Extending the favorable tax provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 was a centerpiece of President Trump's campaign platform. However, following through on this promise will require weighing the continuation of the tax cuts, many of which are set to expire at the end of 2025, against concerns about the rising national deficit. To help achieve this balance, President Trump recently said he supported ending the current treatment of carried interest as well as favorable tax provisions for sports team owners. Meanwhile, the House Budget Committee advanced a budget resolution that would provide instructions for tax changes, while the Senate Budget Committee has their own resolution that would push consideration of tax changes until later in the year.

The proposed tax changes 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 Tax Cuts and Jobs Act (TCJA) Provisions: Maintaining the top marginal individual income tax rate of 37%, which is set to rise to 39.6% upon expiration of 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 TCJA;
• Eliminating the $10,000 cap on the State and Local Income Tax (SALT) Deduction: Reinstating the full 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.

Early Moves

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. Treasury Department and Internal Revenue Service 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 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, divisions have already emerged over the strategy for enacting President Trump's tax proposals. A critical aspect is negotiating a maximum budget deficit increase that lawmakers are willing to tolerate to extend TCJA items and advance other priorities. The debate within the Republican Party weighs tax cuts against deficit concerns. Tax cuts may spur economic growth which leads to some additional tax revenue, but will not cover the bulk of tax revenues lost from tax cuts.

Because the Republican Party controls both the House and Senate, they can pursue enacting the 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.

Work is underway in both the House and Senate to set the budgetary parameters for enacting President Trump's policy priorities with each chamber taking its own approach. House Speaker Mike Johnson plans to include all of President Trump's legislative priorities in one single legislative package that can be brought up for House vote in April, with potential enactment in May. The items in the bill would include tax cuts, energy policy, and border security. Senate Majority Leader John Thune favors a two-step approach that would prioritize border security and delay the tax provisions for a second reconciliation package later in the year. Both the House and Senate budget committees approved budget resolutions last week which will move to the full chamber for consideration.

The House Budget Committee's resolution called for a $4.5 trillion deficit increase for tax policy and $1.5 trillion in spending cuts. The budget resolution comes with a trigger that the House package include $2 trillion in cuts to so-called mandatory federal spending, such as Medicare and Medicaid. If this threshold is not reached, the $4.5 trillion allocated for tax policy must be reduced by a commensurate amount. Thus, if only $1.5 trillion of spending cuts are achieved, the deficit increase for tax policy is reduced to $4 trillion. A $4.5 trillion deficit increase is not sufficient to accommodate TCJA extensions and President Trump's other priorities, which in total are estimated at $5.5 trillion. Thus, if this resolution moves forward, it will be necessary for Republicans to pass on some items or to raise offsetting tax revenue.

The Senate Budget Committee's budget resolution is aimed at funding President Trump's other priorities – border security, defense, and energy. Senate Majority Leader John Thune and some Senate Republicans have said they favor a two-step approach that would prioritize border security and delay the tax provisions for a second reconciliation package later in the year.

It remains to be seen which approach will prevail. The Senate is in session this week and may begin its process. The House will be back in session the week of February 24 and may take up the House Budget Committee approved plan then. Approval in the full House would be a significant step forward for plans to move tax policy forward sooner rather than later.

Expiring TCJA Provisions

The TCJA was hailed by the Trump administration and the Republican Party as a major achievement and remains a cornerstone of PresidentTrump's tax proposals. Even though the Democratic Party unanimously opposed the measure, Democrats have supported extending the individual tax rates for those with income under $400,000, as well as research expensing and other business extenders.

A potential obstacle to extending the TCJA provisions is the so-called TCJA fiscal cliff 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%). 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 items, or including other revenue raisers.

Carried Interest and Sports Team Owners

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 taxed as ordinary income. There have been both past presidentialcampaign promises and legislative proposals to “do away with the carried interest loophole.”

It is unclear which tax breaks President Trump was referring to in regard to 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.

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 2025tax 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 Positions

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

The Takeaway

President Trump's term has kicked off with a flurry of activity. The tax proposals shaping the debate are coming into sharper focus. The Republican Party has the upper hand in crafting the proposals and enacting them. However, potential obstacles remain. These include the significant cost of extending TCJA's tax breaks during a time of mounting debt and the slim majorities by which the Republican Party controls the House and Senate. The tax changes on the table are sweeping in nature and it is never too early to prepare. 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.