Congress’s Nightmare Before TCJA Expiration

By: Andy Harig, Vice President, Tax, Trade, Sustainability & Policy Development, FMI, and Erin McCarthy, Manager, Government Relations & Regulatory Affairs, FMI

There is an old proverb attributed to a tradesman of the Near East city of Lagash that seems particularly appropriate for this season: “You can have a Lord, and you can have a King, but the man to fear is the tax collector.”

As neighborhoods across America set out their jack-o-lanterns and don their scariest costumes, Congress is preparing for another spooky date that will give us even more reason to fear the tax man: December 31, 2025, when the majority of provisions from the Trump-era Tax Cuts and Jobs Act (TCJA) expire. Among expiring provisions are the Section 199A pass-through deduction, the current estate tax basic exclusion amount, and the individual tax rates, which will revert from their current peak of 37% back to 39.6%. International tax provisions, such as the current rates for GILTI, FDII, and BEAT, are also set to expire.

Edgar Allan Poe once warned us to believe nothing you hear and half of what you see. Since the TCJA expirations focus heavily on the individual side of the tax code, C corporations might think that the frights accompanying tax reform will not impact them. Do not be tricked (or treated) into thinking that the provisions from the Tax Cuts and Jobs Act will be the only candy in the basket for 2025.

On the contrary, both presidential campaigns have drawn up their plans for tax reform, and both include changes to the tax code not related to the TCJA expiration. Vice President Harris’s plan includes an increase to the corporate tax rate (currently permanent under the TCJA) from 21% to 28%, while former President Trump has vowed to decrease the corporate rate to 15%. They have both floated competing visions for an end to federal income taxes on tips. Adding to the complexity of working through these presidential priorities, Congress will soon be filled with representatives from both parties who were not around to vote for the TCJA in 2017 and will bring their own ideas on tax reform to the table.

No matter who controls Congress and the White House after November 5th, they will have to figure out how to put their campaign tax promises into real legislative action. Among the ghosts that will haunt our new leadership will be the looming debt ceiling suspension that expires January 1, 2025, the daunting task of managing the growing federal deficit, and the likely need to pass tax reform on a bipartisan basis (depending on the outcome of the election).

We don’t blame you if all this uncertainty sounds hair-raising from a business perspective. But in the words of the seasonally appropriate writer Clive Barker, “No tears please; it is a waste of good suffering!” There are steps you can take to prepare you and your company for what is likely to be an intense year of tax negotiations. The most important first step is modeling the impact of potential tax changes on your business prior to next year’s “Tax Superbowl” and working with FMI to strengthen the impact of your advocacy on policymakers.

FMI has already begun working on behalf of our members. We hosted a preliminary tax policy workshop over the summer to outline the political landscape of potential tax changes and what businesses should be prepared for (you can find a topline summary from the session here).

Like all good scary stories, tax reform comes with an important moral: Stay tuned for more tax talk because, just like on Halloween, you never know what is creeping around the corner.