Tax

Election Results and Control of Congress

On November 5, former President Donald J. Trump was elected to serve as the 47th President of the United States (the “U.S.”). As of today, it is now certain that Republicans will be in control of both the Senate and the U.S. House of Representatives. Unified control of Congress significantly enhances the prospects that many of President Trump’s tax proposals become law. Similar to the approach taken in respect of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) and, more recently, the Inflation Reduction Act of 2022 (the “IRA”), unified Republican control should enable the use of the “budget reconciliation” procedures that would allow for passage of new tax legislation relying solely on a simple majority of Republican votes. Although budget reconciliation provides fast-track procedures to avoid some procedural hurdles that might otherwise stall legislation, there are limits on when and how it can be used.

The upcoming fiscal year will be key from a tax policy perspective, with key TCJA individual provisions set to expire at the end of 2025 and several significant business tax provisions likewise set to change (or phase-out) over the coming years. Just about every business sector is expected to be impacted by how Congress and the new administration approach the looming TCJA expirations, which will vary significantly depending on which combination of President Trump’s tax policies are pursued and how exactly each policy is structured.

President Trump Campaign Tax Proposals

Although President Trump did not provide a formal tax plan as part of his 2024 campaign, he did discuss several tax policy ideas. Set out below are some preliminary observations regarding some of the tax policy proposals the next Trump administration may pursue.

• Reduced Corporate Tax Rate and Tariff Proposals. President Trump has discussed lowering the corporate tax rate from 21% to 20%. In addition, in the case of domestic manufacturing, President Trump has discussed lowering the effective corporate tax rate from 21% to 15%, which is expected to be achieved through the restoration of the prior domestic production activities deduction (“DPAD”) set at 28.5%. While offering a lower domestic effective corporate tax rate may boost M&A activity, President Trump’s aggressive tariff structure presents cross-border and supply chain risks. This dichotomy presents unique tax structuring and planning opportunities for multinational clients forced to weigh domestic production incentives against potentially higher input costs and market access challenges.
• Potential Repeal of the IRA. There have been tax recommendations from certain Republicans to include seeking a full repeal of both the corporate alternative minimum tax (“CAMT”) and the stock repurchase excise tax (the “Excise Tax”) and would also eliminate certain clean energy tax credits.  Although repeal of both CAMT and the Excise Tax would be a welcomed outcome for certain companies, such repeal would serve to further boost the potential deficit effects of President Trump’s policy proposals. Furthermore, we note that the IRA also provided supplemental funding to the Internal Revenue Service (“IRS”), which is being used to increase compliance and enforcement actions, update antiquated IRS computer systems, and improve IRS customer service. President Trump may try to clawback such funds, as the current Republican led House of Representatives proposed this type of clawback earlier this year.
• Carried Interest. Prior to the passage of the TCJA, President Trump stated that “[a]s part of [the TCJA], we will eliminate the carried interest deduction and other special interest loopholes….” While the TCJA revised the treatment of carried interest (extending the number of years an asset must be held before it is entitled to long-term capital gain treatment), it fell far short of eliminating it. Although President Trump has not made any recent statements on this point, its elimination remains an open question and could be viewed as an easy target to offset some of President Trump’s other tax policy proposals.
• Vance Proposals. Although President Trump has discussed lowering the effective corporate tax rate as described above, Vice President-elect J.D. Vance joined Democrats (as a member of the Senate) in supporting legislation which would eliminate beneficial tax treatment of mergers or reorganizations for corporations with revenue in excess of $500 million (S.4011 – the “Stop Subsidizing Giant Mergers Act”). It is unclear whether the President Trump administration would support any such bill, however, it is notable that such proposal previously received bipartisan support and, similar to carried interest, could be viewed as an easy target to offset some of President Trump’s other tax policy proposals. On the other hand, this could create some tension with President Trump’s expected rolling back of certain antitrust initiatives instituted under President Joe Biden.
• TCJA Extension (Businesses). President Trump has discussed making permanent, extending and/or modifying certain provisions of the TCJA impacting businesses.
  • Bonus Depreciation. The TCJA extended and enhanced the depreciation benefit afforded businesses by increasing the deduction from 50% to 100%, meaning that businesses could immediately expense the full cost of qualifying property. The 100% immediate expensing percentage, however, has been phased down in 20% increments starting in 2023 and will be phased out entirely by 2027. President Trump has discussed reversing the phase out and reinstating the 100% bonus depreciation benefit.
  • R&D Expensing. The TCJA amended Section 174¹ of the Internal of the Code of 1986, as amended by removing the option to immediately expense certain research and development (“R&D”) expenditures, instead requiring taxpayers to capitalize and amortize such R&D expenditures over a period of five years (attributable to domestic research) or 15 years (attributable to foreign research). President Trump has discussed eliminating the TCJA’s R&D amortization provisions and restore the ability for taxpayer’s to immediately expense such costs as existed under pre-TCJA law. This proposal is consistent with a bipartisan House bill introduced in 2024 that would likewise eliminate the R&D amortization requirement (H.R. 2673 – the “American Innovation and R&D Competitiveness Act”).
  • Business Interest Deduction. The TCJA modified Section 163(j) to disallow a deduction for net business interest expense in excess of 30% of taxpayer’s “adjusted taxable income.” Adjusted taxable income was generally a taxpayer’s earnings before interest, tax, depreciation and amortization (“EBITDA”) prior to January 1, 2022, but in the years since, is generally equal to a taxpayer’s earnings before interest and tax (“EBIT”); which, thereby, further reduces a taxpayer’s net business interest expense. President Trump has discussed having the business interest deduction once again be based on EBITDA, rather than EBIT.
• TCJA Extension (International) / Potential OECD Withdrawal. President Trump has discussed modifying certain international provisions (i.e., GILTI, FDII and BEAT) of the TCJA and potential withdrawing the U.S. from the Organization for Economic Co-operation and Development (“OECD”)/G20 tax framework.
  • GILTI. The TCJA imposed a tax on global intangible low tax income (“GILTI”) accrued within foreign affiliates in excess of 10% of the company’s tangible overseas capital investment (less depreciation). Currently, companies can claim a 50% deduction for GILTI, creating a 10.5% effective rate. After 2025, the GILTI deduction declines to 37.5%, resulting in the effective tax rate increasing to 13.125%. President Trump has discussed pushing for a reduction in the GILTI effective rate to 12.5% (down from 13.125% set to take effect after 2025).
  • FDII. The TCJA provides a deduction to domestic corporations on their foreign-derived intangible income (“FDII”). The deduction allowed is 37.5% of a domestic corporation’s FDII for any taxable year beginning after December 31, 2017 (resulting in a 13.125% effective tax rate), and 21.875% for any taxable year beginning after December 31, 2025 (resulting in a 16.406% effective tax rate).  President Trump has discussed pushing to change the FDII effective tax rate to 15% (down from 16.406% set to take effect after 2025).
  • BEAT. The base erosion anti-abuse tax (“BEAT”) is an additional tax that applies to large corporations that reduce their U.S. tax liabilities below a certain threshold by making deductible payments (e.g., interest and royalties) to related foreign entities. The BEAT rate generally is 5% for 2018, 10% for 2019-2025, and 12.5% after 2025. President Trump has discussed retaining the increased rate (12.5%) for BEAT set to take effect after 2025.
  • Potential Withdrawal from OECD Tax Framework. President Trump has discussed withdrawing the U.S. from the OECD tax framework (Pillar Two). Without U.S. participation, the OECD tax project is not likely to move forward. However, if other countries decide to move forward on Pillar Two without the U.S., this may increase tax competition overall and create a highly disjointed global tax landscape. While this decision, coupled with other President Trump tax proposals, could increase the U.S.’s attractiveness as an investment destination for multinational entities, it would necessitate increased tax planning and structuring to combat the heightened uncertainty and compliance costs for companies operating in the U.S. and potential OECD signatory countries.
• TCJA Extension (Individuals). President Trump has discussed making the individual TCJA provisions that are subject to expiration (e.g., rates and brackets, standard deductions, standard/personal exemptions, alternative minimum tax changes, child tax credit changes, and Section 199A pass-through deductions) permanent, with the exception that the $10,000 cap associated with the deductibility of state and local taxes would be eliminated. In addition to his TCJA proposals, President Trump has also called for new individual tax breaks, including exempting payments from the Social Security retirement program, tips and overtime income from federal taxation.

Next Steps?

Tax advisors, business leaders and individuals alike will need to evaluate the potential effect of the tax policies proposed by President Trump. In addition, companies will also have to grapple with the potential impacts associated with President Trump’s broad tariff proposals. The upcoming year will certainly be one to keep a close look at from a tax perspective.