Congress is set to return for a short session this month before breaking on Sept. 28 for the election. As voters prepare to head to the polls, the key tax policy question is whether tax legislation will pass before the election. The likelihood that the House and Senate can reach an agreement before November is slim.
House Tax Bill
The House passed its tax bill earlier in July under the leadership of House Ways and Means Committee Chairman Jason Smith (R-Mo.). The bill was part of a broader package, the American Families and Jobs Act. Key provisions included extensions of certain tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA), tax incentives for small businesses and potential adjustments to the Child Tax Credit.Â
In the Senate, the House bill faced opposition and gridlock over key provisions, particularly regarding the Child Tax Credit and other retroactive measures. Disagreements among senators, including opposition to making some of the provisions retroactive or altering state and local tax deductions, were significant hurdles that prevented the bill from advancing in the Senate before recess.
The expanded Child Tax Credit has been a contentious issue, with Democrats generally favoring more robust support while Republicans have raised concerns about the cost. Similarly, changes to SALT deductions, which are particularly significant for taxpayers in high-tax states, have been a point of contention, with some Republicans pushing for higher deductions and others opposing them due to budget concerns.
Given these divisions, it’s now likely that any significant tax legislation will be postponed until after the election. Both parties are opting to wait and see who wins the presidency and which party will control the House and Senate before moving forward with tax reform this year. As a result, while some elements of the House-passed bill might be included in other legislative packages, the comprehensive tax bill itself is effectively dead for the time being. The next realistic opportunity for tax legislation could be during the lame-duck session or in the new Congress.
TCJA Expiring Soon
Several key provisions of the TCJA are set to expire at the end of 2025. These include reductions in individual income tax rates, an increase in the standard deduction and changes to the alternative minimum tax exemption thresholds. The expiration of these provisions would result in higher taxes for many individuals and businesses. Republicans say this adds urgency to the need for new tax legislation. Democrats focused on enacting their tax policy agenda are generally fine with allowing the TCJA provisions to expire.
Vice President Kamala Harris’s Tax Policy
The outcome of the presidential election will also significantly impact tax policy, as both candidates have proposed starkly different approaches. Democratic candidate Vice President Kamala Harris has advocated for reversing many of the TCJA’s tax cuts, particularly for high-income earners, while expanding tax credits for low- and middle-income families. Her proposals include raising the top marginal tax rate, increasing the corporate tax rate and expanding the Child Tax Credit.
Former President Donald Trump’s Plan
Former President Donald Trump has called for permanently extending the TCJA’s provisions and introducing further tax cuts he says will stimulate economic growth. His plan includes reducing the corporate tax rate, implementing new tax incentives for businesses and simplifying the Tax Code.
Future Uncertain
With changes coming on the Hill and in the White House, the future of U.S. tax policy remains uncertain. Its direction hinges largely on the outcome of the November election.
