An Overview of Current Tax Reform Proposals

Tax policy is a central and continuously evolving subject of legislative debate in the United States. Proposals for significant reforms frequently emerge from various sources, including the White House, specific committees within Congress, and independent policy organizations. These initiatives are driven by a desire to achieve specific economic outcomes, such as stimulating growth or ensuring a more equitable distribution of the tax burden.

The timing of these discussions is often dictated by legislative necessity. Key provisions of existing tax law are sometimes enacted with expiration dates, creating a deadline for lawmakers to decide whether to extend, modify, or allow the policies to lapse. This environment of scheduled sunsets forces periodic re-evaluation of the nation’s tax code, sparking comprehensive debates that touch upon nearly every aspect of federal revenue collection.

Proposed Changes to Individual Taxation

A primary focus of current tax reform discussions is the structure of individual income tax brackets and their corresponding rates. The existing framework, established by the Tax Cuts and Jobs Act of 2017 (TCJA), features seven tax brackets with rates of 10%, 12%, 22%, 24%, 32%, 35%, and a top rate of 37%. One set of proposals seeks to make these rates permanent, preventing a scheduled return to the pre-TCJA structure, which had a top rate of 39.6%.

Conversely, alternative proposals advocate for targeted adjustments for higher earners. These plans would restore the 39.6% rate for income above certain thresholds, often cited as $400,000 for individuals. Some proposals go further, suggesting new surtaxes on income exceeding specific high-earner benchmarks.

Standard and Itemized Deductions

Debate surrounds the future of the standard deduction and specific itemized deductions. The TCJA nearly doubled the standard deduction, and proposals to make this higher amount permanent are common, as over 90% of taxpayers now utilize it.

A contentious issue is the $10,000 cap on the state and local tax (SALT) deduction, which primarily affects taxpayers in high-tax jurisdictions. One legislative proposal suggests increasing the SALT cap to $40,000 for most filers, but phasing it back down for those with adjusted gross income over $500,000. Other ideas range from a full repeal of the cap to leaving it in place.

Capital Gains and Investment Income

The taxation of investment income is another area targeted for reform. Currently, long-term capital gains and qualified dividends are taxed at preferential rates of 0%, 15%, or 20%, depending on the taxpayer’s taxable income. While many discussions center on maintaining this structure, other proposals seek to increase these rates for high-income individuals.

One prominent plan would tax long-term gains and dividends at ordinary income rates for taxpayers with more than $1 million in annual income. Another idea involves imposing a new “billionaires’ tax” of 25% on total income, which would include unrealized capital gains for taxpayers with wealth exceeding $100 million.

Tax Credits

Tax credits are a major component of reform proposals, with a focus on families. The Child Tax Credit (CTC) is at the center of this debate, and following a temporary expansion, proposals now vary widely. Some advocate for making the TCJA’s $2,000 credit permanent, while one recent bill suggests a temporary increase to $2,500 per child between 2025 and 2028, with a requirement that the child have a Social Security number.

Other proposals include strengthening the employer-provided childcare credit and modifying the Earned Income Tax Credit (EITC) to provide greater support for low-income working individuals without children.

Proposed Changes to Business and Corporate Taxation

Central to business tax reform is the corporate income tax rate. The TCJA lowered the rate from a tiered system to a flat 21%. Many current proposals advocate for maintaining this 21% rate to keep the U.S. competitive internationally.

Others aim to incentivize domestic manufacturing by allowing businesses to immediately deduct the full cost of investments in U.S.-based facilities. A competing vision involves raising the rate, with a frequently cited proposal seeking to increase the corporate income tax rate to 28%.

Pass-Through Business Taxation

The tax treatment of pass-through businesses—such as S corporations and partnerships—is another area of debate. The Section 199A Qualified Business Income (QBI) deduction allows owners of eligible pass-through entities to deduct up to 20% of their qualified business income, but this provision is scheduled to expire.

Many reform proposals focus on making the QBI deduction permanent, while some plans propose increasing the deduction to 23%. Conversely, other proposals would allow the deduction to expire or would apply the Net Investment Income Tax (NIIT) to pass-through income for high-income taxpayers.

International Tax Provisions

The taxation of multinational corporations is aimed at preventing companies from shifting profits to low-tax countries. The tax on Global Intangible Low-Taxed Income (GILTI) is currently 10.5% but is scheduled to increase to 13.125% after 2025. One set of proposals would make the lower 10.5% GILTI rate permanent.

Another provision, the Base Erosion and Anti-Abuse Tax (BEAT), is a minimum tax on certain payments to foreign affiliates. It is also scheduled for a rate increase from 10% to 12.5%, with proposals to make the lower 10% rate permanent.

Proposed Changes to Estate and Gift Taxation

A significant element of tax reform involves the federal estate tax on the transfer of property after death. The central feature is the exemption amount, the value of an estate that can be transferred tax-free. Under the TCJA, this exemption was substantially increased, and for 2025 it stands at $13.99 million per person.

This high exemption amount is scheduled to be cut in half at the end of 2025. Some proposals aim to allow the exemption to revert to the pre-TCJA level of approximately $5 million. Other proposals seek to permanently increase it to a base of $15 million per individual.

Estate and Gift Tax Rates

Beyond the exemption amount, the tax rate applied to estates valued above the threshold is also a subject of debate. The current top federal estate tax rate is a flat 40%. While some lawmakers favor keeping the 40% rate, others advocate for increasing it to generate more revenue from the wealthiest estates.

Stepped-Up Basis

A related topic is the “stepped-up basis” rule. When an individual inherits an asset, like stock or real estate, its cost basis for tax purposes is “stepped up” to its fair market value at the date of the original owner’s death. This means an heir only pays capital gains tax on appreciation that occurred after they inherited it.

Some tax reform proposals call for the elimination of this rule. Under such a change, the heir would inherit the original owner’s cost basis and be liable for tax on the entire appreciation from when the asset was first purchased.

The Legislative Crossroads

The intense focus on tax reform is largely driven by the scheduled expiration of many TCJA provisions. This sunset frames the entire debate not merely as an exercise in creating new policy, but as a decision on whether to maintain the current tax structure or revert to a previous one.

The debate is essentially a choice between competing economic philosophies, brought to a head by a deadline. One side advocates for making the TCJA provisions permanent, arguing they foster economic growth. The other side sees the expirations as an opportunity to reshape the tax code to increase progressivity and raise revenue for federal programs.