Bonus depreciation provision extension possibilities

The 100% bonus depreciation provision, which allows businesses to immediately deduct the full cost of qualifying assets, has been a cornerstone of economists. Economists are likely to push for an extension of this provision (rather than allowing it to continue phasing down), arguing that it encourages businesses to invest in new equipment and technology. By allowing businesses to write off the full cost of these investments in the year they are made, the bonus depreciation provision can significantly lower the after-tax cost of capital, making it more attractive for businesses to invest. This, in turn, can lead to increased productivity and economic growth.

Next year will feature one of the most consequential tax debates in years. That’s because 2017’s Tax Cuts and Jobs Act (TCJA) is set to expire at the end of 2025. Provisions of that law include lower individual income tax rates, a higher standard deduction, the $10,000 cap on the state and local tax deduction, the increased amount of assets that can be inherited without triggering the estate tax and dozens more—all would expire at the end of next year if Congress does not extend them. Everything would revert to what the law was prior to the TCJA.

Many have called for extending all of the tax cuts from the TCJA—a bill previously signed into law.

Currently, individuals can inherit an estate up to $13.61 million ($27.22 million for married couples) without triggering the estate tax. If the TCJA expires at the end of 2025, the exemption amount would revert to roughly $7 million beginning in 2026.

State and local tax (SALT) deduction

The TCJA imposed a cap of $10,000 on the amount of state and local taxes that an individual can claim on a tax return. If the TCJA expires, there will be no cap beginning in 2026. Trump, who signed the cap into law as part of the original TCJA, recently said that he would restore the SALT deduction without a cap.

Capital gains

The current top capital gains rate of 20% is not part of the expiring provisions.

Many are calling for lowering the corporate tax rate to 15% from 21% for companies who make their products entirely in the United States. 

Other proposals

There have been proposals for a series of tax changes, including eliminating the tax on tip income, ending the taxation of Social Security benefits and eliminating taxes on overtime hours worked. 

Several tax policy ideas have been considered, including extending the expiring 2017 Tax Cuts and Jobs Act (TCJA) changes, bringing back the deduction for state and local taxes (SALT), reducing the corporate tax rate for domestic production, exempting various types of income from the income tax, repealing green energy tax credits, and imposing steep new tariffs.

Some tax proposals are well-designed and would be efficient ways to promote long-run economic growth, such as permanent expensing for machinery, equipment, and research and development (R&D).