The Trump administration is considering a series of potential tax proposals, both as a part of its election tax platform under the theme of “Tax Reform 2.0” and to quell a possible economic downturn.
White House Chief of Staff Mick Mulvaney recently indicated the administration’s priorities include cutting the corporate rate by 1% and making temporary provisions of the Tax Cuts and Jobs Act (TCJA) permanent. The latter encompasses all of the TCJA’s individual changes, such as cuts to the individual tax rate, the doubled standard deduction, the pass-through deduction under Section 199A and the $10,000 cap on the state and local tax deduction, all of which are set to expire at the end of 2025. However, it could even extend to short-term incentives for businesses such as the 100% bonus depreciation for qualified improvement property, which reverts to 50% for property acquired and placed into service after Dec. 31, 2022.
Mulvaney also stated that the administration is once again considering indexing capital gains for inflation. President Donald Trump has repeatedly sent mixed signals on the issue, but the proposal has enough support from Republicans in Congress that it is likely to remain on the table. The White House and Congressional Republicans are reportedly weighing a number of other ideas as they get set to unveil their Tax Reform 2.0 plan in the coming months.
The Tax Reform 2.0 proposals are unlikely to go very far with a Democratic House and are better viewed as the president’s tax platform for the upcoming election. However, there is the potential for bipartisan stimulus legislation in response to any economic slippage over the coming months. Republicans and Democrats have historically come together to take such action in response to recessions or economic stagnation, including a temporary payroll tax cut and 100% bonus depreciation under President Barack Obama.
The two parties would have to resolve different approaches first. While no formal proposals have been announced, President Trump weighed in on Twitter last week, urging Democrats in the House of Representatives to propose a one-year payroll tax cut. Treasury Secretary Steven Mnuchin was more guarded on such an initiative in a hearing before the House Ways and Means Committee, and Committee Chair Richard Neal (D-Mass.) was initially resistant. Neal said any stimulus should start with infrastructure.
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