Congress will return for a short session this month before adjourning on September 28 for the election. As voters prepare to head to the polls, the top tax policy question is whether tax legislation will pass before the election. The chances of the House and Senate reaching an agreement before November are 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 extending certain tax cuts from the Tax Cuts and Jobs Act (TCJA) of 2017, tax incentives for small businesses, and possible adjustments to the child tax credit.
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 changing state and local tax deductions, were significant obstacles that prevented the bill from advancing in the Senate before the recess.
The expanded child tax credit has been a contentious issue, with Democrats generally favoring stronger support while Republicans have raised concerns about the cost. Similarly, changes to salt deductions, which are especially important to taxpayers in high-tax states, have been a point of contention, with some Republicans pushing for higher deductions and others opposing them for due to budgetary concerns.
Given these divisions, it is now likely that any major tax legislation will be delayed until after the election. Both parties have decided to wait and see who wins the presidency and which party controls the House and Senate before moving forward with tax reform this year. As a result, while some elements of the House-passed bill may be included in other legislative packages, the comprehensive tax bill itself is effectively dead for now. The next real chance for tax legislation could be during the odd session or in the new Congress.
TCJA expires 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 limits. Expiration of these provisions would result in higher taxes for many individuals and businesses. Republicans say that adds urgency to the need for new tax legislation. Democrats focused on passing their tax policy agenda are generally fine with allowing provisions of the TCJA to expire.
Vice President Kamala Harris' Tax Policy
The outcome of the presidential election will also significantly affect tax policy, as the two candidates have proposed completely different approaches. Democratic vice presidential nominee Kamala Harris has advocated rolling back many of the TCJA's tax cuts, especially for high-income earners, while expanding the tax credit for low- and middle-income families. Her proposals include raising the top marginal tax rate, raising 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 provisions of the TCJA and introducing further tax cuts he says will stimulate economic growth. His plan includes lowering the corporate tax, implementing new tax incentives for businesses and simplifying the Tax Code.
Uncertain future
With changes coming on the Hill and in the White House, the future of US tax policy remains uncertain. Its direction mainly depends on the outcome of the November elections.