The 2024 Election’s Potential Impact on Tax Policy

U.S. election results (and their impacts on tax policy) are always important for business owners and the broader population. However, the 2024 election’s impact on tax policy and tax strategy, along with the sunsetting provisions of the Tax Cuts and Jobs Act (TCJA), could be even more significant.

Background on the TCJA and the Sunsetting Provisions

Many of the TCJA’s provisions will expire (sunset) after 2025. Some of the key provisions are:

• Reduced top income tax rate (from 39.6% to 37%)
• IRC 199A, which allows a 20% deduction on certain passthrough business income
• Limitations on the state and local tax deduction
• Increase of the lifetime federal estate and gift tax exemption

Like with many tax bills, legislators scheduled sunsetting of these provisions for budgetary purposes, hoping to address the changes in future legislation. Some of the other revenue raisers in the TCJA have already taken effect, including: 

• Required capitalization of research and experimental expenditures
• Phaseout of the 100% bonus depreciation
• Change in the definition of Adjusted Taxable Income for the interest expense deduction calculation

Potential Election Impact

Depending on the makeup of Congress and the Presidency in 2025, future tax policy could look significantly different. Scenarios with split party control would likely reduce the ability of either party to pass its desired tax policy.

While campaign rhetoric doesn’t determine likely tax policy, here are some common themes.

Harris/Democratic Victory

• Increase corporate tax rate to 28%
• Sunsetting of TCJA tax policies for those with incomes above $400,000 ($450,000 MFJ)
• Increase top tax rate on long-term capital gain from 20% to 28%
• Increase in net investment income tax from 3.8% to 5%
• Expansion of child tax credit from $2,000 to $6,000 for newborns, $3,600 for children under 6, and $3,000 for children 6-17
• Net worth tax on those with net worth of $100 million or more

Trump/Republican Victory

• No change in corporate tax rate of 21% (or reduction to 15% for companies that manufacture in the U.S.)
• Extend TCJA tax policies, including 
• Lowering of top income tax rates 
• The IRC 199A deduction
• Doubling of the estate tax exemption
• No change in capital gains rates
• No net worth tax

Both parties seek to change some of the existing revenue raisers in the TCJA, such as the required capitalization of research and experimental expenditures and the change in the definition of Adjusted Taxable Income for the interest expense deduction calculation. As a result, it is possible that broader tax reform reverses some of the TCJA revenue raisers that have already taken effect.

Conclusion

The outcome of the 2024 election will significantly impact the fate of the sunsetting items of the TCJA. Affected businesses and individuals should closely monitor the outcome of the election and consider the impact to their choice of entity or entity structure, estate planning, and overall tax planning strategy. If you need help or guidance on choosing the right path forward, contact our Tax Services team.