2025 may well be the most consequential year in the history of US tax policy, at least since the establishment of the income tax through the 16th Amendment in 1913. While the US has a long history of enacting tax policies that sunset or expire on a specified date, thus putting the onus on subsequent Congresses to negotiate extensions of these tax policies, the country has never faced the number, size, and breadth of expiring or changing tax policies that it does in 2025.
Some of these expiring provisions are fairly well-known—for example, many of the changes relating to individual income tax policy, such as the cap on itemized deductions for state and local taxes under section 164(b)(6) that were enacted as part of the Tax Cuts and Jobs Act (TCJA).1Indeed, just within the TCJA, 23 different provisions will sunset in 2025. However, other important policies will feature in the 2025 tax debate beyond those related to the TCJA. These include expansions of the Child Tax Credit under Section 24(h), and Earned Income Tax Credit, which were originally enacted in the American Rescue Plan (ARP)2 but have since expired. Other policies have received arguably less attention as they are provisions that were enacted outside of the debate on the major recent tax bills like the TCJA, the ARP, and the Inflation Reduction Act (IRA).3 An example of is the Work Opportunity Tax Credit under Section 51(c)(4).
Across this range of policies, over $4 trillion in various tax policies will expire in 2025.
Nor will this debate be limited to just the provisions that expire in 2025. Some TCJA provisions have already expired or are phasing out now. Congress is debating extensions of these provisions now, in the form of the Tax Relief for American Families and Workers Act (H.R. 7024). However, if this legislation is not enacted into law in 2024, they will be added to the list of policies that need to be addressed in 2025.
Changes to US international tax policy are potentially extremely significant. The TCJA made significant changes to the US international tax regime, which taxpayers are still adjusting to, with scheduled increases in effective tax rates for GILTI and BEAT occurring at the beginning of 2026 unless Congress takes action to prevent these increases. In addition, the OECD-led Pillar 1 and Pillar 2 projects are pushing countries around the world, including the United States, to make additional changes to their international tax regimes. Recent actions at the OECD effectively paused some of this activity until after the 2024 US elections. However, the potential enactment and implementation of Pillar 2's undertaxed profits rule (UTPR) has already prompted some in Congress to propose changes in US tax policy to counter the application of any UTPR against American companies.
Nor will Congress be limited to only those issues where there are statutory deadlines or mandates that act as forcing events. As can be seen by the inclusion of the Low-Income Housing Tax Credit (LIHTC) and disaster aid policies in Tax Relief for American Families and Workers Act, Congress can, and will, debate other tax policy changes, particularly in areas of significant bipartisan interest (even if there isn't significant bipartisan agreement). Policymakers' concerns about supply chain resiliency and the US-China economic relationship will also be at the core factor of the 2025 tax debate. Additionally, new tax policy issues that have arisen or become more pronounced in the past few years, such as tax policy around cryptocurrency, will likely be roped into the 2025 tax debate.
So 2025 will see Congress and the Administration debate on a dizzying array of tax policy including:
- Tax policy for individuals, families, and workers
- Tax policy for small businesses and pass-through entities
- Tax policy related to health care and health insurance
- International tax policy
- Energy tax policy
- Housing tax policy
- Tax policy on new and emerging issues like cryptocurrency
With this daunting task before it, Congress is not waiting until 2025 to start the debate. In fact, the debate has already started. One reason the House passed the Tax Relief for American Families and Workers Act is to help set the stage for the 2025 debate, further harmonizing expiration dates.
Further, last week, the House Ways and Means Committee announced the formation of "tax teams," each of which will focus on developing legislative proposals for specific areas of the Tax Code in preparation for the potential changes coming in 2025. The formation of these tax teams is broadly analogous to working groups formed by the House in 2013 and the Senate in 2015. These prior working groups did much of the spade work and set the stage for many of the changes enacted in the TCJA. The new tax teams, like their predecessor working groups, will engage in fact-finding and consultation with taxpayers on the full range of tax policy issues.
As Congress begins to work on the impending 2025 tax debate, so should taxpayers. Early engagement will be key to ensuring that policy makers are well-educated on any particular issue as once Congress convenes in 2025, it will be sprint to the end of the year. As the old saying in Washington DC goes, "If you're not at the table, you're on the menu."
Footnotes
1 Pub. L. No. 115-97 (2017).
2 Pub. L. No. 117-2 (2021).
3 Pub. L. No.117-169 (2022).
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