As the 2024 presidential election approaches, Donald Trump unveils critical tax plans that could shape his potential administration. With Trump securing the Republican presidential nomination, both political parties are closely examining Project 2025, a comprehensive and thoroughly developed policy initiative by The Heritage Foundation in collaboration with over 100 other conservative organizations.

CNBC recently reported that If implemented, this plan could significantly overhaul the U.S. income tax system and restructure the IRS, among other changes. Newsweek recently pointed out that Trump has not yet released fully detailed tax plans if he wins a second term in office, but he has given some indication of his plans.

Throughout his campaign, Trump has positioned himself as a champion of low taxes, pledging to reduce corporate taxes, increase tariffs on international imports, and exempt certain U.S. workers from current tax requirements.    

The approximately 900-page “Mandate for Leadership” outlines extensive changes to the federal government and provides policy recommendations for the next administration. The Heritage Foundation initiated this project in 2022 and released the policy collection in April 2023.

President Joe Biden and the Democrats have characterized this initiative as a preview of a potential second term for Trump. The Biden campaign has even described Project 2025 on its website as a “blueprint for Trump.”  Trump has made statements to distance himself from the mandate.   

Some aspects of Project 2025 could be implemented through executive action, but many tax policy proposals would require legislative approval, which may be challenging without Republican control of Congress.

Here’s what these proposed policies could mean for taxes and the IRS.

Simplifying Federal Tax Brackets

Project 2025 proposes a significant overhaul of the tax system to “promote prosperity” by:

• Lowering marginal tax rates
• Reducing capital costs
• Expanding the tax base

Key changes include:

• Replacing current brackets with a two-tier system
• Proposed rates: 15% and 30%
• Higher rate would apply to incomes above ~$168,600 (2024 Social Security wage base)

Current system (2024):

• Seven tax brackets
• Top rate of 37%

Note: Without Congressional action, some rates will increase post-2025 when Tax Cuts and Jobs Act provisions expire.

Howard Gleckman of the Urban-Brookings Tax Policy Center told CNBC, that Under Project 2025, the impact on individual federal income taxes would vary based on current tax brackets, The proposal aims to eliminate most deductions, credits, and exclusions, including tax breaks for state and local taxes and education. 

However, Gleckman notes that this may not affect most Americans, as nearly 90% of filers claimed the standard deduction in 2021, up from about 70% in 2017 before the Tax Cuts and Jobs Act. The plan also suggests a “fundamental reform” that could introduce some form of consumption tax on goods and services, such as national sales or business transfer taxes. Garrett Watson of the Tax Foundation cautions that these policies could face significant challenges in Congress, potentially making enactment difficult.

Proposed Tax Cuts on Investment Income

Project 2025 suggests reducing taxes on investments, particularly benefiting higher earners:

• Capital gains and qualified dividends tax rate: 15% (currently up to 20% for long-term gains)
• Elimination of the 3.8% Net Investment Income Tax (NIIT)
  • Currently applies to incomes over $200,000 (single) or $250,000 (married filing jointly)

Under the current system, top earners may pay up to 23.8% on capital gains when including the NIIT. Howard Gleckman of the Urban-Brookings Tax Policy Center notes these proposed changes could significantly benefit high-income investors.

Proposed Changes to Estate and Gift Taxes

Project 2025 aims to modify estate and gift taxes:

• Make 2017 Tax Cuts and Jobs Act (TCJA) exemptions permanent
• Reduce maximum estate and gift tax rate from 40% to 20%

Currently, TCJA’s higher exemptions are set to expire after 2025. While these changes would affect less than 1% of taxpayers (based on 2023 Tax Policy Center estimates), Howard Gleckman notes that for those impacted, “your heirs would be very happy with this proposal.”

The Tariff Debate in Project 2025

Project 2025 presents contrasting views on U.S. trade policy, particularly regarding tariffs:

• Pro-tariff stance: Peter Navarro, former White House trade advisor, supports tariffs, including a reciprocal levy.
• Anti-tariff stance: Kent Lassman of the Competitive Enterprise Institute advocates for lowering or repealing tariffs to reduce the costs of American goods.

While Trump claims unfamiliarity with Project 2025, he frequently discusses tariffs, proposing:

• A baseline 10% tariff on all U.S. imports
• Up to 60% or higher tariffs on Chinese goods
• An “all tariff policy” to potentially replace federal income taxes

However, a 2020 study by economists from the Federal Reserve Bank of New York, Columbia University, and Princeton University found that previous U.S. tariffs were largely paid for by U.S. companies and consumers.

Proposed IRS Reforms: Potential “Direct Taxpayer Impacts”

Project 2025 outlines several changes to the IRS, aiming to “reduce intrusiveness and increase accountability.” According to Garrett Watson of the Tax Foundation, these proposals could significantly affect taxpayers.

Key proposals include:

1. Budget cuts to the IRS, contrasting with the nearly $80 billion funding increase approved in the 2022 Inflation Reduction Act
2. At least a 20% increase in resources for the Office of the Taxpayer Advocate to better assist taxpayers facing “wrongful IRS actions”
3. Increasing the number of presidential appointees within the IRS
4. Enhanced focus on technology improvements
5. Comprehensive review of information reporting requirements (tax forms submitted by employers and financial institutions)

These changes align with Republican priorities following increased scrutiny of the IRS. The proposal emphasizes empowering the Taxpayer Advocate’s office to provide improved assistance to taxpayers dealing with IRS-related issues.   

Conclusion 

A Forbes article asked, “Will Trump Have to follow these plans?” If elected, Trump won’t be bound to Project 2025’s proposals. However, past experience suggests he may adopt some recommendations:

• Precedent: In 2016, the Heritage Foundation offered similar policy proposals
• Impact: By 2018, Trump had reportedly implemented 64% of Heritage’s recommendations

CBS News notes that this pattern indicates Project 2025 could significantly influence policy, though Trump retains flexibility in his approach.