President-elect Donald Trump’s plans to implement tax changes are extensive. In a nonpolitical description, here are six of the proposed plans with expert analysis that CFOs should be aware of for the financial cognizance of both their organizations and themselves.
1. Tariffs
Trump has extensively discussed his plan to implement tariffs on foreign countries, proposing 60% tariffs on Chinese imports and 25-100% tariffs on Mexican imports. He also plans to impose a 100% tariff on cars sold by Chinese automakers entering the U.S. from Mexico.
Joseph LaVorgna, former chief economist at the National Economic Council under Donald Trump, spoke last week on Bloomberg Television about the view that Trump tariffs would be implemented overnight and drive prices up quickly. “I think there’s a misconception that on day one of Trump, we’re going to have tariffs across the board, X percent…and [tariffs on Chinese goods] will be at least 60% or maybe higher. To me, it’s going to be very nuanced, and more transactional,” said Lavorgna.
He also highlighted how tariffs could help offset incentives to reduce the use of unethical supply chains, a major problem in big tech production and an area largely overlooked in ESG reporting. “Tariffs are going to be used in large part as a tool to essentially have more free trade,” he continued. “So for example, the U.S. has certain environmental regulations and certain rules against child labor, [and] some of our trading partners don’t have those same rules, so we’re at a disadvantage. So to the extent that tariffs can level the playing field and make trade fair, I think that makes sense.”
2. Extension of the Tax Cuts and Jobs Act
The soon-to-expire Tax Cuts and Jobs Act (TJCA) would be preserved under Trump, avoiding $4 trillion in tax hikes for taxpayers. However, as John W. Diamond, director of the Center for Public Finance at the Baker Institute at Rice University, wrote in a recent column, the tax cuts would shift the burden from taxpayers to the national debt, which is already unsustainably high.
“Given that Trump signed the act into law in 2017, I believe it’s a good bet that, at a minimum, he’ll extend the law, which will be much easier with a Republican Congress. And many economists would argue that will be good news for American households and the economy as a whole,” he wrote.
“But there’s one big caveat to this. Extending those tax cuts will put serious strain on the national debt, which is currently at unsustainable levels. Reforming the tax code to avoid a significant increase in taxes is important, but offsetting the revenue loss with spending cuts will be vital to avoid adding to the debt. Failing to do so would significantly increase the deficit and national debt and put the nation’s finances on an even more precarious path.”
3. Dropping the corporate tax rate
To incentivize companies to manufacture goods domestically, Trump has proposed reducing the corporate tax rate from 21% to 15% for businesses that make their products in the U.S. For companies that manufacture outside the U.S., the corporate tax rate could decrease by about 1%.
4. Making social security and tipped wages non-taxable
Trump has proposed two significant tax cuts aimed at middle- and lower-class Americans: removing taxes on Social Security, tipped wages and overtime pay.
Social Security is currently the largest expense in federal spending, generating roughly $1 trillion in revenue from its taxes. It’s unclear how this revenue would be replaced if taxes on Social Security were removed, especially as the fund’s ability to pay out all benefits is expected to end by 2035 if unchanged.
Trump has also suggested eliminating taxes on tips, a major challenge for CFOs in the restaurant industry when reporting and fairly compensating employees. Although tipping requests have increased across industries, leading to some backlash against “tipping culture,” even in pro-worker states like Massachusetts, voters rejected higher wages for tipped employees.
5. End of foreign tax policy for U.S. citizens abroad
The U.S. is one of only two countries that taxes citizens on foreign-earned income. While Trump says he wishes to end this tax, Blake Oliver, host of The Accounting Podcast, noted in a recent episode that it affects only a small segment of wealthy individuals.
“It is important to note that double taxation is fairly rare because you have to earn over $126,500 of foreign earned income before you have to pay tax,” said Oliver. He also talked about the opportunity of foreign tax credits available for people who may be subject to pay the taxes as they are currently written.
“The amount of money you pay to let’s say France, if you’re living [there], you get to deduct that from your U.S. taxes,” he continued. “So the folks abroad that end up paying taxes on their income abroad beyond what they would pay if they were just living there without American citizenship, [the amount of those people] is pretty low; you have to make a lot of money to end up paying those taxes.”
6. Increase or eliminate the SALT Cap
Trump has proposed increasing or eliminating the cap on state and local tax (SALT) deductions, which currently limits deductions to $10,000 and was a part of the TCJA. As companies encourage employees to return to the office and big cities face a commercial real estate crisis, expanding SALT deductions could incentivize employees, especially in high-tax states like New York, New Jersey or California.
This change would appeal to top talent, giving CFOs a recruitment and retention edge without raising salaries to offset high taxes. Companies in these high-tax states, where workforce mobility is a concern, may find it easier to retain and attract skilled professionals.
