The New Tax Agenda: Impacts and Strategies After the Election

Partisan Control 

Barbara Coats, Tax Principal with Windham Brannon, began her presentation at Executive Insights 2024 by discussing the current partisan control of the U.S. government, breaking down the different sources of tax revenue.

Sources of Federal Tax Revenue

The presentation highlights the primary sources of federal tax revenue in 2022:

• Individual Taxes: 45 percent
• Social Insurance Taxes: 21 percent
• Consumption Taxes: 15 percent
• Property Taxes: 10 percent
• Corporate Taxes: 6 percent

Progressive Tax System

Coats explains the progressive nature of the U.S. tax system, where higher earners pay a larger share of their income in taxes. Key statistics include:

• Top 1 percent: Average tax rate of 25.9 percent, contributing 45.8 percent of total income taxes.
• Bottom 50 percent: Average tax rate of 3.3 percent, contributing 2.3 percent of total income taxes.

Tax Cuts and Jobs Act (TCJA) Provisions

Coats also outlines the significant provisions of the TCJA that currently affect individuals and businesses:

• For Individuals: Elimination of personal exemptions, nearly doubled standard deduction and changes to the child tax credit.
• For Businesses: Reduction of corporate tax rates to 21 percent, introduction of the Section 199A deduction and elimination of the corporate alternative minimum tax.

Future Tax Policy Agendas

Coats then provided details on potential future tax policies, particularly with Donald Trump as the current president-elect, meaning a Republican Agenda will be at the forefront of any potential tax policy updates or changes in 2025.

• Republican Agenda:

• • Lower the corporate tax rate from 21 percent to 20 percent.

• • Restore 100 percent bonus depreciation.

• • Lower corporate tax rate on domestic production activities to 15 percent.
  • Allow expensing of research and development tax costs.
  • Limitations on deduction of business-interest expense – return to EBITDA based limit.
  • Impose universal tariff on all imports of 20 percent.

Wealth Tax and Estate Tax Changes

The presentation discussed the potential implementation of a wealth tax, targeting individuals with a net worth of at least $1 billion or an income of at least $100 million for three consecutive years. It also covers changes to the estate tax exemption, which is projected to decrease significantly if current provisions sunset.

Practical Tax Strategies

Coats provided practical advice for taxpayers to prepare for upcoming changes:

• Asset Purchases: Consider making asset purchases by year-end to take advantage of 80 percent bonus depreciation.
• Estate Planning: Utilize the current estate/gift tax exemption of $13.61 million in 2024 and $13.99 million in 2025.
• Gifting Strategies: Continue to make annual exclusion gifts and use the unlimited estate/gift tax exclusion for tuition and medical care.

Long-Term Tax Planning

Coats emphasized the importance of long-term tax planning, especially if deficit reduction becomes a priority. Strategies include:

• Roth IRA Conversions: Remove assets from the tax system by making Roth IRA conversions.
• Social Security Benefits: Rethink payout strategies for Social Security benefits.
• Inherited IRAs: Plan withdrawals from inherited pre-tax IRAs, with required minimum distributions resuming in 2025.

Barbara Coats’ presentation provided a comprehensive overview of the current and future landscape of U.S. tax policy. By understanding the partisan dynamics, revenue sources and proposed changes, individuals and businesses can better navigate the evolving tax environment and make informed decisions to optimize their tax strategies in 2025 and beyond.