The early Presidential debates for the 2024 election cycle have begun, and one topic that's expected to take center stage is the future of the U.S. tax code. Tax policy questions loom large, and the 46th person to serve as United States President – remember, Grover Cleveland was elected twice, non-consecutively – will have to grapple with some major tax issues.
Foremost among these are the expiring individual and business tax regulations brought about by the Tax Cuts and Jobs Act (TCJA) and the growing deficits and national debt.
Tax Cuts and Jobs Act Details
The tax code changes brought about the TCJA are scheduled to sunset at the end of 2025, leading to potentially major changes for taxpayers. Kiplinger notes that now is the time to begin planning to mitigate the financial impact of these expiring provisions – talk to your tax professional for planning strategies that might help you keep more of your hard-earned money.
It is also imperative for all of the 2024 Presidential candidates to address how they intend to prevent these expirations from negatively affecting Americans in all demographics and at all income levels. TCJA questions surrounding all of the following topics are likely to play a key role in debates moving forward.
Individual Tax Expirations
The TCJA, which was signed into law in December 2017, introduced temporary changes that significantly alter the taxes paid by individual income earners. This means that the majority of Americans have enjoyed increased after-tax income for the last several years. Some notable provisions that are set to expire include:
Lower Tax Rates and Brackets
Before the TCJA changes took effect, the U.S. tax code had seven brackets with rates from 10 percent to 39.6 percent. The TCJA lowered rates for several brackets and widened the brackets to reduce so-called marriage penalties. Furthermore, the TCJA lowered the top tax bracket from 39.6 percent to 37 percent, which has saved high-earners significant amounts of money.
Expanded Family Benefits
The TCJA reformed the Child Tax Credit (CTC), personal and dependent exemptions, and the standard deduction. This gave lower- and middle-income households with children greater benefits. It also simplified the tax filing process. As an example, it doubled the maximum CTC to $2,000 per eligible child and extended overall eligibility to more families.
It is important to note that the aforementioned Child Tax Credit changes took effect before the COVID-19 pandemic, which resulted in additional legislation to temporarily expand the credit even further.
Itemized Deduction Limits
To offset tax cuts, the TCJA imposed limits on itemized deductions for home mortgage interest and state and local taxes, and doubled the standard deduction which eliminated the need for millions of taxpayers to itemize their deductions at all. The legislation also temporarily eliminated select miscellaneous itemized deductions.
These changes are set to revert after 2025.
Business Tax Expirations
Small business owners and corporations also face tax uncertainty due to scheduled changes to American tax policy. Throughout the debate season, 2024 Presidential hopefuls will need to address a number of key business tax issues, including these:
Research and Development
Companies can no longer immediately deduct research and development (R&D) expenses, which may discourage R&D investment. Instead, companies must now amortize their costs over a five-year period.
It is worth noting that there has been a bipartisan Congressional effort to introduce new R&D tax credits. In March 2023, for instance, Senators Maggie Hassan (D-NH) and Todd Young (R-IN) reintroduced the American Innovation and Jobs Act. This aimed to extend and expand the R&D tax credit to allow more startups and small businesses to take advantage of the popular tax credit.
Machinery and Equipment
The TCJA temporarily allowed business owners and corporations to immediately deduct the costs associated with short-lived assets like machinery and equipment. However, this provision, called bonus depreciation, is phasing out with other TCJA changes, possibly discouraging investments in these types of goods.
What Happens Next?
The next President will have the opportunity to reshape crucial sections of the tax code, impacting American families’ finances and business decisions. Before you vote in 2024, make sure you understand the policies each candidate intends to prioritiz – and how these priorities will play a role in your day-to-day life.
Beyond expiring TCJA policies, the newly elected President will face other tax policy issues, including the 138-nation Global Tax Agreement, international trade issues that could have substantial import tax implications, and a seeming resurgence of industrial policy.
Additionally, the federal budget is on an unsustainable trajectory, and. Fitch Ratings recently downgraded the U.S. credit rating, citing the “alarming rise” in the federal government's interest costs. With the debt ceiling currently expected to be reached in early 2025, it is essential for all candidates to outline their plans for proactively addressing these issues.
The tax questions at the forefront of this election season have the potential to shape the U.S. tax code for years – or even decades – to come.