Donald Trump's upcoming second term, commencing on January 20, 2025, is expected to bring significant changes to U.S. tax policy. One of the primary objectives is the renewal of the Tax Cuts and Jobs Act (TCJA) of 2017, which is set to expire at the end of 2025. If not renewed, tax rates will revert to previous levels, a scenario Trump aims to prevent.
The estimated cost of extending the TCJA provisions is approximately $5 trillion over the next decade, which may face opposition from fiscal conservatives advocating for budget cuts to offset this expense.
Additionally, Trump is considering eliminating certain taxes, including the tip tax and Social Security tax, which would generate considerable debate in Congress.
Another focal point of Trump's agenda is the deduction cap on state and local taxes (SALT), which primarily affects residents in high-tax states like New York and California. Several Republican lawmakers have linked their support for tax reforms to a review of this issue.
In the realm of international trade, Trump has proposed a 25% tariff increase on goods from Mexico and Canada, along with an additional 10% on all products from China, citing the need to combat illegal immigration and drug trafficking.
These proposed tariffs have elicited warnings of potential retaliation from both Mexico and Canada, with experts suggesting that such measures could increase consumer costs and exacerbate inflation.
Moreover, Trump intends to establish an External Revenue Service to ensure that the U.S. collects tariffs and revenues from foreign sources, aiming to redefine economic relations and potentially heighten global tensions.