Happy tax week. Income tax returns were due to the Internal Revenue Service (IRS) and state agencies at 11:59 p.m. on Monday.
The good news? According to AXIOS, the average tax refund is larger this year — $3,011, or about 4.6 percent higher than initial estimates from last year’s tax filing season. AXIOS said the increase is “likely because of new tax brackets, an increased standard deduction, and higher limits for 401(k) plans.”
The bad news if you are one of the people who are getting more back from the IRS? Some tax policies that have lowered levies over the last several years may soon expire.
Which policies will still be around next year and which won’t, will, of course, be determined by the party or parties that control the White House and Congress come January 2025. This week we will look at how the presidential candidates differ on tax policy, but first let’s examine what tax policies will expire in the coming years.
Tax Uncertainty: Dozens Of Revenue Provisions Will Expire Within Next Few Years
The Joint Committee on Taxation, a nonpartisan congressional committee created in 1926 and made up of Ph.D. economists, attorneys, and accountants who assist members of Congress with writing tax legislation, has prepared a list of tax provisions that will expire between 2025 and 2034 barring congressional intervention.
The most impactful provisions on the list actually expire relatively soon. Over the next year, in fact. And one of the biggest line items is the individual marginal income tax rate reductions that took effect when former President Donald Trump signed the Tax Cuts and Jobs Act (TJCA) into law in 2017. As Investopedia explained, the TJCA cut the top individual tax rate from 39.6 percent to 37 percent. The 35 percent bracket remained untouched, but lower brackets fell from 33 percent to 32 percent, 28 percent to 24 percent, 25 percent to 22 percent, and 15 percent to 12 percent. The lowest bracket was 10 percent before 2017 and remained at that level under the TJCA.
If Congress does nothing, the tax rates the TJCA changed will jump back up to their prior levels on January 1, 2026.
For families, the TJCA increased the Child Tax Credit (CTC) from $1,000 to $2,000 and increased the income eligibility thresholds for the credit. The line of demarcation rose all the way from $110,000 to $400,000. The TJCA also raised the standard deduction to $12,400 for single filers and $24,800 for married filers, compared with $6,500 (single) and $9,550 (married) under prior law. (The standard deduction is what every person, regardless of how they spent their income, gets to deduct from their tax bill unless they itemize.)
These changes also expire at the end of 2025, meaning families and individuals will owe more in 2026 if Congress does not act.
One expiration that will help some taxpayers — at least those in high tax states — is the limit the TJCA placed on the degree to which taxpayers could deduct from their federal taxes state and local taxes paid. The TJCA limited those deductions to $10,000 a year. That limit also would disappear on January 1, 2026.
Some small businesses also would pay more come 2026. That is because the TJCA provided a deduction for some entrepreneurs for qualified business income. Supporters of this provision argued that, because so many businesses pay income taxes through the individual tax code (and not the corporate one), many small company owners were stuck with higher tax bills than corporations. This deduction was meant to insert parity into the system.
One tax reduction that was part of the TJCA that will not expire, at least under current law? The reduction in the corporate tax rate. The TJCA dropped that levy all the way from 35 percent to 21 percent.
But that does not mean policymakers will not try to alter that rate.
What Can We Expect From A Second Biden Term In Terms Of Tax Policy?
While the official Biden for President website does not outline the current president’s tax policy positions, we can look to the Biden administration’s fiscal year 2025 budget for clues about what a second term would look like.
First, the president’s budget makes it clear that the Biden administration wants to go after crypto users. Specifically, the White House has called for subjecting crypto owners to the same rules investors in stocks or other securities must follow. A change in policy like the one President Biden has proposed would mean crypto owners who suffer excessive losses cannot write off all their lost investments.
Second, President Biden would raise taxes for firms that pay income taxes through the corporate tax code. Specifically, he wants to set the corporate tax rate at 28 percent and wants to set the minimum tax rate on the highest earning corporations at 21 percent instead of the current 15 percent. (Of note: it was actually President Biden who signed the 15 percent minimum rate into law in the first place. That provision was part of the Inflation Reduction Act approved by Congress in 2022.)
President Biden also would change to the international tax system so that will “reduce the incentives to book profits in low-tax jurisdictions,” end corporate inversions to tax havens, and raise the tax rate on U.S. multinationals’ foreign earnings from 10.5 percent to 21 percent. Furthermore, the president would deny deductions for all corporate executive compensation totaling more than $1 million.
Other business-related Biden tax proposals include:
- Raising the current levy on stock buybacks from one percent to four percent;
- Eliminating federal tax subsidies for oil and gas companies; and
- Requiring real estate investors to pay taxes on their profits more quickly.
President Biden also wants to rework the income tax rates individuals and small business owners pay by raising the top individual income tax rate back to 39.6 percent from 37 percent for single filers making more than $400,000 a year and married couples making more than $450,000 per year. President Biden also wants to tax capital gains and dividends at 39.6 percent for households earning more than $1 million a year, and raise Medicare taxes for households that earn more than $400,000 annually. Finally, President Biden would require people worth more than $100 million pay at least 25 percent of their income in taxes.
To help families, President Biden would increase the child tax credit and expand the Earned Income Tax Credit, which provides tax refunds to people who owe no federal income tax. He also wants to increase the tax credit for buying health insurance.
What Would Trump Tax Policy Look Like? What About A Kennedy Tax Policy?
Presumably, given his administration negotiated them with Congress, former President Trump would like to see all of the provisions in the 2017 TJCA extended, but are there other policies he has offered?
The nonpartisan nonprofit Tax Foundation is tracking everything the candidates say when it comes to taxes and they’ve uncovered a few new ideas from the former president.
First, the former commander in chief would like to tax large private university endowments. The proceeds would, according to Politico, fund a new institution called “American Academy,” which “would grant credit to prospective students for past coursework and use their credentials to apply for jobs with the U.S. government and federal contractors.”
The Tax Foundation says the former president also would impose a universal baseline tariff on all U.S. imports, costing Americans about $300 billion a year, and would impose a 60 percent tariff on all imports from China.
President Biden and former President Trump are not the only two candidates running for the White House this year, of course. But the hopeful, Robert F. Kennedy Jr., has not offered much in the way of tax policy proposals.
According to the Tax Foundation, Kennedy has said he would exempt Bitcoin from capital gains taxes when converted to or from U.S. dollars. But that’s about it, at least for now.
How Americans Feel About Their Tax Bills Today
While most Americans feel they pay too much in taxes, they think businesses get off easy. According to a 2023 Pew Research Center survey, 61 percent U.S. adults say they are bothered a lot by the feeling that some corporations do not pay their fair share.
Meanwhile, 56 percent of Americans say they pay more than their fair share in taxes, up from 49 percent in 2021. (Another 34 percent say they pay about the right amount. Only eight percent of Americans do not think they pay enough to the IRS.) Americans almost universally also think the tax code is way too complex.
According to the Bipartisan Policy Center, there is some agreement between Republican and Democratic voters regarding how the federal government should spend tax revenues. A survey released Monday found that, regardless of political affiliation, participants felt policymakers should prioritize Social Security spending and should allot more to healthcare.
From there, voters diverged. Democrats want more spending for education, economic and income assistance, and the environment and natural resources while Republicans want more for the national defense programs, veteran’s benefits and services, border security, and law enforcement.
Only time – and the November elections – will tell which group of voters gets their wish.