2024 elections and tax policy

The 2024 election season is heating up, and the stakes for federal tax policy couldn’t be higher. Among other things, the next Congress and president will be deciding how expiring provisions under the Tax Cuts and Jobs Act of 2017 (TCJA) will be dealt with, how the U.S. will respond to global tax developments such as the Organization for Economic Cooperation and Development’s (OECD) Pillar 1 and Pillar 2, and future funding for the IRS. When and how these decisions are made is dependent on which political party wins control of the White House and each chamber of Congress, and whether one party controls both branches of government. Understanding what’s at stake will be key to preparing for the tax changes ahead.

Background

The fate of the TCJA’s expiring provisions is likely the biggest tax policy issue that will be affected by the outcome of the 2024 election. The TCJA made significant changes to the IRC for businesses and individuals. While most of the temporary provisions reduced taxes for individuals, some, like the $10,000 cap on the deduction for state and local taxes, increased tax.

Ahead of 2026, lawmakers already are staking out positions about which TCJA provisions should be extended and which should expire. Developing consensus will be difficult even within political parties. This task is complicated by divisive issues that are likely to be pulled into the negotiations, such as TCJA international tax provisions (global intangible low-taxed income [GILTI], foreign-derived intangible income [FDII], and the base erosion and anti-abuse tax [BEAT]), how the U.S. will respond to implementation of Pillar 1 and Pillar 2, and clean energy tax benefits enacted by the Inflation Reduction Act of 2022 (IRA).

TCJA expiring provisions

When enacted, the TCJA cost $1.5 trillion over 10 years. It is estimated that extending all expiring TCJA provisions will cost much more, $4.6 trillion over 10 years.

While the price tag of extending all expiring provisions is high, simply letting the provisions expire would result in significant tax increases for individuals across the board.

Following are some of the changes that can be expected for individual taxpayers if the temporary TCJA provisions are allowed to expire at the end of 2025:

• Marginal tax rates will revert to the higher pre-TCJA rates.
• The standard deduction will revert to the lower pre-TCJA amounts, adjusted for inflation.
• The personal exemption will be reinstated to its pre-TCJA amount, adjusted for inflation.
• The child tax credit and the threshold for eligibility will revert to lower pre-TCJA levels.
• Rules for itemized deductions generally will revert to pre-TCJA rules, including elimination of the $10,000 cap on the deduction for state and local taxes.
• The individual alternative minimum tax exemption and phase-out will revert to the lower pre-TCJA levels, adjusted for inflation.
• The estate and gift tax exemption will revert to the lower pre-TCJA amount, adjusted for inflation.
• The Section 199A pass-through deduction will expire.

Other provisions in the mix

Competing priorities likely will be part of the overall negotiations on TCJA extenders. In addition, some lawmakers will use the opportunity of major tax legislation to obtain concessions on topics unrelated to the TCJA extenders.

Crowe observation

Some lawmakers will want to extend all or a part of the expiring provisions without offsetting the cost, while others will insist on offsets. Even for those who believe there should be offsets, agreeing on specific offsets will come with its own set of challenges.

Business groups continue to press Senate leadership to bring to a vote the House-passed tax bill that would provide, among other things, relief from amortization and capitalization of research and experimental (R&E) costs under IRC Section 174. Although Senate action currently seems unlikely, enactment of the bill would further complicate post-election tax negotiations.

Some of the likely topics that could be part of the TCJA extenders negotiations include the following:

• Increases in the tax rates applicable to GILTI, FDII, and BEAT, which are scheduled to go into effect after 2025, and how they fit into the overall global tax landscape
• The limitation on business losses for noncorporate taxpayers under Section 461(l), which is scheduled to expire at the end of 2028
• Repeal of capitalization and amortization of R&E costs under IRC Section 174
• The limit on the business interest deduction under IRC Section 163(j)
• Bonus depreciation, which is scheduled to expire at the end of 2026
• Non-TCJA expiring provisions such as the new markets tax credit and the exclusion for certain discharges of student loans
• Clean energy provisions, the stock buyback excise tax, the corporate minimum tax, and IRS funding enacted by the IRA

Looking ahead

The outcome of the November election will have an enormous impact on tax policy. A divided government likely will make it difficult to achieve consensus on what to do about expiring TCJA provisions. Legislating on tax policy will be further complicated by other priorities, such as government appropriations, immigration, and foreign policy. To be ready for what’s ahead, taxpayers should continue to monitor these legislative developments and consider modeling the impact of various scenarios to anticipate future consequences.