporations in section 954(c)(6), and the enhanced tax premium tax credit for certain individuals who purchase health insurance on one of the Affordable Care Act exchanges.

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As we contemplate the direction in which Trump proposes to take tax policy, it is important to note that tax legislation generally originates in Congress, not the White House, so any new tax laws enacted in his second administration will necessarily also carry the imprimatur of the legislative branch with its many competing interests and priorities. With that in mind, this report also considers how Trump’s tax policy ambitions—including the extent to which revenue raisers are used to offset the cost of any TCJA extensions and other proposed tax relief—are likely to be shaped by the make-up of the incoming 119th Congress