The House adopted on April 10, 2025, the budget resolution previously approved by the Senate on April 5 that would allow permanent extension of the expiring provisions in the Tax Cuts and Jobs Act (TCJA), as well as an additional $1.5 trillion for tax cuts to address President Trump’s campaign promises. The budget resolution uses a scoring tactic known as current policy baseline, under which it appears as though extending the TCJA’s provisions will not incur additional costs. The plan would allow for a $5 trillion increase to the debt ceiling, which will pave the way for government funding measures through the 2026 midterm elections.

This is a significant step forward because to enact the legislation through the party-line reconciliation process, both chambers need to adopt identical budget resolutions. The latest budget resolution adopted by the House sets the stage for President Trump’s call for “one big, beautiful bill.” Republicans in both chambers will begin writing and seeking support for a huge tax package as well as military spending, energy policy, border security investments, and more.

Previously, the Senate passed a more narrowly tailored budget resolution in February focusing on border security and defense. The House then passed a budget resolution that would have addressed taxes as part of a single process.

House Speaker Mike Johnson says he would like to deliver the tax legislation to President Trump’s desk by Memorial Day. However, the process could last longer as Republicans in both chambers work to craft legislation that conforms to the resolution and iron out remaining differences around the scope of proposed spending cuts. 

Overview

The tax proposals that will be included in the tax bill remain fluid and will be subject to change until enactment. On the campaign trail, President Trump’s tax proposals included:

• Making Permanent Expiring TCJA Provisions: Maintaining the top marginal individual income tax rate of 37%, which is set to rise to 39.6% upon expiration of the TCJA at the end of 2025; continuing the higher exemption amount for estate and gift tax; and extending the 20% deduction for certain sole proprietorships and pass-through entities;
• Reducing the Corporate Tax Rate: Lowering the corporate tax rate to 20% (from 21%) and 15% for companies that manufacture products in the U.S.;
• Restoring the First-Year Deduction for Research and Development Expenses: Giving U.S.-based manufacturers a first-year tax deduction for all research and development expenses, reversing a key limitation from the TCJA;
• Eliminating the $10,000 cap on the State and Local Income Tax (SALT) Deduction: Reinstating the SALT deduction before the $10,000 cap is set to expire at the end of 2025;
• Exempting Tips and Social Security: Making tips for restaurant and hospitality workers as well as Social Security benefits tax-free; and
• Allowing a Deduction for Interest Paid on Car Loans: Introducing a tax deduction for personal car loans for U.S.-manufactured vehicles.

Executive Orders

Upon commencing his term in office, President Trump issued Executive Orders aimed at putting his stamp on U.S. tax policy. President Trump issued an Executive Order directing all federal agencies, including the U.S. Department of the Treasury and Internal Revenue Service (IRS) to freeze all regulations pending review, to withdraw rules already sent for publication in the Federal Register, and to consider postponing for 60 days any published rules that have not yet taken effect. Proposed regulations subject to the freeze include those addressing the corporate treatment of employee remuneration in excess of $1 million, the Corporate Alternative Minimum Tax, and energy tax credits.

Another Executive Order requires federal agencies to immediately pause the disbursement of funds provided for under the Biden-era Inflation Reduction Act and Infrastructure Investment and Jobs Act.

Legislative Strategy

While the Republican Party controls both the House and Senate, the majorities in each chamber are slim, requiring near unanimity to move forward. A critical aspect is negotiating a maximum budget deficit increase that lawmakers are willing to tolerate to extend TCJA provisions and advance other priorities. The debate within the Republican Party weighs tax cuts against deficit concerns. Tax cuts may spur economic growth that leads to some additional tax revenue but will not cover the bulk of tax revenues lost from tax cuts. Republicans are also debating spending cuts to address the deficit and debt.

Because the Republican Party controls both the House and Senate, they are pursuing enacting tax legislation through the budget reconciliation process. Available only for fiscal matters, the budget reconciliation process allows legislation to be passed with a simple majority in both chambers, whereas 60 Senate votes are needed under the regular legislative process. The budget reconciliation process also prevents the opposing party from implementing delay tactics by prohibiting filibusters and setting a time limit on debates and amendments.

Expiring TCJA Provisions

The TCJA was hailed by the first Trump administration and the Republican Party as a major achievement and remains a cornerstone of President Trump’s tax proposals in his second term. Even though the Democratic Party unanimously opposed the measure back in 2017, Democrats have supported extending the individual tax rates for those with income under $400,000, as well as research expensing and other business extenders. However, as with the budget votes, it seems inevitable that all Democrats will vote against this tax package.

The TCJA fiscal cliff is approaching at the end of 2025 when temporary provisions such as the individual income tax rates will revert to pre-TCJA levels (the maximum rate of 39.6% from 37%) absent legislation. The Congressional Budget Office estimates that extending the temporary individual income tax rate cuts without budgetary offsets would increase deficits by almost $5 trillion from 2025 to 2034. Possible solutions include opting for shorter-term extensions, cherry-picking or adjusting specific items, or including other revenue raisers.

Potential Revenue Raisers

It is not clear yet whether revenue raisers outside of the TCJA will be proposed as part of the legislation. Revenue raisers may make the process more difficult politically, and it is not clear that they are needed given the budget resolution that just passed the Senate.

President Trump recently mentioned two ideas to help close the gap between the mounting national debt and the multi-trillion-dollar cost of extending the TCJA provisions – ending the current tax treatment of carried interest as well as tax provisions that some say unduly benefit sports team owners.

The income tax aspects of carried interests have been controversial for a long time. Holders of carried interests argue that the profit from a carried interest is capital in nature and should be taxed as such. Counterarguments suggest that the capital interest is the same as compensation and should be taxed as ordinary income. There have been both past presidential campaign promises and legislative proposals to “do away with the carried interest loophole.”

It is unclear which tax breaks President Trump was referring to regarding sports team owners. For example, many sports facilities are financed using tax-exempt bonds. Additionally, given the high price of sports teams, there is often significant intangible amortization, which may create tax amortization deductions, generating tax losses at the owner level. In January 2024, IRS launched an enforcement campaign focusing on identifying partnerships within the sports industry that report significant tax losses and determine if these reported losses are in compliance with all applicable Internal Revenue Code rules.

These items will not raise enough revenue to make a dent. President Trump has not publicly announced support for other specific revenue raisers. Some being discussed that have the potential for raising substantial revenue include terminating some or all the energy credits in the Inflation Reduction Act, eliminating state income tax deductions for businesses, allowing the TCJA rates to expire for the highest income bracket taxpayers, or dialing specific items back to fit the revenue needs.

Important Business Tax Provisions

The fate of other TCJA provisions that limit important deductions is being closely watched by business taxpayers. These include:

• The requirement to capitalize and amortize Sec. 174 research and experimentation (R&E) expenditures for five years for domestic research and 15 years for foreign research. This provision took effect for tax years beginning on or after January 1, 2022. It is an open question as to whether future legislation would apply the capitalization requirement to foreign research;
• The requirement to exclude depreciation and amortization from adjusted taxable income for the business interest expense limitation under Sec. 163(j) for tax years beginning on or after 2021 (see this article); and
• The phase down of 100% bonus depreciation which is at 40% for the 2025 tax year.

While removing these limitations appears to have bipartisan support, a key question is whether the items would be reinstated retroactively or applied on a prospective basis.

Summary of President Trump’s Tax Proposals

Below is a summary of the key tax law changes proposed by President Trump.

The Takeaway

President Trump’s second term has kicked off with a flurry of activity. The overall parameters for budget reconciliation, including tax changes, are coming into sharper focus now that the House and Senate have adopted a unified budget resolution. The significant cost of extending the TCJA’s tax breaks during a time of mounting debt and the slim majorities by which the Republican Party controls the House and Senate will make the reconciliation process very challenging; however, things are moving ahead at a rapid pace compared to earlier expectations. The tax changes on the table are sweeping in nature, and it is never too early to prepare for these changes, which may come very soon. Andersen can help you analyze your tax positions and consider options for mitigating the risk of increased tax exposure as a result of major policy changes.