Tax policy is a key issue for both individuals and businesses, and changes in congressional leadership can have significant implications. This is especially true since tax policy changes can significantly impact financial planning.
As of January 3, 2025, Republicans hold a five-seat majority in Congress. Given the history of GOP political advocacy, it’s likely that tax policy will shift toward lower tax rates, business incentives, and potential changes to federal spending.
Extending or Expanding the 2017 Tax Cuts
The last time Republicans held unified control of Congress, they passed the Tax Cuts and Jobs Act (TCJA) of 2017. This tax package worked to lower corporate and individual tax rates.
However, many provisions of the TCJA are set to expire in 2025. It’s possible that a GOP-controlled Congress may push to extend or make these cuts permanent, preventing tax increases for individuals and businesses.
This could mean lower individual tax rates could continue, especially for middle- and upper-income earners. Plus, the higher standard deduction may remain, reducing the need for itemized deductions. This will be beneficial for small business owners as the corporate tax rate, which was lowered from 35% to 21% in 2017, is unlikely to increase under GOP leadership.
Capital Gains and Investment Tax Policies
Republicans often advocate for lower taxes on investments to encourage economic growth. This could include reducing capital gains taxes for certain income levels, which would incentivize long-term investing and wealth accumulation.
Another approach from a GOP-controlled Congress might include indexing capital gains to inflation, which would adjust the original purchase price of an asset to account for inflation. Reducing the taxable portion of the gain when the asset is sold could reduce the tax burden on long-term investments.
Small Business and Corporate Tax Changes
Small businesses often benefit from GOP-led tax policies that focus on reducing regulatory burdens and lowering tax rates. A Republican-controlled Congress may seek to offer new tax incentives for businesses investing in domestic production and reduce payroll tax burdens to encourage hiring.
As a result, small businesses owners and self-employed individuals could see continued tax relief. Plus, corporate tax incentives may lead to increased business investments and hiring.
State and Local Tax Deduction Changes
The TCJA capped the State and Local Tax deduction at $10,000, impacting taxpayers in high-tax states. Some Republicans have supported lifting or modifying this cap, while others prioritize broad tax cuts over state-specific relief.
If the deduction is adjusted, high-income earners in states with high property and income taxes (e.g., California, New York) could see some relief.
Questions?
If you have any questions about what a GOP-controlled Congress could mean for the tax landscape, please reach out to me at 301-990-9170 or email [email protected].
As always, staying informed and working with a financial advisor can help you navigate potential tax changes and optimize your financial strategy.
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