On the campaign trail, Trump vocally championed American business interests and vowed to support corporate America and draw business back into the U.S. Now it’s showtime, and one area where we may see Trump’s plans begin to emerge is in changes to business tax law and policy. While no detailed tax plan has been issued yet, Trump has hinted at how tax policy may take shape next year.
Trump has proposed a 1% decrease in the corporate income tax rate, which presently stands at 21%, and he is suggesting a more substantial 15% rate for companies that manufacture in the U.S. This tax cut is relatively modest, but it will increase corporate profits and give businesses more resources to reinvest and grow. Unless the changes also address pass-through tax rates or deductions, there will likely be no significant benefits for small businesses organized as pass-through entities. There is the possibility that the tax cut could improve global competitiveness and tempt international corporations to return or transfer operations to the U.S., potentially stimulating modest economic growth.
Though a 1% decrease seems insignificant, given the scale of U.S. corporate earnings, it could have a noteworthy and negative impact on U.S. tax revenues and may increase the country’s deficit. Much will depend on how businesses use their 1% savings, where they allocate them, and how the broader economic environment reacts to the adjustment.
Trump also proposes to repeal the limitation on excess business losses for non-corporate taxpayers. The limitation, created by the American Rescue Plan Act of 2021 and extended through 2028 by the Inflation Reduction Act of 2022, prevents non-corporate taxpayers from deducting excess business losses above $578,000 (2023-married filing jointly) or $289,000 (other), with any excess losses treated as net operating loss carryforward (subject to indexed thresholds).
Repealing this limitation would mean more deductions available for non-corporate taxpayers, including S Corps, partnerships, and sole proprietors. It would enable them to offset their business losses against other types of income, like wages or investment income, and overall, it would reduce their tax burden. Critics may claim that this tax cut favors the rich, who have multiple income streams and are more likely to have large business losses and other income to offset.
Besides tax relief, the injection of additional cash into businesses could spur growth and reinvestment. As above, this tax cut would also reduce federal tax revenues and may raise the deficit unless other revenue-generating measures are implemented.
Even with the possibility of a Republican-controlled Congress, it is uncertain whether Trump will be successful in pushing through tax cuts and policy changes. He may face backlash from the public for seemingly favoring the wealthy, or lawmakers may question whether his tax initiatives can benefit the overall economy. The Fed will be cautious of any changes impacting inflation and, by extension, interest rates. With so many economic moving parts, it is hard to predict whether or how Trump’s intentions will be realized.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
