Key Points
- Many of the tax reform suggestions President-elect Trump floated during the campaign would result in significant revenue loss, which could mean they will face resistance from Republicans concerned about budget deficits and the national debt.
- Key issues are likely to include extending international tax provisions adopted in 2017 as well as tax benefits for domestic businesses and addressing the global minimum tax initiative.
- Renewable energy credits could be reduced to offset the fiscal impact of other changes.
- Many of the proposals are unlikely to win Democratic support, and Republicans do not have enough Senate seats to defeat a filibuster, so the incoming administration may have to rely on the budget reconciliation process to win approval for tax changes.
Tax policy has emerged as a key focus following the presidential election. While President-elect Donald Trump did not unveil a detailed tax plan during his 2024 campaign, he has proposed several reforms that have gained traction within the Republican-controlled Congress.
The viability of these tax reforms will depend on two critical factors.
The first is the budget reconciliation process in the Senate. While Republicans currently hold 53 Senate seats, their majority falls short of the 60 votes needed to overcome a filibuster. Unless a bipartisan agreement is reached — an unlikely scenario — Republicans will probably resort to the budget reconciliation process to advance a partisan tax bill with a simple majority.
The second factor is budgetary concerns related to the sustainability of tax cuts, the growth of the national deficit and the imperative of aligning tax policies with fiscal responsibility. Although this article focuses on select potential reforms, if the Republicans manage to fully implement all of their proposals through reconciliation, the planned tax cuts could result in a revenue loss of approximately $6.7 trillion from 2025 to 2034, excluding any offsets.
The proposed offsets include:
- Repealing the Inflation Reduction Act’s (IRA) green energy tax credits, estimated to save $921 billion.
- Imposing significant tariffs, such as a 25% tariff on all imports from Canada and Mexico, along with an additional 10% tariff on all imports from China, estimated to generate around $1.2 trillion in revenue collectively from 2025 through 2034. (See “Decoding Tariff Threats: What Importers Can Expect on Day 1 and Beyond.”)
For tariff revenues to be eligible for reconciliation, however, they would need to be established through legislation, which appears improbable since congressional Republicans would likely not back a substantial tariff hike. Thus, with the U.S. national debt exceeding $36 trillion in 2024, any reform with a large price tag is likely to raise concerns among fiscal conservatives.
Given these two factors, we outline some of the key tax reforms we expect to see during President-elect Trump’s second term.
TCJA – International Tax Provisions
Certain international tax provisions introduced by the Tax Cuts and Jobs Act of 2017 (TCJA) are scheduled to expire on December 31, 2025. If Congress does not intervene, these expirations will result in higher effective tax rates for U.S. multinational enterprises. Specifically:
- The global intangible low-taxed income (GILTI) rate will rise from 10.5% to 13.125%.
- The foreign-derived intangible income (FDII) rate will increase from 13.125% to 16.4%.
- The base erosion and antiabuse tax (BEAT) rate will grow from 10% to 12.5%.
Republicans have expressed their intention to either extend these provisions or introduce additional reforms to further stimulate domestic manufacturing. Depending on the legislative changes and duration of the extension, budgetary constraints could present substantial challenges.
For example, continuing the existing GILTI, FDII and BEAT rules through 2034 is projected to cost $141 billion. Such an expense complicates the fiscal landscape, potentially hindering efforts to reach a consensus on extending or revising these tax provisions.
Pillar Two faces significant uncertainty in the U.S., particularly given the Republicans’ emphasis on national sovereignty and deregulation.
Another key consideration is the interaction between the TCJA provisions and the global minimum tax initiative (Pillar Two), as well as the Organization for Economic Cooperation and Development’s (OECD) broader international tax reform efforts. Pillar Two faces significant uncertainty in the U.S., particularly given the Republicans’ emphasis on national sovereignty and deregulation.
Currently, a safe harbor provision offers U.S. companies some protection from the more severe impacts of Pillar Two. However, this provision expires at the end of 2025 (or the end of the 2026 fiscal year for noncalendar year taxpayers), necessitating congressional action to address potential conflicts between the U.S. tax rules and Pillar Two.
If the U.S. government does not adopt Pillar Two — a likely scenario — U.S. earnings could be subject to higher taxes in a foreign jurisdiction that has adopted this measure, undermining the U.S. tax base. This may also prompt other jurisdictions to adopt unilateral measures, leading to a disjointed and a less predictable global tax environment and heightened compliance burdens.
TCJA – Other Provisions
Outside the realm of international tax, other tax reforms may include changes to tax incentives for certain closely held businesses. Internal Revenue Code Section 199A, which allows a deduction of up to 20% of qualified business income for sole proprietorships, S corporations and partnerships, was introduced as part of the TCJA and is set to expire at the end of 2025.
Section 199A was designed to complement the significant reduction in the corporate income tax rate under the TCJA, and policymakers have identified it as a key priority, because letting it expire would result in a substantial increase in the federal tax burden for domestic businesses in certain industries.
However, extending Section 199A permanently is estimated to reduce federal tax revenues by approximately $684 billion between 2025 and 2034. Moreover, other expiring provisions will likely influence the future of the provision, such as those relating to individual tax rates and bonus depreciation.
In addition, President-elect Trump has proposed:
- Eliminating the research and development amortization rules under the TCJA in favor of immediate expensing.
- Reversing the phase-out and reinstating the 100% bonus depreciation benefit.
- Switching the interest deduction limitation back to using EBITDA (earnings before interest, taxes, depreciation and amortization) rather than EBIT (earning before interest and taxes).
Other Potential Reforms
Renewable energy credits will also be central to the upcoming tax reform. The IRA expanded existing renewable energy tax credits, introduced new credits, increased credit amounts and instituted new monetization methods, greatly broadening the pool of potential participants.
During his campaign, President-elect Trump criticized these renewable energy credits as costly and pledged to eliminate them, preferring instead to support the traditional energy sector. However, given the slim majority in the Senate and the significant growth in renewable energy investments since the IRA’s passage — particularly in Republican districts — fully repealing the law may prove difficult politically.
Instead, certain benefits could be scaled back to offset the costs of other policies. This might include repealing specific credits, limiting eligibility, reducing the credit amounts, shortening credit windows or removing monetization options.
Moreover, upcoming tax reforms could involve modifications to partnership tax law, as both Republicans and Democrats have proposed legislative changes in recent years. For instance, former House Ways and Means Committee Chair Dave Camp, R.-Mich., introduced partnership tax law reform in the Tax Reform Act of 2014, and Sen. Ron Wyden, D.-Ore., released a discussion draft of relevant legislation in 2021.
With those existing legislative frameworks to draw on, partnership tax law reform might serve as a potential revenue-generating measure.
Finally, the Republicans have also floated the idea of other tax reforms, including:
- Changes to corporate tax rates.
- Lifting the SALT (state and local tax) deduction cap.
- Exempting tips and overtime pay from income tax.
Final Thoughts
It remains unclear whether the second Trump administration will implement any of these reforms. In the meantime, multinational enterprises should monitor U.S. tax policies as well as international tax changes for any proposed reforms that could impact their organizations, potentially creating unforeseen risks. They should also bear in mind that U.S. legislation could advance rapidly through the budget reconciliation process.
See the full 2025 Insights publication
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.