It shouldn’t come as a surprise that Donald Trump’s second presidency represents completely different things to different people for many, well, different reasons. Polls implied that “the economy” was top of mind for around 40% of voters during the election.

Supporters believe the now-incoming president will relieve the financial strain on everything, from gas to grocery prices and taxes. But a most recent survey shows that many taxpayers now worry that Trump’s tax plans could negatively impact them too, including benefits like Medicare and Social Security.

The same surveys showed that even if half of Americans are already aware of Trump’s proposals, only 20% of Democrats and Republicans and 12% of independents claim to fully understand what they will bring. Now that the inauguration day has taken place, it seems like the right time to review what we know about Trump’s tax plans.

We will also take a closer look at potential “tax traps” to avoid when the new administration takes office. These could also include legislative and economic issues (like “the fine print”) behind the tax promises that could impact you.

Trump tax plan 2025

Trump’s tax proposals mainly focused on extending the provisions of the 2017 Tax Cuts and Job Act (TCJA), sweeping tax legislation that was enacted in his first term. It’s also worth noting that the TCJA is still in effect, but many key provisions are yet set to expire after this year if Congress decides not to act.

Ever since his campaign, the president of the U.S. floated many other proposals, including eliminating taxes on Social Security benefits and tip income, overtime pay, and implementing across-the-board tariff hikes. To efficiently illustrate, we will show you a list of some of Trump’s tax plans, along with key pros and cons.

Tax idea: Make individual TCJA tax cuts permanent

• pros: Tax cuts for all income groups would be kept, so extending these cuts could provide continued financial relief across different income levels;
• cons: The biggest benefit would automatically go to those who have higher incomes while exacerbating the federal deficit.

Tax idea: Lower corporate tax rate to 20% or 15%

• pros: It encourages business investment and job creation;
• cons: It generally benefits large corporations and wealthy shareholders more than just the “average workers”.

Tax idea: Universal 20% tariff on imports, 60% on Chinese imports 

• pros: The argument is that tariffs could raise revenue and could protect American jobs by encouraging domestic production;
• cons: It will likely increase prices for U.S. consumers on everyday items. It can also offset any tax savings individuals experience from other proposed tax changes.

Tax idea: Exempt overtime pay and tips from federal tax 

• pros: It can provide relief for some workers;
• cons: It could be subject to abuse by some employers and not benefit those intended. Federal revenue loss is added to the equation.

Tax idea: End taxes on Social Security benefits 

• pros: Eliminating all taxes on Social Security would automatically imply significant relief for retirees;
• cons: However, it could disproportionately benefit higher-income earners, hasten the trust fund insolvency, and lead to substantial revenue losses, potentially jeopardizing future benefits.

Tax idea: Make TCJA estate tax cuts permanent 

• pros: A high exemption allows for greater flexibility as far as wealth transfer is concerned. Besides, if the lifetime exemption reverts, families could face higher estate taxes;
• cons: Primarily benefits wealthy individuals and families.

Tax idea: Raising or ending the SALT deduction cap 

• pros: If the SALT cap is repealed or even raised, high-income earners and residents in plenty of high-tax states would notice significant tax relief;
• cons: Data also shows that SALT benefits in a disproportionate fashion higher-income individuals. Moreover, it can contribute to a growing deficit, leading to many other budgetary trade-offs.

Tax idea: Eliminating clean energy tax incentives 

• pros: It can provide an offset for planned tax cuts;
• cons: Eliminates popular tax incentives, leading to higher consumer costs and slower adoption of clean energy measures.

Even if all these measures have been presented as beneficial for economic growth and tax relief, they also raise plenty of concerns. One of the key issues revolves around cost and impact on the country’s fiscal health, as different estimates show Trump’s tax proposals would greatly increase the federal deficit.

The Committee for a Responsible Federal Budget projected a total of $7.75 trillion increase through 2035. The Penn Wharton Budget Model estimated a $4.1 trillion increase over 10 years. The Tax Foundation also points towards a potential $7.8 trillion cost of Trump tax cuts with $4.7 trillion in offsets.

Moreover, Trump declared tariffs will take care of tax cuts, even if economists still debate the feasibility of such an approach. Key offsets will probably come from axing green energy credits as well as making significant spending cuts, government agencies, Medicaid, and SNAP included.

Potential tax traps in Trump’s second presidency

What is there to do about all of this uncertainty? Well, here are a couple of tax traps to avoid as a new administration takes the reigns now and plans to make drastic tax policy changes.

Assuming tax cuts are coming or will be forever

Taxpayers should be cautious about assuming the individual income tax cuts, such as the higher standard deduction and lower top income tax rate, from the TCJA, will be permanent. Even if Trump promised to keep these cuts, he still needs Congressional approval, and negotiations could prove to be challenging, because of the slim Republican majority in the United States House of Representatives.

Moreover, promises to end taxes for workers with tip income or even overtime pay are bound to face uncertainty. There are also plenty of concerns about revenue loss and economic impact that could also hinder progress in Congress.

Overlooking the impact of tariffs

Trump suggested implementing a series of substantial tariffs, such as a 20% general tariff on all imports and a 60% tariff on Chinese goods. The likelihood of such tariffs coming to fruition could be quite high.

However many economists warn that such tariffs will probably lead to higher prices on everyday consumer goods. And, as Kiplinger reported, everything related to electronics, groceries, clothing, appliances, furniture, and toys might become pricier.

Delaying taxing advantage of clean energy tax credits

If you are considering purchasing an electric vehicle (EV), now is the time to do so. Thanks to the Inflation Reduction Act (IRA), eligible buyers can get a federal EV tax credit of up to $7,500 for new qualifying EVs and $4,000 for used ones.

There’s also a tax credit for solar panels in the IRA that paid out billions to eligible taxpayers. But such incentives might be at risk when Trump returns to office, especially considering his past efforts to reduce clean energy support and indications from his transition team that the EV tax credit could go away.

It’s true that dismantling such programs could involve legislative and practical challenges, and yet, uncertainty related to future tax credits could cost you valuable benefits.

Counting on a SALT cap change to aid your tax bill

Another issue involves the state and local tax (SALT) deduction cap, set at $10,000 during Trump’s first term. Even if Trump suggested eliminating this cap, significant opposition is still present due to its estimated $1.2 trillion cost over ten years.

Some lawmakers shared their concerns about the cap, stating that it will primarily benefit high-income households in states with high taxes. A SALT cap raise proposal has been mentioned, but some key House Republicans think it might not offer sufficient relief.

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