While top priorities for the incoming Trump administration include tax reform and deregulation, industry officials are also awaiting more changes related to retirement policy, including Secure 2.0 guidance, next year — namely as it relates to Rothification of catch-up contributions.
The GOP election sweep "will ease President-elect Donald Trump’s attempts at tax reform in 2025," but the process still won’t be easy, according to Jeff Bush of The Washington Update.
“There are a sizable number of fiscal conservative Republicans that must be satisfied with the net cost of any tax reform effort,” according to Bush.
Renewing the 2017 tax cuts, as Trump and Republicans have pledged to do, would cost $4.8 trillion, Bush said. Adding in the "sweeteners" Trump promised on the campaign trail — ending taxes on Social Security benefits, tips and overtime, plus removing the cap on the state and local tax deduction — would bring the cost to $8 trillion, according to Bush.
“That’s a huge pill to swallow,” he said.
Bush expects Republicans to lessen the sticker shock by relying on “dynamic scoring,” a method of cost calculation that accounts for assumptions about a bill's economic impact and other “offsets.” He encouraged advisors to get familiar with this concept.
“Democrats will tout the static cost of the bill ($4.8T and $8T). While the GOP will use the dynamic scoring number,” Bush said. “Something much lower than the above costs.”
Offsets might include “expected economic growth [and] clawed back unspent Inflation Reduction Act monies,” Bush said.
Most controversial, according to Bush, will be the use of tariff revenues to offset the cost of the bill.
“Technically, Congress should not use any presidentially applied tariff revenue to offset the tax bill’s cost,” Bush relayed. Lawmakers “should only count the revenues from Congressionally applied tariffs. Regardless, I’m confident the GOP Congress will included the president’s tariff revenue as an offset.”
Estate Tax
David Flores Wilson, managing partner at Sincerus Advisory in New York, adds that the “stakes are high” for clients in an estate tax situation, “since the lifetime gift and estate tax exemptions decrease from $13.99MM in 2025 to around $7MM in 2026” if the Tax Cuts and Jobs Act expires without new legislation.
“Many families have already used up the higher gift exemption in anticipation of the TCJA expiring,” Wilson said. “Others in an estate tax situation haven’t used their higher gift exemption, since they were waiting on the election results,” Wilson added.
“The odds of seeing an extension of the higher exemption amount are now more favorable given Washington’s red wave, but gaining clarity would have a positive effect on the planning process,” Wilson said.
Many wealthy investors, regardless of political affiliation, “are relieved that some of the Harris tax proposals affecting high net worth individuals are no longer on the table, such as a higher capital gains tax rate or a wealth-based tax,” Wilson said.
“Most of the anxiety about future tax policy” now centers around the expiration of the 2017 tax law.
“Without new legislation, current favorable tax brackets would reset to their less favorable pre-TCJA levels and the high standard deduction would also decrease,” Wilson relayed.
While the TCJA’s low 21% corporate rate “won’t revert to a higher level, the very popular pass-through business owner 20% Qualified Business Deduction (QBI) could disappear without legislation,” Wilson said.
Any tax reform bill will rely on the reconciliation process, Bush said.
Allowing the bill to pass with Republican-only votes “requires the Republicans to agree on the net cost of the bill to open the reconciliation process; before serious, tactical decisions are made, I anticipate a net number announcement early in the next Congressional term.”
