Trump's tax plans at a glance
The election of the 47th President of the United States on November 5, 2024 and the victory of Donald Trump means potential changes, especially for European owned companies and investors. Four years after leaving the oval office, Donald Trump will now return to the White House in January 2025. In his election night speech, he already announced that he would "not rest until we have created a strong, secure and prosperous America". It is awaited how US tax law will change under the new administration. If Trump's campaign proposals are followed, a large number of tax changes can be expected that will have an immense impact on the US and global economy.
Planned tax changes that Donald Trump emphasized or discussed during the election campaign are essentially:
- For companies:
- (Further) reduction of the corporate income tax rate from 21% to 20% and introduction of a "reduced" corporate income tax rate of 15% for certain qualified companies that manufacture their products in the USA
- Return of 100% bonus depreciation (Sec. 168(k)), increase in the small business election to expense depreciable assets (Sec. 179) and expansion of research and development tax credits
- For individuals/families:
- increase in the child tax credit from USD 2,000/child to USD 5,000/child and extension of tax benefits for familie
- Maintaining the current top income tax rate of 37% (instead of increasing it to 39.6%); however, a further reduction in income tax is not ruled out.
- Retaining the current estate and gift tax exemptions of USD 13.6 million (instead of reduction to USD 5 million)
- Eliminating the $10,000 deduction limitation for state and local taxes (SALT) so that taxpayers could deduct them from their federal taxable income without limitation in the future
- Introducing a basic tariff of 10 to 20 % on all imports into the USA and a tariff of 60 % on imports into the USA from China;
In addition, numerous other measures are planned or under discussion, including:
- Exemption of social security benefits, tips and overtime pay from income tax
- Introduction of a tax credit for family carers
- Abolition of tax credits for the purchase of electric vehicles and other products
- Creation of a deduction option for interest on automobile loans for vehicles that are manufactured in the USA
What do Trump's tax proposals mean for direct investments in the USA?
As of today, the tax proposals should be regarded as speculation, as although changes are to be expected, the timing, impact and amount depend on the success of the Trump administration's negotiations.
Companies with US subsidiaries or individuals with US investments should monitor developments carefully and possibly review them with an advisor experienced in the USA.
However, the reduction in the corporation tax rate to 15% for domestic manufacturers could present investment opportunities for European companies. In future, it could be an option to expand their own production in the USA or possibly relocate from Europe to the USA. In the latter case, however, regulations on exit tax and the taxation of hidden reserves in Europe (e.g. relocation of functions) must be observed.
Outlook
Donald Trump's election victory also brings possible future tax changes closer. Trump's proposals already give an idea of how the priorities could be set in the future: the focus could be on promoting companies producing in the USA, which would benefit SMEs with business activities in the USA. There may not be any tax increases (contrary to Kamala Harris' plans). Instead, Trump envisages significant tariffs to protect the US economy and to finance the tax cuts, which in turn is likely to be a major disadvantage for European companies exporting to the US.
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Ryan Redleski Associate Director
- November 26, 2024
- (859) 957-1486
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