What Should Taxpayers Expect in 2025?

What do you need to know to prepare for the upcoming tax year? 

Joining Kyle Hulehan is Erica York, Senior Economist and Research Director. In this episode, they gear you up for 2025 by discussing key tax dates to mark on your calendar and the latest news affecting tax policy. Erica also shares insights from her recent congressional testimony on tariffs.

 
 Links:
 https://taxfoundation.org/testimony/t...

 https://taxfoundation.org/blog/trump-...

Transcript

Kyle Hulehan: 0:00

Hello and welcome to the Deduction Attacks Foundation podcast. I'm your host, Kyle Houlahan, and today we are back again with our co-host, Erica York, senior economist and research director. Erica, how are you doing today?

Erica York: 0:13

Hey Kyle, doing well. Last work week of the year. How are you?

Kyle Hulehan: 0:16

I'm good. Excited for a little bit of a break for us, uh, and a hopefully a little bit of break for everyone else. Uh, you know, it's the Christmas season. That means the new year is is coming up very soon. So today's a little bit of a primer for 2025. We wanna let people know. What dates they should be aware of what's coming with taxes in 2025. So before we get into that, you know, we had the, what's in the news segment, what's going on right now that people should be aware of, uh, before we get to what's coming in 2025,

Erica York: 0:44

right now? It's just kind of like a lot of rumors and pre negotiations ahead of what Congress will be considering next year, what timeline they're going to be working on. We're seeing some disagreement, um, between house lawmakers and Senate lawmakers, as far as what they want to prioritize first. Um, so they'll have to get that all sorted out, but it's just giving us an idea of kind of how fraught next year is going to be with debates over tax, debates over president. Elect Trump's other campaign promise policies and how that actually gets put into legislation.

Kyle Hulehan: 1:16

Then. What are some of those dates that people should be aware of

Erica York: 1:21

One big one that's going to come up right away in the new year is the suspension or the expiration of the suspension of the debt limit ceiling. So this places a cap on how much essentially the U S government can borrow. And if that expires, then no more new borrowing can take place. The treasury department has some special measures they can do to continue making payments as needed, but ultimately it means Congress is going to have to lift the debt ceiling again. And that's coming like first thing in January when they get back to town. Um, of course, then we have the inauguration of president Trump coming up in January. And from, from then it's really up to Congress, how quickly things move. You know, there's been talk about doing a reconciliation bill, um, within the first hundred days, there's also been talk about two reconciliation bills done next year. One to address tax, one to address other policies, um, the dates on those, you know, there's going to be. Urgency associated with that, but with big moving pieces of legislation, like what we're expecting to see in 2025, it'll be really hard to get that done early. So I would expect we see that process stretch out to the summer, maybe even to the fall. Of course, the big deadline that matters on tax is at the end of 2025. So after December 31st next year, All of those individual provisions from the TCJA expire, um, the estate tax provisions expire and a several business tax provisions become tighter or get a little bit worse. And so ultimately that's the real deadline for when tax needs to be wrapped up ideally before that a little bit so people can plan and not have a, you know, surprise about what their tax is 2026.

Kyle Hulehan: 3:01

and you know, maybe we've talked about this quite a bit We've talked about you know, TCJA expiring. Could you maybe give people the like too long didn't read why this is actually important

Erica York: 3:10

So back in 2017, Congress passed a tax reform bill. It made some permanent changes, but because it used the budget reconciliation process, which places constraints on what you can do, um, it made temporary tax cuts for individuals. And so it cut taxes for people across the income spectrum, it lowered tax rates, increased the child tax credit, lots of moving pieces. And all of those moving pieces revert back to prior law after the end of this year, because they did those temporarily, if that expiration is allowed to occur, we've estimated that more than 62 percent of taxpayers would see tax increases. If you take the individual tax cuts that are expiring, plus the business tax cuts that are worsening, um, the average tax increase would be about 2800 dollars. So a pretty big jump in taxes scheduled to occur if Congress does nothing. It's not likely that Congress is going to let that happen, but it's also really uncertain what exactly they're going to do. So that's why this is one of the very big legislative issues for 2025.

Kyle Hulehan: 4:11

Yeah, so Erica, I mean we've we've hit this topic quite a bit over over the Are like eight or ten episodes that we've done together. Uh, you recently testified on tariffs Could you tell people a little bit about that?

Erica York: 4:27

Yeah. So I was invited to testify before the joint economic committee. They're having a hearing on tariffs, how they affect costs, how they affect prices, how they affect manufacturing. And so my testimony is focusing on what we know from the 2018, 2019 trade war. Which is that the tariffs imposed under president Trump's first term shrunk the U S economy. They raise costs, both for businesses that buy inputs from abroad and for consumers that either buy consumer goods from abroad or buy products made in the U S with U S tariffs. foreign inputs as part of the composition of that good. Um, so those costs went up because us import prices went up. Uh, we saw a decline in manufacturing jobs, both from those higher input costs and from retaliation that other countries put on us exports in response to the tariffs we imposed. So overall net negative outcomes for Workers for farmers for manufacturers for the U. S. economy as a whole, and, you know, we have a lot of tax policy reforms that could be on the table that would meet these goals that tariffs are supposed to do, but don't actually so whether it's, you know, boosting manufacturing productivity, increasing incentives to invest in the U. S. or locate production in the U. S. There's a lot that can be done in a simple and neutral way in the tax code, like full expensing for capital investment. Appreciate it. Full expensing for research and development, um, that do not come with all of those downsides that tariffs come with and that actually would result in these better outcomes. And so my testimony focused on kind of those two points, the negatives of tariffs. Um, we know they don't work and here are some tax policy ideas that we do know work, um, and could better achieve these goals.

Kyle Hulehan: 6:12

I you know, I I feel like sometimes this stuff can be so elusive or it seems a little abstract But correct me if i'm wrong. I I think it was It was washers or dryers or something that the price of tariffs actually affected like something people are buying in their everyday lives. This isn't like, you know, metal or building or steel, which were things that were affected, I believe, but, you know, there are things in people's real lives that they will be purchasing, purchasing that could be affected by tariffs.

Erica York: 6:37

Absolutely. Yeah. The first Trump administration put tariffs on washing machines and Big surprise, the price of washing machines that you buy at the store went up. And, um, one study found that even the price of dryers, which were not subject to tariffs, but are sold often in a package with washers, went up too. So not only did you have to pay more for your washer, Because you had to pay more for your washer that gave companies room to make. You also pay more for your dryer. And so consumer costs went up, um, across the economy by, by billions. Um, now you'll hear tariff proponents say, yeah, but this resulted in us saving a few jobs. But if you look at how much consumers had to pay to save a job, we paid more than the person. Working in that saved job was actually earning, which just shows how much economic loss is occurring for us to pay so much more to save one job, rather than for us to look at reforms that would boost productivity, boost these growth incentives in a way that grows the economy, rather than that, just redistributing income from consumers to protected sectors. And, you know, if you look at. One of the complicating factors here that makes it hard to produce washing machines in the United States is that we place tariffs on steel, which are one of the things that you have to have access to to make a washing machine. So we're increasing the cost of steel for the companies, um, which makes it even harder to produce, which again adds to the ultimate price that consumers pay. So tariffs are a really, um, really bad tool for, for the goals that proponents want to achieve with them.

Kyle Hulehan: 8:09

Yeah. So we just, we just couldn't finish the year without talking about tariffs. A little bit more, uh, Erica, it's been really great doing our podcast this year. We will continue into 2025. We're going to cover everything that's going on in taxes. It's going to be a very, very big year. Thank you for being on the show today with us.

Erica York: 8:27

Yeah. Thanks, Kyle. And happy holidays and happy new year to everybody.

Kyle Hulehan: 8:30

Yes. Happy holidays, everyone. And before we sign off, as always, if you have any burning questions on taxes, you can send them our way via email to podcast at tax foundation. org, or you can slide into our DMS at deduction pod on Twitter. Thanks for listening.