2025 and the Tax Cuts and Jobs Act: Building your tax story: PwC

Tax Partner, PwC US

The spotlight may be on the US 2024 presidential election, but tax executives can’t afford to take their eyes off 2025 and beyond. That’s when federal and global tax policies will come to a head. Key individual provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 expire, and changing TCJA international provisions could result in US corporate tax increases even as other countries are moving to collect higher corporate taxes. Now is the time to evaluate how these changes may affect your organization’s bottom line and to take that message to decision-makers.

No matter who wins in November, we expect significant tax legislation in late 2025 as the TCJA provisions expire. But this is also a rare opportunity: the ability to prepare for something that we know is coming.

By modeling various scenarios and communicating with internal and external stakeholders, you can help craft a strategy that details the impact policy choices may have on your organization and the economy.

What’s at stake?

Top of mind are the individual provisions that are scheduled to expire, including the 37% top individual income tax rate on ordinary income; the 20% deduction for pass-through business income; and the higher standard deduction. Without action, however, key international business tax rates will increase, including the rate of tax on global intangible low-taxed income (GILTI), the rate of the base erosion and anti-abuse tax (BEAT) and the foreign-derived intangible income (FDII) rate.

Extending all of the TCJA individual provisions at every income level has an estimated cost of $3.5 trillion over the next 10 years, according to the Congressional Budget Office. There’s strong bipartisan support for extending most of the TCJA individual provisions, but even President Joe Biden’s proposal to maintain TCJA individual tax provisions for those with incomes below $400,000 would have a high cost of between $2 trillion to $2.25 trillion. The business extenders cost less — approximately $1 trillion. If policymakers decide not to preserve these provisions, however, that decision could negatively affect growth by increasing the cost of business investment and job creation.

As debt concerns mount, the fiscal cliff becomes steeper, leaving Congress to look elsewhere for revenue. Executives have expressed concern that the corporate tax rate may be among the first things that decision-makers consider. TCJA lowered the corporate tax rate to 21%, a move with no end date, but deficit concerns and political pressures could change that. Congress also could change other business tax rules in ways that would increase taxes paid by corporations even if the 21% rate remains in place.

Even without US tax increases, multinational companies should be prepared to pay a higher overall tax rate under the new global minimum tax regime created by Pillar Two. Many aspects of the OECD’s global framework became effective on January 1, 2024, but key aspects of the rules remain subject to ongoing discussions, such that taxpayers may still be figuring out how to comply with Pillar Two rules long term.

A chance to join the debate

Much has changed since 2017, including the faces of those who were on Capitol Hill at the time. For example, only four of the 24 House Ways and Means Republicans who helped write the 2017 Act remain on the committee. You can’t assume that today’s Congress is familiar with what happened then and what’s important to your organization today.

No one can be certain which party will control the House and Senate in 2025, but most of the current members of Congress are likely to return next year. Yet, according to PwC’s August 2023 Pulse Survey Survey, only 27% of tax leaders say they’re actively engaging with lawmakers on US or global tax policy.

Building a coalition among the C-suite and board is the first step to crafting a story focused on what their corporate tax policies could mean for Main Street.

Educate internal stakeholders

It’s just as important for internal stakeholders to understand the possible implications. The CFO, board and audit committee will want to know the impact of these proposals. Consider the following:

Collaborate with the financial planning and analysis team on long- and short-range modeling to determine scenarios and contingencies.
Work with finance, government affairs and communications teams to craft messaging for the C-suite and the board.
Identify business operation leaders in your organization who can speak to their local members of Congress and staff on the potential effect of tax policy decisions.

Align your message to policymakers' priorities

Companies rank the current 21% federal corporate tax, the FDII incentive to manufacture and invest in intellectual property in the United States and other TCJA reforms as top priorities. Decision-makers, however, will be less concerned with how you manage your effective tax rate. As you prepare to take your message to legislators, regulators, policymakers and the media, consider the following:

Your company’s key policy priorities through the lens of employment, investments and growth
The suppliers — small- and medium-sized businesses — in your ecosystem, who should also care about these issues
Trade associations, industry groups or other coalitions with whom you can align
Lining up advisors who can provide strategic counsel on this debate

With the individual provisions carrying the biggest price tag, U.S. House Ways and Means Committee Chairman Jason Smith (R-Mo.) has said everything is on the table. The corporate rate may affect your company’s bottom line, but Congress will be more concerned about whether their decisions will lead companies to close US plants or lay off US workers.

The current combined US corporate tax rate (federal plus the average state corporate rate) is 25.8%. Before TCJA, the combined corporate rate was 38.9% in the US, the highest rate among OECD countries. But a 25.8% combined US corporate tax rate is still more than two points higher than the average combined corporate rate of other OECD countries. Increasing that rate differential even more could have a negative impact on US companies’ ability to compete.

What’s on the horizon?

We’ll continue to learn more about what the presidential contenders will do as election day nears. Former President Donald Trump has proposed making the expiring individual tax cuts and the 21% federal corporate income tax rate permanent, according to the Tax Foundation.

In his State of the Union Address, President Biden called for increasing the US corporate income tax rate to 28% from 21%, raising the domestic corporate alternative minimum tax to 21% from 15%, and adding a new 25% minimum income tax on the wealthiest taxpayers. On March 11, he sent Congress a fiscal year 2025 budget that proposes a net tax increase of nearly $5 trillion for corporations and for individuals with incomes greater than $400,000.

Given the dramatic growth in federal debt and interest costs, businesses could face the risk of higher taxes regardless of who wins the White House and control of Congress.

For now, make the most of this time and start marshaling your resources as well as determining and delivering your organization’s key messages. If the business community fails to engage, future tax policy will be set without the facts and insights you can provide around the impact those choices will have on future economic growth.