How Trump will Shape the Tax Regime of USA

President Elect Donald Trump made some forty pledges during his campaign trails when he swept through battleground states, to win the presidency and the most appealing and important to voters seemed to be the abolition of income taxes and reduction of estate duties. He did not unveil the details of his policy and kept everyone wondering how he would do it and how he would make up for the loss in revenues.

American citizens pay something like $5.29 billion in taxes and if taxes were abolished, he would lose $5.29 billion in revenues but, Trump said he would make it up through increased tariffs on imported goods and his “drill baby drill” for oil some of which he would export and most of which would be consumed locally reducing oil imports costs substantially.

Sounds good on paper. But economists have a different take. The 2024 election focused on the economy; taxes were overlooked. The fate of the Tax Cuts and Jobs Act in 2025 remains uncertain, tax experts say.

Although coverage of the 2024 election was dominated by the economy, taxes did not get much attention in the run-up to the vote. That is a bit of a surprise, since 2025 will be a major year for America’s tax system – in fact, the fate of the most significant tax reform in three decades hangs in the balance.

That would be the Tax Cuts and Jobs Act, which Congress passed during President-elect Donald Trump’s first term in office in 2017. If lawmakers do not take action, the whole package is set to expire at the end of next year. Western Governors University School of Business tax expert Jim Franklin explains what might be in store for the act, and for taxpayers.
What do the election results mean for Republicans’ ability to advance their tax agenda?

With Donald Trump as president in 2025, and the Republican Party enjoying the Trifecta, they have the senate, the house and to top it all the presidency on their side, the clean sweep, no republican has achieved in the last three decades. This enables Republicans to pass key policies with a simple majority. The Republican majority is narrow, so it will be interesting to see how the leaders unify their constituent groups.

Here is the thing: In the senate Republicans are ahead by fifty-six seats to forty-four seats, just eight votes ahead. In the House Republicans have just got 218, the threshold for governance, to democrats 203. The thin majority is too close for comfort, especially when it comes to tax legislations, when there is dissent among, the GOP, and if members flip, the bills get stalled.
Republicans have traditionally supported lower tax rates for businesses and individuals, as well as tax incentives to help boost economic activity.
What is next for the Tax Cuts and Jobs Act?

Currently, the act is set to expire at the end of 2025, but Trump and Republicans Favor renewing many of its provisions. The nonpartisan Congressional Budget Office in May 2024 estimated that extending the act would cost the government US$4.6 trillion, and there is a split within the party, with one bloc of congressional Republicans calling for a full extension and another asking for the balancing of tax policy and annual federal deficits. Republicans are likely to fight to keep key components in place, including the higher standard deduction, reduced corporate tax rates, individual rate cuts and an increased estate tax exemption. There is even talk of lowering the corporate tax rate further, possibly to 15% for domestic production, which would be a significant move.
What other tax measures are Republicans considering?
Trump mentioned a variety of tax relief ideas on the campaign trail, including exempting tips, Social Security benefits and overtime pay from income taxes, and creating an itemized deduction for auto loan interest. However, Republicans are not entirely unified on tax policy. Some deficit hawks are concerned about revenue losses, so there could be internal pushback on all these points. The real question is whether there will be enough opposition within the party to alter or block certain proposals.
S A L T
But one can expect many parts of the act to be renewed, and we may see some additions. For example, there has been a lot of pressure around increasing the state and local tax deduction cap, also known as SALT, which has bipartisan support in states with higher state income taxes like New York, California, and Illinois. It will be interesting to see if that gains any traction. There is a lot of pressure among representatives, both Republicans and Democrats, to gain some relief in that area.
How will they find revenue to make up the loss from tax cuts?
Million-dollar question. Economists indicate that Republicans are likely to look at cutting green energy subsidies from the 2022 Inflation Reduction Act. These could be eliminated to help balance out the cost of their new tax proposals. There are subsidies equivalent to about $750 billion which Biden had allocated to promote EVs and green technologies in the oil and power sector, the biggest polluters of the atmosphere.
Another area to watch is tariffs. Trump has vowed to slap 60% tariffs on Chinese imports and 10 to 20% tariffs from other countries in EU and South Asia including India. Even imposing a universal tariff on all U.S. imports at a 20% rate. It will be interesting to see how this plays out. Will it be more targeted? For example, will there be continued tariffs on select imports such as automotive imports from China to protect the U.S. electric vehicle market?
What will you be watching between now and Tax Day?
One factor will be Trump’s cabinet appointments. Whoever he nominates for Treasury secretary, for instance, could have a considerable influence. They can help shape what the tax bill looks like. Another key factor will be who ends up on the congressional tax committees. The composition of key committees will affect the direction of policy and the specific details.
What do you think will happen with tariffs?
Tariffs are unpredictable: They could be applied broadly, or more selectively. It could be like the way that Trump and his first administration placed some tariffs on steel, aluminium, and solar panels. Interestingly, many of the tariffs were retained by the Biden administration.
Blanket tariffs could slow down the economy, so there is always a risk. Tariffs impact inflation because they affect the cost of imported goods, which would likely reduce consumers’ purchasing power. Domestic political pressure will play a role, as higher tariffs could raise prices on many goods that are imported, including essential products like medications.
Any advice for people struggling to keep up with the latest tax news?

Economists often take every policy suggestion on the campaign trail literally — exempting tips, Social Security benefits, overtime pay, etc. — as if all these proposals will pass exactly as stated. But the details matter, and policies are rarely implemented without adjustments. So, it is wise to read beyond the headlines.
Source: Specialist publications in the USA