The election of the 47th President of the United States on November 5, 2024, marks a new chapter in U.S. leadership, with Donald Trump set to return to the White House in January 2025. This development may bring potential changes, particularly for European-owned companies and investors. In his election night speech, Trump emphasized a commitment to fostering a “strong, secure, and prosperous America.” Observers now await how U.S. tax policy might evolve under the new administration. Should his campaign proposals be implemented, significant tax changes could affect both the U.S. and global economy.
Planned tax changes that Donald Trump emphasized or discussed during the election campaign are essentially:
Extending the tax reliefs provided under the Tax Cuts and Jobs Act (TCJA), including:
- 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 families
Making the tax reliefs provided under the Tax Cuts and Jobs Act (TCJA) permanent, including:
- A further reduction in income tax is not ruled out, even if the current top income tax rate of 37% is maintained (instead of increased to 39.6%)
- Retaining the current estate and gift tax exemptions of USD 13.6 million (instead of a 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. 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, reducing the corporation tax rate to 15% for domestic manufacturers could present investment opportunities for European companies. In the 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 show how the priorities could be set in the future: the focus could be on promoting companies producing in the USA, which would benefit those with business activities in the USA. There may not be any tax increases, but Trump envisages significant tariffs to protect the US economy and finance the tax cuts, which will likely be a major disadvantage for European companies exporting to the US.
If you have questions about how these changes could impact you and your business, please contact your Dean Dorton advisor.
