Personal Taxes Take Center Stage as Congress Tackles the 2025 Tax Bill Conundrum of Lowering Deficits with Lower Tax Rates

Call it what you will, the coming “Tax Cliff,” “Tax Armageddon,” or the “Tax Bill Superbowl,” the number one worry family business owners agree on is this: personal income taxes are too high.

This worry is clear in our research and among family business owners penciling out their 2025 budgets. For many, like family business owners and successful individuals, their personal taxes are likely to go up.

The Tax Cuts and Jobs Act (TCJA) of 2017 included significant personal tax changes to the tax code. Many of these changes were enacted on a temporary basis and are set to expire at the end of 2025. Former President Donald Trump favors extending all the expiring provisions, while Vice President Kamala Harris is opposed to tax increases on people making less than $400,000, which means extending SOME provisions of the TCJA, but only for SOME.   

Then, there is the pesky issue of a $4.6 trillion budget deficit (over ten years) if the TCJA tax provisions are extended, according to the Congressional Budget Office.

 In next year’s 119^th Congress the tax bill writers, i.e., our House of Representatives, will have a complex job of threading the needle of growing budget deficits and higher taxes, with a long line of unhappy, over-taxed constituents.

No matter, the pressure is on to preserve the current personal tax rates and brackets enacted under the Tax Cuts and Jobs Act.

Why such a worry? Family businesses are different. Family-owned businesses rely on the consistency of tax rates more than corporate businesses due to the increased complexity in succession planning.

In addition, family businesses are uniquely suited to reinvest more in their business, their employees, and their communities, according to the results of from our 2024 Annual Family Business Survey.

In the survey, it was found 52% of respondents indicated that if they paid less in taxes, they would invest more in their business, and 30% indicated they would raise their employees’ salaries.

The question is: how do you lower taxes while also cutting the deficit? This conundrum remains a riddle wrapped in a worry stuck in an ever-thinning wallet.

Right now, the opposing tax proposals present a clear distinction between the two major political parties. The Tax Cuts and Jobs Act (TCJA), which passed in 2017, made the rate cuts for businesses permanent, but the cuts for individual taxes sunset at the end of 2025. Remember 80% of family businesses pay taxes at individual income tax rates.

Earlier this year, House Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) struck a rare bipartisan compromise on tax legislation to move forward with the Tax Relief for American Families and Workers Act (H.R. 7024).

The Wyden-Smith bill cleared the House with more than 350 votes but stalled in the Senate. As a result, unless the Senate acts, individual taxpayers and family business owners may see tax increases as lower marginal tax rates revert to pre-TCJA levels, with the highest tax rate going back to 39.6%.

If given the chance, Republicans are likely to focus on making permanent the TCJA’s lower individual tax rates, with expanded standard deductions. Democrats are likely to focus on extending several of the current individual tax rates, offer additional child tax credits, but raise the rates on singles earning more than $400,000 annually, and on married couples filing jointly at $450,000. 

As a result, family businesses operating with pass-through structures (as 80% are), and so pay higher individual income tax rates. The expiration of TCJA, without a fix, will disproportionately affect family businesses and successful individuals.

Specifically, low-income households will pay roughly one-half percent more of their income in taxes if all the provisions of the TCJA expire, while households in the top 1% will pay an additional 3.1% of their income in taxes.

Then there is something called “bracket creep.”

Each fall, the IRS typically announces new tax brackets. This year, brackets are likely to be adjusted 2.8% higher for the 2025 tax year, according to tax experts like Bloomberg Tax. This is the smallest inflation adjustment in three years, due to inflation dropping to its lowest level in three years this past summer, after hitting the post-pandemic 40-year high in 2022.

So, as family business owners and workers earn more and get raises for inflation, they often find themselves in a higher tax bracket, which negates any benefit from the raise. Hence, you get “bracket creep,” which kills the increase in income.

Adjusting the nation’s tax brackets for inflation avoids “bracket creep,” and it can be offset further by raising standard deductions.

The standard deduction next year is projected to increase to $30,000 for married couples filing jointly, up from $29,200 in the current tax year. The standard deduction for single taxpayers is forecast to rise to $15,000, up from $14,600 in 2024.

With all this personal tax discussion on Capitol Hill, one thing is clear: we’re facing a critical year.

No matter who sits in the White House and in Congress, the next 12 months will be a fight to make sure our family business messages are heard by our legislators.

The new tax bill will be designed to cost as little as possible in lost revenue, and so some of the current individual and business TCJA tax provisions will likely be lost. We need to fight to keep as many as possible for successful individuals, family businesses, and family offices.

We need a strong, loud voice over the next 12 months telling our story to those writing the legislation in Congress.

You can help to help by engaging, supporting, and sponsoring our stand against harmful legislation. With your help, we can create and guide the coming changes in our personal tax code.

We have won in the past and we will continue to fight and win in the future, with your help.

Policy and Taxation Group is the Voice for Family Offices and Successful Individuals in Washington, DC focused exclusively on the critical tax and economic policies that impact them.

Since 1995, Policy and Taxation Group has been the leading advocacy group working to reduce and eliminate estate tax, gift tax, and generation skipping transfer tax while blocking increased income tax and capital gains taxes, the creation of a wealth tax, and other hostile tax policies that punish hardworking taxpayers and success.

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