President-elect Donald Trump wants the Republican-controlled Congress to prioritize an extension of the tax cut law enacted during his last White House stint. With GOP majorities in the House and Senate, some sort of extension for the 2017 Tax Cuts and Jobs Act is sure to become law. However, details on what will be in — or won’t — are very much an open question.
Real policy differences exist among congressional Republicans as they gear up to craft the biggest tax legislation in eight years, and basic legislative math is tough. Republicans hold a solid but hardly overwhelming 53-47 Senate majority over Democrats. Across the Capitol, the GOP majority is effectively 220-215 once vacant seats are filled. So, there’s little room for error.
The TCJA was Trump’s signature domestic achievement during his first, nonconsecutive term. Many key portions of Trump’s signature legislation are set to expire at the start of 2026, so Republicans have made the matter a major priority.
Trump campaigned on several proposed changes to the tax code that go beyond merely extending the expiring provisions. These include eliminating taxes on Social Security income and raising the cap on state and local tax deductions.
Not everything on the wish list of Trump and Capitol Hill GOP lawmakers will make it into the eventual legislation. Republicans aim to pass tax legislation through a budgetary process that only requires a bare majority of support or 51 votes in the 100-member chamber. That avoids the 60-vote filibuster rule.
There are some major limitations to using reconciliation because of something known as the Byrd rule, which requires provisions in the legislation to be budget-related. So, the tax legislation cannot include nonbudgetary items. In practical terms, tax rates can be moved up or down. However, adding in other policy changes could be ruled ineligible for inclusion by the Senate parliamentarian.
Republicans can afford to lose very few votes on the tax legislation, unlike in 2017, when the party had legislative wiggle room due to its larger House majority. That means including many of these proposals, some of which do not have consensus support within the party, will be a tricky proposition for Trump and will test the limits of his sway over congressional Republicans.
Extending existing rates
Extending the existing tax cuts, which benefited the vast majority of taxpayers, including those earning under $400,000 annually, is probably going to be among the least controversial tax provisions for Republicans.
“I think those face fewer challenges in terms of support or design because it’s already sort of extending the current design that was established under TCJA,” Garrett Watson, a senior policy analyst at the Tax Foundation, told the Washington Examiner.
Almost every tax bracket, except for two, saw their overall tax rates decrease because of the 2017 law. That includes some of the poorest people in the United States.
For instance, those earning between about $9,500 and just under $39,000 had their tax rate decreased from 15% to 12%, while those in the next income bracket up — people earning up to $93,700 — saw rates fall from 25% before the tax cuts to 22%. If the provision isn’t extended, taxpayers would see their rates reverted to higher levels.
Even Democrats would presumably want to keep those cuts in place. On the campaign trail, Vice President Kamala Harris railed against the Trump tax cuts yet simultaneously vowed not to raise taxes on those earning less than $400,000. Harris, the 2024 Democratic presidential nominee, would have had to support extending a big chunk of the Trump income tax provisions to keep that promise.
Still, the wealthy also benefit from the 2017 tax overhaul. The law lowered the top marginal income rate in 2017 from 39.6% to 37%. For this past year, that rate applies to income above $578,126 for a single taxpayer.
However, overall, most voters saw income taxes fall because of the TCJA. An analysis by the Tax Policy Center, a left-of-center Washington think tank, found that 80.4% of taxpayers received tax cuts across the income spectrum.
Corporate taxes
In addition to other tax changes that were favorable to businesses, the headline corporate tax rate was lowered to 21% from 35% as part of the TCJA. Notably, that change was made permanent, so there is no need for Republicans to cultivate support for extending it.
However, despite the change being permanent, Trump, on the campaign trail, went a step further and argued that the corporate rate should be further slashed to 15%, but it isn’t clear how set he is on those numbers.
For instance, Trump has also talked about the idea of shaving the headline corporate to 20%, during a meeting with CEOs. In a speech before the Economic Club of New York, he endorsed “a reduction in the corporate tax rate from 21% to 15% solely for companies that make their product in America.” He said it would be part of an effort to “further support the revival of American manufacturing.”
Further lowering corporate taxes would undoubtedly have some eager Republican supporters on Capitol Hill, although it isn’t a slam dunk by any means.
The elephant in the room among Republicans debating tax legislation this year is the sheer cost of all of these changes. Fiscal conservatives are wary of adding more to the deficit, and by reducing taxes further, there is less revenue coming in.
Lowering the corporate tax rate to 15% for all corporations would slash revenue by between $460 billion and $675 billion through the next decade, according to the Committee for a Responsible Federal Budget. If the rate were lowered to 15% just for corporations that produce their goods domestically, the number would be more like $200 billion, according to the group.
Because of the costs of extending some of the individual tax cuts and other proposed tax changes, some Republicans have even eyed raising the corporate rate as a way to help offset costs. House Ways and Means Committee Chairman Jason Smith (R-MO) said this past year that some Republicans have wondered about raising the rate, although, more recently, he said he is confident it would at least remain at 21%.
SALT
One area of the tax code that will be particularly thorny in the coming year and will likely feature big debates is the matter of federal deductions for state and local taxes paid.
Trump’s 2017 Tax Cuts and Jobs Act included a $10,000 cap on SALT deductions, and a group of lawmakers in places such as New York and California have been adamant in pushing for that cap to be raised or eliminated. Trump is now saying he supports expanding the SALT cap, a reversal of his policies and something that provides political cover for Republicans who might not have been open to budging on the matter.
Some members in states such as New York could push for the cap to be raised or even eliminated — using their crucial votes as leverage to gain concessions. However, if that cuts too far, fiscal conservatives could withhold their votes to make sure the cap stays in place.
“SALT is going to be tricky, especially because of the narrow House margin,” Watson said.
Both Republican and Democratic critics also pan SALT deductions as disproportionately benefiting the wealthy. A study from the Tax Policy Center found that only about 9% of households would benefit from a full repeal of the cap. Additionally, TPC found that the 20% highest-income households would receive more than 96% of the tax cut.
According to the Tax Foundation, allowing the SALT cap to expire would cost the government $1.2 trillion over the next decade — an enormous and politically unpalatable cost.
New additions
There is also a ton of uncertainty as it relates to tax proposals that aren’t already tied into the Trump tax cuts. On the campaign trail, the president-elect pitched several ideas that would lower taxes for specific groups of voters. However, it isn’t clear how steadfast Trump will be in pursuing each proposal.
Taxes on tips
Trump appears adamant about fulfilling a campaign promise he made in service-work-heavy Nevada: eliminating taxes on tips.
In fact, in endorsing the concept of one massive piece of legislation that ties tax policy to things such as immigration (as opposed to two smaller bills), Trump highlighted the tax change for tipped workers specifically — meaning that it will likely be a high priority to be included in the tax deal.
The Tax Foundation estimated that exempting taxes on tips would cost the U.S. over $100 billion in revenue over the next decade.
Auto loans
Trump has also said he intends to make interest paid on car loans fully deductible, a proposal he rolled out on the campaign trail while in Michigan, which is the country’s auto-manufacturing base.
His plan to create an itemized deduction for auto loan interest would cost $61 billion, according to the Tax Foundation.
Social Security
Trump wants to exempt taxes on Social Security — a proposal that could end up being a tough sell for some fiscal conservatives.
While proposals such as eliminating taxes on tips do have a revenue cost, eliminating taxes on Social Security would be much more costly and would make offsetting the tax legislation more challenging for Republicans. Not taxing Social Security income would cost nearly $1.2 trillion.
Overtime
Another costly idea that Trump has floated is exempting overtime pay from payroll taxes. That also comes with a big price tag, with the lower-bound estimate punching in at about $680 billion over the next decade, according to the Tax Foundation.
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There is hope from House leadership that an overall tax bill will land on Trump’s desk before the start of summer. House Speaker Mike Johnson (R-LA) recently expressed optimism that Congress will push a reconciliation bill before Memorial Day.
However, how quickly the legislation will get passed and signed into law by Trump will come down to the minutia of the legislation and which tax provisions remain in the bill or get cut out.