Potential Tax Policy Under a Donald Trump Presidency

After a tight race, we now know that Donald Trump will be returning to the White House, becoming just the second president in history, after Grover Cleveland in 1892, to come back after being defeated for re-election to win a second non-consecutive term.

Donald Trump’s tax policy was a central component of his first term in office between 2017 and 2021, with a strong focus on tax cuts, deregulation, and supply-side economic theories. His tax policy for his second term is therefore likely to build on the framework established during this period, particularly the Tax Cuts and Jobs Act (TCJA) of 2017 which significantly lowered corporate taxes and reduced individual income tax rates for most brackets. While specifics will depend on the political climate and congressional support, there are several key principles and proposals that Trump is likely to pursue.

1. Individual Income Taxes

Trump has supported tax cuts for individuals, and his policies will likely focus on continuing or expanding these reductions:

• Maintaining or Extending the TCJA Cuts: The TCJA’s individual tax cuts were set to expire after 2025, so a second Trump term might aim to make those cuts permanent. Under the TCJA, most individual tax brackets were lowered, and the standard deduction was significantly increased.
• Middle-Class Tax Cuts: Trump has stated that he would prioritize tax cuts for middle-income earners. His campaign proposals included extending the 2017 tax cuts for individuals and potentially cutting taxes further for those in the middle and working classes. This could involve further adjustments to income tax rates or increasing the standard deduction, which disproportionately benefits lower- and middle-income households.
• Reducing Taxes on Pass-Through Entities: Trump has also been a proponent of reducing taxes on pass-through businesses (businesses like S-corporations, partnerships, and LLCs that pass profits directly to their owners). Under the TCJA, a 20% deduction was allowed for certain pass-through entities, and Trump would likely push for expanding this benefit.

2. Capital Gains and Investment Taxes

During his first term, Trump favoured maintaining or even lowering taxes on capital gains. This would likely continue under a second term.

• Capital Gains Tax: Trump has opposed increasing taxes on capital gains, arguing that such tax hikes would discourage investment. While Kamla Harris proposed raising the capital gains tax rate for high earners to the same rate as ordinary income (up to 39.6%), Trump has pushed to keep the capital gains rate low, particularly for long-term gains, suggesting that capital gains could be taxed at lower rates to encourage more investment in the stock market and other assets.
• Opportunity Zones and Investment Incentives: Trump has supported policies that create incentives for private investment in economically distressed areas, such as the Opportunity Zones program established under the TCJA. He would likely continue to promote such initiatives to stimulate private investment and job creation in underserved regions of the country.

3. Tax Cuts for the Wealthy

While Trump has framed his tax cuts as benefiting the middle class, critics have argued that the largest benefits go to the wealthiest Americans. A second Trump term would likely continue this trend, with tax cuts benefiting the highest-income individuals.

• High-Income Tax Cuts: The tax cuts under the TCJA disproportionately benefited high earners, particularly those with incomes over $500,000. Trump will likely continue advocating for policies that lower the tax burden on high-income individuals and corporations, claiming that the resulting economic growth benefits everyone.
• Wealth Taxes: Trump has been vocal in his opposition to wealth taxes, arguing that they stifle economic growth and innovation. It is likely that any proposals for wealth taxes or significant increases in taxes on the top income brackets will be firmly rejected.

4. Corporate Tax Cuts and Deregulation

Trump’s primary tax policy during his first term focused on reducing corporate taxes to encourage business investment and job creation. This approach would likely continue under a second term:

• Corporate Tax Rate: Trump has consistently advocated for lowering the corporate tax rate further, from 21% (set by the TCJA) to 15%. This would make the U.S. corporate tax rate one of the lowest among developed nations and could be intended to encourage businesses to invest more in the U.S., create jobs, and remain competitive globally.
• Simplifying the Tax Code: Trump’s administration has also called for simplifying the tax code, eliminating deductions and loopholes that favour certain industries or groups, and making the system more straightforward. However, his policies have often focused on making taxes simpler for corporations, rather than individuals, and reducing the burden of compliance on businesses.
• Deregulation: Although not strictly tax policy, Trump’s focus on deregulation (removing government restrictions on businesses) will likely continue in his second term. By reducing regulatory burdens on corporations, he aims to create a more business-friendly environment that he argues will spur economic growth.

5. Estate Tax and Inheritance

Trump has consistently sought to reduce or eliminate the estate tax, which taxes the transfer of wealth upon death.

• Repeal of the Estate Tax: Trump has pushed for the elimination of the estate tax (sometimes called the “death tax”), which primarily impacts wealthy individuals who pass on large estates to their heirs. The TCJA temporarily doubled the estate tax exemption to $11.7 million per individual and this has now reached $13.61 million for 2024 although this increase is set to sunset at the end of 2025. Trump’s second term could aim to either extend this increase further or repeal the tax entirely, as he has proposed.

6. Foreign Tax and Trade Policy

Trump has been an advocate for ensuring that U.S. companies are not at a disadvantage compared to foreign competitors in terms of tax rates and trade policies.

• Repatriation of Foreign Profits: During his first term, Trump’s tax reform allowed companies to repatriate overseas profits at a lower tax rate (a one-time tax on foreign earnings held overseas). He might seek to extend or expand this policy to incentivise companies to bring more foreign earnings back to the U.S., which he argues could stimulate economic growth and create jobs.
• Tariffs and Border Taxes: Trump has used tariffs and trade barriers as tools to create leverage in trade negotiations. His administration previously imposed tariffs on imports from China, Europe, and other regions. While tariffs are technically not part of tax policy, Trump’s approach to trade and taxes are often interconnected, particularly as he seeks to reduce the U.S. trade deficit and encourage domestic manufacturing.

7. IRS and Tax Enforcement

Trump’s previous administration focused on reducing the role of the IRS and other tax enforcement agencies. While this didn’t include broad tax policy changes, it could inform his approach in a second term.

• Reducing IRS Funding: Trump’s previous budget proposals often included cuts to the IRS, claiming that reducing the size of government would lead to a more efficient system. This could be a priority for his second term, especially if he advocates for a smaller government overall.

8. Tax Incentives for Domestic Production and Investment

Trump has consistently advocated for policies that encourage U.S. companies to produce goods and create jobs domestically. His tax policies focus on incentives to encourage businesses to invest in the U.S. rather than overseas.

• Incentives for Manufacturing and Investment: Trump might propose tax credits or deductions aimed at encouraging businesses to build factories, hire workers, and invest in U.S.-based operations, particularly in industries such as technology, energy, and manufacturing.

Conclusion

Under a second term, Donald Trump is likely to pursue tax policies focused on reducing the tax burden for corporations and high-income earners, simplifying the tax code, and maintaining or expanding the tax cuts initiated under the 2017 TCJA. His administration will likely continue a deregulatory approach to foster business growth, while also seeking to eliminate or reduce taxes on wealth transfers (such as the estate tax). Trump’s focus on tax incentives for investment and repatriating foreign profits will remain central to his economic agenda, as will his advocacy for lower taxes on capital gains. While his policies are likely to continue to benefit higher-income individuals and corporations, there will also be a push for broad-based tax cuts that he argues stimulate economic growth and job creation.