Even though the votes on Tuesday are over, there are still some House races where the winners will decide the future of U.S. tax policy.
The nonpartisan Cook Political Report says it’s likely that Republicans will keep their slim majority in the House. The betting markets also agree, giving that body of Congress a high chance of staying red. The Associated Press hadn’t made a call on that front as of Thursday afternoon, though, because the winners of more than two dozen House races hadn’t been named yet.
Republicans are likely to focus on using a budget process called “reconciliation” to deal with the end of their 2017 tax cuts and other tax policy goals if they win the House, the Senate, and the White House.
This method lets bills pass the 100-seat Senate with only 51 votes, instead of the necessary 60 votes to avoid a filibuster. It has been used for big political bills like the Tax Cuts and Jobs Act of 2017, the American Rescue Plan Act of 2021, and the Inflation Reduction Act of 2022. It looks like the GOP will have at least 52 Senate seats next year. Three races are still open, though.
A note from analysts at Beacon Policy Advisers on Wednesday said that Republicans will likely focus on delivering “an extension of the lower marginal income rates, the 20 percent deduction for pass-through business income, and a restoration of a trio of upfront deductions for business expenses.” This is what they think will be included in any upcoming tax-focused reconciliation package.
“It’s likely that there will be more changes to international taxation and a change to the cap on the SALT deduction.” A reconciliation bill led by the GOP will also take into account Trump’s plan to lower the corporate rate to 15%, they said. These words refer to a controversial limit on state and local tax benefits at the federal level, as well as President-elect Trump’s campaign promise to lower the corporate tax rate to 15% for U.S. companies that make their goods in the country.
Beecon’s team also said that Trump’s other tax breaks, like not taxing tips, might not be included in a 2025 tax plan. They said, “Because Congress is mostly in charge of tax reform, Trump’s campaign promises could be the first ones to go.”
They also said that passage would happen pretty quickly, though not in the first quarter of 2025. “We don’t think the GOP will be able to move a reconciliation bill forward in the first 100 days after Trump takes office, but the party will probably get one passed, probably by the middle or end of 2025,” they said.
Some people think that if the Republicans win the election in a “red wave,” they will probably also get rid of parts of the Inflation Reduction Act, like the $7,500 tax credit for people who buy electric cars. And some of the better Obamacare tax credits are likely to run out instead of being extended.
It is said that Trump and House Speaker Mike Johnson, a Republican from Louisiana, talked about using the reconciliation process six months ago because they thought the Republicans might win the election and use it to get their tax and energy plans passed in 2025.
Stocks in the U.S. have been going up this week, thanks in large part to hopes for tax cuts. CEO of ADSS, Neal Keane, said in a note that the rally was sparked by “proposed easing of business conditions, including a reduction of the corporate tax rate.”
What if tax cuts make debts bigger? Kevin Hassett, a supporter of Trump, said right before the election that markets might be able to give feedback early next year.
Hassett told CNBC, “There will be a reconciliation process next year, no matter who is president. That means that Congress will have to negotiate how their spending and tax policies affect the overall deficit.” Since 2017, Hassett has been the head of Trump’s Council of Economic Advisers. He is now being looked at as a possible candidate for the Federal Reserve by Trump. “Money markets will find out early on, in January or early February, what the overall deficit means.”
A guess for how much it would cost to keep the Tax Cuts and Jobs Act in place for ten years is $4 trillion, not counting the interest.
In a recent note, Raymond James analysts said, “We see the bond market as a limit on the size of the tax changes that can be made.”
