Big 4 Tax Director: Fate of TCJA in the Hands of a ‘Very Different’ GOP

What ultimately becomes of permanent and temporary provisions of the Tax Cuts and Jobs Act (TCJA) will be largely decided by “a very different Republican party” than the conservative majority that enacted the 2017 reform bill during President-elect Donald Trump’s first term, according to Andrew Prior, managing director of PricewaterhouseCoopers’ Washington National Tax Services.

Prior appeared as a panelist November 11 at a tax conference hosted by the American Institute of Certified Public Accountants and the Chartered Institute of Management Accountants in Washington, D.C. He, alongside PwC Partner Priscilla Bullock, presented the firm’s prognosis of the 2025 political landscape after Trump secured a second presidential term and Republicans flipped the Senate.

The dust is also settling on the results of the House races, though it appears Republicans will again have a trifecta under Trump come January, capping off a clean sweep of the 2024 general elections.

But this time around, “there is a stronger element of populism and a sort of focusing on the working class as opposed to business issues,” observed Prior, who then clarified that there are “still plenty of business-friendly Republicans” who will comprise the party’s majority control of the incoming Congress.

Corporate tax rate.

The TCJA permanently lowered the corporate tax rate from 35% to 21%. Prior explained that when the 2017 bill was drafted, “they had enough revenue tail beyond the 10-year budget window that they didn’t have to sunset everything.” The previous Republican trifecta focused on “certainty for the business community,” since businesses “can’t really plan” around a temporary corporate tax rate, nor a temporary international tax regime.

Although President Biden sought to split the difference with a 28% rate, as he did in his fiscal year 2024 budget proposal, Prior said any hike under Republican control is “off the table.” If anything, the new Congress may be tempted to enact a “preferential rate” of 15% reserved for companies that produce and manufacture domestically.

This, Prior said, is “tied to” Trump’s policy proposal to increase tariffs on imported goods, or “at least finished products.” Because Republicans want to encourage U.S. production to compete economically with other countries like China, Prior cannot “completely rule out the possibility of a preferential rate.”

However, two aspects of the TCJA that are already tethered together is the 21% corporate tax rate and the Code Sec. 199A pass-through business deduction, which allows individuals, trusts, and estates with pass-through income to deduct up to 20% of qualified business income from ordinary taxable income.

Section 199A serves to balance out the TCJA’s tax benefits to corporations with treatment of pass-through entities. As Prior put it, it was meant to create “tax rate parity” between different entity types, “and so I think that there’s going to be a lot of pressure to continue that” given the “influential voice” pass-throughs and the small business community have in shaping “tax policy in Washington.”

Too much SALT?

A more populist Republican majority may be inclined to approach the proverbial “Tax Superbowl” through a skeptical lens of certain TCJA provisions, according to Prior.

“I think there is this train of thought that: Why are we helping pass-through businesses?” Prior observed in his conversations with Republican staffers on Capitol Hill. “Why are we helping them get around a [state and local tax (SALT)] deduction cap that applies to W-2 wage earners and not other people who have other streams of income?”

With respect to the current $10,000 SALT deduction cap, one of the several sunsetting TCJA provisions, Prior noted the position of sitting House Ways and Means Chair Jason Smith (R-MO), who wants to “at a minimum” eliminate the so-called marriage penalty. This means the cap would be doubled for joint filers.

Prior said that the estimated cost of extending TCJA provisions without modifications would be “upwards of $5 trillion over 10 years” assuming that both the existing tax breaks and revenue raisers (like the SALT deduction cap and the mortgage interest limitation) are extended. If the SALT cap is not extended nor raised and taxpayers can again have “unlimited SALT deductions, that’s another $1.2 trillion in estimated revenue cost over 10 years,” Prior said.

He expects there to be a “healthy debate” with budget hawks and the Democratic minority on whether to apply the SALT cap “across the board” and not just on individual taxpayers. While “anything is possible,” especially if there is pressure to increase revenues, Prior nonetheless does not foresee a “complete repeal” of the cap.