As we approach 2025, the topic of tax law changes is becoming increasingly relevant, especially with the significant updates expected due to inflation adjustments and other factors. The IRS has already announced new income tax brackets and standard deductions for the 2025 tax year, sparking discussions on the broader impacts of these changes.
The political landscape following the 2024 elections has also set the stage for potential legislative action. With Donald Trump re-elected and Republicans retaining control of Congress, the environment is ripe for addressing the expiring provisions of the Tax Cuts and Jobs Act (TCJA), which are set to sunset at the end of 2025.
Key Dates to Watch
– January 2025: The new Congress and President take office.
– December 31, 2025: Expiration of numerous TCJA provisions.
Given this timeline, lawmakers are likely to face pressure to act on tax legislation early in 2025 but other pressing matters like immigration may take priority on the legislative calendar. Historical trends suggest that significant tax legislation often takes time to develop and pass which usually pass later in the year. For instance, the TCJA was enacted in December 2017 after extensive negotiations that began earlier that year.
Estimated Probability Breakdown:
– High Probability (70%-80%): Extension or modification of key TCJA provisions.
– Moderate Probability (50%-60%): Introduction of new tax proposals (e.g., corporate tax rate adjustments).
– Low Probability (20%-30%): Comprehensive tax reform that significantly alters the current structure beyond the expiring provisions.
Possible Legislative Paths
There are several paths lawmakers might take to pass new tax laws in 2025:
1. Reconciliation Process: This is the most likely path for tax law in 2025. This approach could expedite legislation through a simple majority vote in the Senate, allowing for significant changes without needing bipartisan support but possibly limiting the scope of reforms due to budgetary constraints. This could happen early in 2025, but we would not expect this type of action to pass until mid- to late-2025.
2. Bipartisan Negotiations: This does not seem like a viable option based on the makeup of the Congress. However, if there is sufficient political will, a bipartisan approach could emerge, allowing for broader reforms that address both Republican and Democratic priorities. This would likely take longer but could yield more sustainable solutions.
3. Incremental Changes: Lawmakers might opt for piecemeal legislation focusing on specific provisions set to expire rather than comprehensive reform. This approach could facilitate quicker passage but may result in a less cohesive overall tax policy. We do not anticipate the Republicans to start with this approach. However, if Reconciliation efforts fail this would be a viable path to pass key provisions.
Conclusion
While there is a high likelihood of significant tax law changes occurring in 2025 due to the expiration of TCJA provisions and a favorable political environment for Republicans, the timeline for such changes may extend into late spring or summer before they are finalized. However, we do not anticipate any major law changes before the end of September.
The paths for passing these laws will depend on political dynamics and public sentiment as lawmakers navigate this critical juncture in U.S. tax policy.
We will continue to closely monitor the tax landscape and keep you fully apprised of its development. Please feel free to reach out if you have specific questions about current developments, our perspective or the impact on your specific situation.
