“Make America Great Again”: Trump's tax plans at a glance

published on 13 November 2024 | reading time approx. 3 minutes

The election of the 47th President of the United States on 5 November 2024 and the partly surprising victory of Donald Trump open up many new prospects, especially for German companies and investors.

Having campaigned on the promise of “Make America great again” and “Trump will fix it”, many Americans voted for Donald Trump and expressed their confidence in his ability to overcome the economic and political challenges. 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 eagerly 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 :

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 per cent to 20 per cent and introduction of a “reduced” corporate income tax rate of 15 per cent for certain qualified companies that manufacture their products in the USA
  - Return of 100 per cent 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 2,000 dollars/child to 5,000 dollars/child and extension of tax benefits for families
Making the tax reliefs provided under the Tax Cuts and Jobs Act (TCJA) permanent, including
- Maintaining the current top income tax rate of 37 per cent (instead of increasing it to 39.6 per cent); however, a further reduction in income tax is not ruled out
- Retaining the current estate and gift tax exemptions of 13.6 million dollars (instead of reduction to 5 million dollars)
Eliminating the 10,000 dollars 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 per cent on all imports into the USA and a tariff of 60 per cent 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 per cent for domestic manufacturers could present investment opportunities for German companies. In future, it could be an option to expand their own production in the USA or possibly relocate from Germany to the USA. In the latter case, however, regulations on exit tax and the taxation of hidden reserves in Germany (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 German companies exporting to the US.