The 2025 Tax Debate: Where Republicans and Democrats May Agree

The expiration of key provisions from the Tax Cuts and Jobs Act at the end of 2025 provides lawmakers the opportunity for significant tax reform. TCJA, passed by Congress and signed into law by former President Donald Trump in 2017, made changes to individual and business taxes. Most of the changes to the individual tax code are scheduled to expire on December 31, 2025.

Questions about extending these provisions and their effect on the budget and economy are fueling the debate between the parties. Despite political rhetoric surrounding the TCJA, Republicans and Democrats may have shared interests in extending several expiring provisions, including:

• Lower individual tax rates;
• A doubled standard deduction;
• A doubled Child Tax Credit; and
• Making permanent the employer tax credit for paid family and medical leave.

The two parties may also share an interest in reversing the switch in tax treatment for business R&D from full expensing to five-year amortization.

We review each of these below, along with where the two parties may agree.

Individual Tax Rates: TCJA lowered individual income tax rates across the board. When enacted, TCJA’s changes to individual taxes were projected to reduce revenues and increase deficits by $862 billion from fiscal years (FY) 2018-2027. The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) estimate that making the individual provisions permanent would increase deficits by an additional $2.2 trillion from FY2025-2034. Many Republicans will look to extend the lower rates in all seven tax brackets, whereas Vice President Harris, the Democratic nominee for president, has campaigned on not allowing taxes to go up for anyone making under $400,000 and raising taxes on higher earners. In practice, an extension for joint filers earning less than $400,000 would mean extending lower rates for most taxpayers in the bottom five brackets. 

Standard Deduction: TCJA nearly doubled the standard deduction (adjusted annually for inflation) and eliminated or restricted many itemized deductions. The higher standard deduction and tighter limits on itemized deductions reduced the number of taxpayers who itemize deductions each year. Before TCJA, around 70% of taxpayers took the standard deduction, and 30% itemized; today, the proportion is 9:1. Supporters argue that the changes simplify the tax code, decrease the average time to complete returns, broaden the tax base (by limiting itemized deductions), and help low- and middle-income taxpayers more than upper-income taxpayers. CBO and JCT estimate that making the larger standard deduction permanent would increase deficits by an additional $1.3 trillion from FY2025-2034.

CTC: TCJA temporarily expanded the Child Tax Credit, doubling the maximum credit per child from $1,000 to $2,000 and increasing the income phase-out thresholds. Republicans argue an increased CTC helps families offset the cost of raising children. Democrats have consistently backed CTC expansions as well, with many looking to raise the cap to $3,000 per child as included in the 2021 American Rescue Plan. Although the parties have yet to agree on the extent of CTC reform or expansion, there have been promising signs of bipartisan support in broadly enhancing the CTC. CBO and JCT estimate that making the $2,000 CTC permanent would increase deficits by an additional $735 billion from FY2025-2034.

45S: Another expiring tax credit from TCJA is the Employer Credit for Paid Family and Medical Leave, known as 45S, that partially offsets the cost to employers of providing paid family and medical leave. Congressional Republicans and Democrats in both chambers have demonstrated an interest in permanently enhancing and extending the credit. CBO and JCT estimate that making 45S permanent would increase deficits by an additional $5 billion from FY2025-2034.

R&D: TCJA included a change in the tax treatment of R&D beginning in 2022. For decades before TCJA, businesses had been able to fully and immediately deduct any research and development (R&D) expenses in the year the expense was incurred. Since 2022, businesses have had to instead spread those deductions out (i.e., amortize them) over five years. This has the effect of raising taxes on businesses’ R&D efforts and making R&D investments more expensive. There is strong bipartisan support in Congress for going back to full R&D expensing. The Committee for a Responsible Federal Budget estimates that restoring full R&D expensing would increase deficits by $150 billion from FY2024-2033.

Many Republicans and Democrats share a commitment to both fiscal responsibility and economic growth. Extending just these five provisions would increase deficits by more than $4.2 trillion over 10 years, emphasizing the need for both parties to also consider offsets that ensure tax cut extensions do not substantially worsen the nation’s already bleak budget outlook. Engaging in constructive dialogue enables lawmakers to identify overlaps in their objectives and explore compromises that strengthen the economy for all. The upcoming tax debate provides Congress with an opportunity to make impactful and effective change, demonstrating that bipartisanship is not only possible, but essential.