Revenue Looks to Become a Major Element of 2025 Tax Bill

Recurring revenue estimates of the cost of extending the expiring 2017 tax cuts suggest that revenue will play a major role in the debate over the upcoming tax bill in 2025. After at least five revenue estimates, all covering a 10-year period that includes 2028, projections of the revenue lost due to current tax rules keep going up.

The Committee for a Responsible Federal Budget (CRFB) studied the five most recent government revenue estimates and found that in the year of 2028, the revenue loss as a share of gross domestic product has jumped by 31 percent since 2018. CRFB also estimates that the cost of extending the individual tax provisions that are otherwise set to expire at the end of 2025 would cost about 50 percent more than the $1.2 trillion that had been projected back in 2018. For example, the individual tax cuts were, in 2018, estimated to cost $286 billion in foregone federal tax receipts. That amount jumped to $340 billion in 2022 and to $416 billion now.

Factor in the spiraling federal debt and deficit ($33.17 trillion in debt in 2023, $1.7 trillion deficit in 2023), and the cost of the looming tax bill becomes a very key factor in how the bill will be constructed.

While revenue estimates, debt and deficit issues are the stuff of geeks and eyes-glazing-over for most, these issues are poised to wield outsized influence over what goes in and what stays out of what will be a very major tax bill in 2025. Tax policy and partisan politics could well take second place.

So far at this early stage of the debate, there are few specific revenue-raising proposals. But there are some, including:

• Widespread lawmaker interest in raising the corporate tax rate from 21 percent to 25 or 28 percent. Most Democrats, including President Biden, say they support this, but some Republicans have also expressed interest in this proposal.
• A likely concurrent adjustment in how the section 199A deduction for qualifying non-corporate business income works—in 2017, section 199A was designed to provide tax relief to non-corporate businesses roughly equivalent to the tax relief from the drop in the corporate rate to 21 percent. This provision has considerable GOP support, and among fewer Democrats but will face some Democratic outright opposition or proposals for reform
• Restriction on the use of private placement life insurance (PPLI) as a tax shelter
• Changes to rules governing trusts, especially those that let their owners avoid income tax

In addition, the current expectation is that there will be some purely partisan tax proposals aimed primarily at raising revenue while at the same time reducing the disparities in the tax code favoring asset holders over wage earners. Examples include a number of proposals by Democrats to increase taxes on high-income, high-wealth taxpayers, including some that would tax annual gains in the value of investments held by very wealthy individuals, even if those investments are not sold (i.e., taxing unrealized income).

Prospects: The 2025 tax bill is already preoccupying Congress as lawmakers get ready to tackle the measure head-on after the November elections. It very likely will dominate Congressional activity by early in 2025. Its reach will be broad and the number of issues it generates will be vast. There will be competition from virtually every segment of the economy to include or exclude policy-based and/or revenue-raising proposals. NAIFA is watching this issue closely and anticipates emergence of issues that will require grassroots as well as in-Washington work.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.