As the nation settles into the reality of another Donald J. Trump presidency, many are already wondering which of his campaign promises will actually come to fruition.
While there’s no way to predict which of Trump’s proposed policies will become a reality, here are some of the potential changes to tax legislation, based on what he discussed in his campaign as well as his prior record in office.
Corporate Income Tax Reductions
Trump also campaigned on significantly reducing the corporate income tax, from 21% to 20% or even 15% for companies that manufacture their products in the U.S.
In his first term, he pushed to lower the corporate tax rate from 35% to 21% when the Republican tax overhaul, formally called the Tax Cuts and Jobs Act of 2017, was signed into law.
Individual Tax Reform
Trump proposes four reforms for individuals’ taxes:
1. Extending the Tax Cuts and Jobs Act of 2017
Some of the tax overhaul’s most significant provisions for individual taxpayers doubled the standard deduction and expanded the child tax credit. It’s important to know that only a few of the tax cuts are permanent, and most are set to expire at the end of 2025.
Unless Congress votes to extend them, both individuals and corporations could pay more taxes starting next year. Trump, however, campaigned on the idea of not only extending the provisions of the 2017 Republican tax overhaul but making them permanent.
2. No Taxes on Tips
Tips are considered taxable income and are subject to the same taxes as regular wages. Employees receiving tips report them to their employers, who include them in their gross incomes and withheld federal incomes, plus their Social Security and Medicare taxes.
Like Vice President Kamala Harris’s campaign proposal, Trump wants to stop this practice so that wage earners no longer have to pay taxes on tips.
3. Social Security Benefits
Trump expressed his sympathy on the campaign trail for seniors who’ve been “decimated on fixed incomes” due to inflation. For this reason, he wants to eliminate taxes on Social Security income.
4. Overtime Pay and Taxes
Overtime pay, or time-and-a-half, is compensation for hours worked beyond the standard 40-hour workweek. This pay is subject to federal and state income taxes, as well as Social Security and Medicare taxes.
In some cases, overtime pay can kick wage earners into a higher tax bracket, increase their marginal tax rate and potentially negate the gains from working overtime in the first place.
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Trump expressed the desire to stop this practice in order to “deliver gigantic tax cuts to working families.” The idea is that it might motivate people to work longer hours, which could benefit companies and their employees.
Miscellaneous Tax Reform Items
Trump also proposes the following four tax reforms:
1. Homeschooling Families
One provision in the 2017 tax cuts allowed families to use 529 college savings accounts for K-12 private school tuition. In keeping with his commitment to support school choice, which also includes homeschooling families, he’s pledged to remove taxes on up to $10,000 each year per child for all expenses related to homeschool education.
2. Expat Taxes
Much like residents within the country, expats living abroad must report their global income to the IRS each year. While these expats may be eligible for tax exemptions like the Foreign Earned Income Exclusion, which exempts a portion of their income from U.S. taxation, they are still bound to reporting requirements, such as the Foreign Bank Account Report (FBAR).
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Although tax treaties between the U.S. and other nations may offer relief from double taxation, it’s not always the case. Trump wants to end double taxation and potentially some reporting requirements for Americans living overseas.
3. Tax Incentives for First-Time Homebuyers
Though the details are unclear, the website outlining the 2024 Republican platform cites promoting “homeownership through tax incentives and support for first-time buyers, and cut unnecessary regulations that raise housing costs.”
Some policy analysts speculate these incentives might mirror the 2008 refundable tax credit that expired in 2010.
4. At-Home Care for the Elderly
Again, this proposal lacks particulars, but both the Republican platform online and the official website of Trump’s campaign echo the identical sentiment of aiming to “support unpaid family caregivers through tax credits and reduced red tape.”
Auto Loan Deductions
About a month before winning the election, Trump revealed he wanted to make the interest on car loans fully deductible as part of his planned tax cuts.
His speech at the Detroit Economic Club predicted that the tax incentive would “stimulate massive domestic auto production and make car ownership dramatically more affordably for millions and millions of working for American families.”
Increased Tariffs
“He has also proposed a significant increase in tariffs on the import of foreign goods, including a 10% blanket tariff on all imports and a 60% tariff on Chinese goods,” says Ben Johnston, chief operating office of Kapitus, a small business financing firm.
“In one interview, Trump even proposed a 100% tariff for countries that don’t want to use the dollar as their reserve currency,” he adds.
The Trump campaign website states the president did something similar during his first term when he “imposed tariffs on China that brought billions of dollars into the federal treasury.”
Critics of the policy say these costs will be directly passed onto consumers and increase the cost of many retail items, acting essentially like a sales tax.
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Johnston explains, “In the long run, higher tariffs may help protect the viability of certain U.S. manufacturers and could incentivize greater investment in U.S. manufacturing. ”
In the most intense iteration of this policy, Trump has expressed his desire to eliminate the income tax altogether and fund the federal budget entirely with tariffs. He affirmed his affinity for the idea on “The Joe Rogan Experience” podcast just a few weeks before he won the 2024 presidential election.
What Could These Changes Mean for Your Taxes?
The impact of Trump’s policy proposals on your taxes depends on many variables, including your personal financial circumstances and the state of the economy as a whole. Plus, we don’t yet know which of these proposals will actually gain congressional backing. They are simply ideas that still require congressional approval to be implemented.
“Under President Trump, we can anticipate an extension of the tax cuts from the Tax Cuts and Jobs Act of 2017, a reduction in the corporate tax rate, the implementation of import tariffs and continued deregulation in industries such as coal, manufacturing and energy,” predicts Ejindu Ume, associate professor of economics at Miami University’s Farmer School of Business in Oxford, Ohio.
Although the Trump campaign touts the benefits of these tax reforms for American taxpayers, Ume says the results could be mixed,
“Extending the expiring income tax provisions and lowering the corporate tax rate could widen the deficit, potentially leading to higher interest rates and inflation. While tariffs might contribute to inflation and potentially dampen economic growth, reducing regulation could foster growth in specific sectors,” he says.
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What a Second Trump Term Could Mean for Your Taxes originally appeared on usnews.com
