TEI Roundtable No. 49: A Look at the TCJA in 2025: With sunsetting provisions on the horizon, taxpayers hope for greater visibility. (Tax Cuts and Jobs Act of 2017)

• Date: 01 November 2024

No matter how the US election pans out in November, the new administration will have its hands full addressing what's coming with the Tax Cuts and Jobs Act (TCJA). With some federal provisions due to expire at the end of 2025, general uncertainty about where the US tax regime is headed, and an evolving international tax environment, Tax Executive aims to capture taxpayer sentiment in this issue's Roundtable from four outstanding experts and leaders in tax policy. Panelists for this discussion include Rohit Kumar, principal and national tax office co-leader at PwC; Ray Beeman, principal and leader at Washington Council Ernst & Young; Alexis Bergman, principal in the specialty tax - international tax services group, at Baker Tilly; and Joe Calianno, partner and leader of the US national tax office at Andersen. The conversation, held over Zoom in late August, was moderated by Sam Hoffmeister, senior managing editor of Tax Executive.

Sam Hoffmeister: As 2025 approaches, what do you see as the most important issues surrounding the TCJA and potential upcoming changes?

Rohit Kumar: A couple things come to mind. The first is a threshold decision that Congress and the president are going to have to make about how much of what's extended is paid for, how much is deficit-financed, and how much is just not extended to reduce the pressures on offsets and the deficit. My own view is there's no world in which the entirety is going to be deficit-financed, nor is there likely to be a world where the entirety is fully paid for as reflected on a joint tax table score sheet. There may be other ways to demonstrate that the costs are being offset, but I don't think they'll be done in the form of pure revenue-raising offsets in toto. That, at some level, is a threshold question, because how you answer that question then sets some pretty important parameters for what policy options are available to lawmakers, given the size of the various buckets that they've deemed to be politically acceptable. And then there's the separate but important question of which provisions that are not automatically expiring [has] Congress decided to wander into. So, for example, in the revenue-raising component, is there pressure on the headline corporate rate? There's some pretty significant developments happening overseas at the OECD; to what extent [do] Congress and the White House feel like they've got to do something in response to that? That's sort of a niche issue as it relates to taxpayers generally, but a very important one for a big chunk of US employers.

Ray Beeman: I would just add on to what Rohit said, because I agree. To me, the biggest issue is, How much is going to be paid for? Because it's going to be somewhere between zero and $4.6 trillion. But second to that is, Who's going to pay for it? Because when you really look at where the big revenue pots are out there, there's not many of them within the realm of what's at least possible, not more esoteric ideas like a carbon tax or a VAT, and there's not many big levers out there. You might be able to pull a few of those levers, but whatever else you need to pay for is going to be three yards and a cloud of dust.

Alexis Bergman: I agree with Rohit and Ray in that more than $4 trillion of tax increases are scheduled to take effect at the end of 2025 and that policymakers will face significant challenges and fiscal constraints in extending all of the TCJA provisions, potentially forcing Congress to look for new revenue sources. The shape and contents of any potential tax reform, including how much should be paid for and how much should be deficit-funded, will be dependent on the outcome of the upcoming elections and the balance of power heading into the 119th Congress. Regardless as to the outcome of the election, taxpayers need to expect that everything will be on the table for discussion--including a potential increase to the corporate tax rate. Realistically, the timing and potential solutions will depend on whether the election results in a unified or divided government. If one party sweeps, it's likely they'll try to use the reconciliation process, which provides its own challenges. If the government is divided, finding areas of consensus could be a significant challenge, as there are stark differences between the Republican and Democratic approaches, as well as variations in priorities and principles within each party.

Joe Calianno: I agree with everything that's being said. One issue that comes up is who takes over from a political standpoint. If you look at the Democrats and focus on what was included in the most recent Green Book, you get one approach. The Green Book had proposals to raise the corporate tax rate, repeal FDII, repeal BEAT and replace it with an undertax profit rule for Pillar Two, modify the GILTI regime to conform to Pillar Two, and modify the foreign tax credit rules. That's one side of the aisle. Then you go to the other side of the aisle, which likely will try to avoid tax increases, make the Tax Cuts and Jobs Act changes permanent, possibly fix glitches with the Tax Cuts and Jobs Act, and possibly extend certain thresholds such as the rates for GILTI and FDII back to where they were originally when enacted. Also, as it relates to Pillar Two, there has been resistance from Republicans to the Pillar Two rules and talk of retaliation as it relates to countries that implement those rules if it negatively impacts US companies. So, it seems to me what may happen likely will depend on who is in charge of the White House and Congress. To the extent that you are going to try to extend or make permanent any of these provisions, it's a "pay for" issue. Will there be spending cuts? Tariffs? Will the the corporate tax rate increase?

Hoffmeister: Jumping into some of the TCJA provisions that are set to expire after the end of 2025, what could the implications be for tax professionals?

Beeman: I think the implication for tax professionals is really going to be the challenge of continuing to navigate this tremendous uncertainty that we have been navigating now for [what] seems like years on end, and I don't really see that changing. So...