Federal Tax Reform Forecast 2025: Jonathan Williams on American Radio Journal

In 2025, President Trump and Congress will consider whether to extend some of the most important provisions of the 2017 Tax Cuts and Jobs Act, or TCJA, such as the reductions to personal income tax rates, small business tax relief, and major reductions to the hated Alternative Minimum Tax and the Death Tax. The 2017 TCJA legislation cut taxes by $1.5 trillion and reduced the burden for more than 100 million Americans across income groups.

It was rocket fuel for the U.S. economy, providing historically low unemployment rates, an increase in business investment, and a $6,000 increase in real household median income over two years. With the provisions providing savings to individuals set to expire at the end of 2025 absent any legislative action in D.C., the stakes for our country’s economy are enormous.

Additionally, state-level conformity with those expiring provisions of TCJA, which broaden the income tax base and strengthen revenue for states, provided the ability for states to implement pro-growth tax relief in response, setting off this tax cut revolution we’ve seen in states in recent years.

One of the key elements of the 2017 tax law is the cap on the deduction for certain taxes paid to state and local governments, also known as the SALT deduction. Prior to the passage of TCJA, the SALT deduction had no cap, meaning that taxpayers—many of whom were very wealthy, especially in a few high-tax states—could deduct massive sums from their federal tax bills. Under TCJA, the amount of those taxes that may be deducted is limited to $10,000 annually.

Keep in mind, the SALT deduction has been called the “most sacred of the sacred cows” in the federal tax code—and for good reason. The SALT deduction is a clever method utilized by state and local politicians in high-tax-and-spend states to get the rest of America to subsidize those choices. The unfairness and incentive for states to overtax and overspend is likely why the great Ronald Reagan called addressing the economic problems with the SALT deduction his “unfinished business” from the historic Reagan tax reforms in the 1980s.

Of course, wealthy individuals in high-tax states shouldn’t be faulted for trying to reduce their tax burdens, but considering the political incentives at play, the federal SALT deduction actually incentivizes states to keep their tax rates high. Wouldn’t it be much more honest and effective to have a discussion about how each state taxes and spends and then calculates those revenues to keep taxes as low as possible?

If residents of a state want big government and high taxes, that’s their choice, of course, but they should be required to pay for it directly instead of asking the rest of America to pick up the tab. The economic policy of the SALT deduction is clear: the deduction should be eliminated. That change could fuel lower tax rates for all taxpayers across America.

However, as the great economist Thomas Sowell put it, “The first law of economics is that we have a scarcity of resources, while the first law of politics is to ignore the first law of economics.”

Now, to the politics of SALT: while President Trump scored an overwhelming Electoral College victory, the GOP majority in the U.S. House is tighter than in the last Congress. Among those GOP members in the narrow majority are several who represent districts in high-tax states like New York and New Jersey and who are pushing to dramatically lift the cap on the SALT deduction.

One possible compromise would be to examine the marriage penalty within the SALT deduction to address those local concerns. This would allow those married and jointly filing their taxes to have the same deduction as if they filed separately.

Over on the Senate side, the new Republican majority is under the leadership of Majority Leader John Thune of South Dakota, with the Finance Committee led by Mike Crapo, Senator of Idaho. Both are from low-tax states and will be pivotal for Congress to stay strong in reaching a final agreement on the Tax Cuts and Jobs Act—and, of course, the SALT limits as part of that package.

The failure to extend the tax cuts is not an option for anyone who wants to keep America’s economy moving strong. For one, I’m hopeful that President Trump and congressional leaders will come together to craft a pro-growth policy for our shared economic prosperity in the years ahead.