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Post-Election Economic Forecast for 2025

President-elect Donald Trump pledged to implement several tax and economic initiatives on the campaign trail. With Trump returning to the White House and Republicans occupying a majority in the U.S. House of Representatives and the U.S. Senate, it appears he will have the political capital to make good on those promises.

So, what are these policies and how will they affect everyday Americans if they do go into effect?


Extending the Tax Cuts and Jobs Act Provisions

The Tax Cuts and Jobs Act (TCJA), passed in 2017, introduced several tax breaks for individuals and businesses, but many of its provisions expire at the end of 2025.

Trump has proposed extending these provisions, including:

  • Income tax rates and brackets. Currently, the TCJA offers lower tax rates and wider income tax brackets, lowering tax rates for most Americans.1
  • Higher standard deduction. The TCJA nearly doubled the standard deduction, simplifying filing for many taxpayers.
  • Personal exemptions. Before the TCJA, taxpayers could claim a personal exemption for themselves, their spouses and dependents, although personal exemptions phased out for high-income taxpayers. Personal exemptions were eliminated in favor of higher standard deductions and a larger child tax credit.
  • Child Tax Credit and Credit for Other Dependents. The TCJA increased the child tax credit from $1,000 to $2,000 per child and added a $500 credit for other dependents.
  • Changes to itemized deductions. The TCJA made several changes to itemized deductions, including limiting the mortgage deduction to interest on the first $750,000 of mortgage debt (rather than the pre-TCJA limit of $1 million) and eliminating several miscellaneous itemized deductions, like unreimbursed work expenses and tax preparation fees.
  • Alternative minimum tax adjustments. Before the TCJA, a growing number of taxpayers paid the Alternative Minimum Tax (AMT), a set of secondary tax rules designed to help ensure high-income taxpayers pay at least a minimum amount of tax.2 The TCJA significantly reduced the number of people dealing with this secondary tax.
  • Higher estate tax exemption. The TCJA raised the lifetime estate tax exemption from $5 million per person to $13.61 million per person (2024 limit).

Trump has proposed extending these provisions or making them permanent. This would keep tax rates from increasing drastically for individuals after 2025, ensure tax filing doesn’t get more complex for people who now claim the standard deduction, and ensure larger estates don’t face higher estate taxes starting in 2026.

However, there is one notable exception.

The TCJA capped state and local tax deductions, including those for property and state income or sales taxes, at $10,000. Trump indicated he would reverse that provision, allowing taxpayers who itemize to fully deduct state and local taxes on their returns.3 Removing this limitation would benefit taxpayers in high tax states like New York, New Jersey, California and Hawaii, homeowners, especially those with higher incomes, pricier homes and larger mortgages.


Exempting Certain Types of Income from Tax

Trump discussed exempting specific types of income from federal taxes.


Tips

While campaigning, Trump announced a plan to exempt tip income from federal taxes. Although the campaign did not provide details on how this exemption would work, similar bills recently introduced in Congress would exempt tips from income or both income and payroll taxes.4

An analysis of these proposals by the Congressional Research Service found roughly 37% of tipped workers have too little income to pay income tax.5 These workers would not benefit at all from excluding tips from taxable income.

However, if the final legislation allows workers to also exclude tips from their payroll tax base, the Tax Policy Center estimates it would boost the after-tax income of tipped workers by an average of $700.6

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Explore President-elect Trump's proposed tax and economic policies and how they might affect individuals if enacted.

That might sound enticing in the short term, but it could be bad news in the long term for full-time service workers who receive a substantial portion of their income in tips. Future Social Security retirement payments are based on what workers pay into Social Security and removing tips from Social Security earnings could substantially reduce their retirement income.7


Social Security Benefits

Trump promised to eliminate taxes on Social Security benefits. The result of that tax break depends on income level. According to an analysis from the Tax Policy Center:8

  • People making $32,800 or less would receive no tax benefit because their Social Security income is already untaxed.
  • People earning between $32,800 and $63,300 would see their taxes decrease by $90, on average.
  • People in middle- and upper-middle-income households (those earning between $63,300 and $205,800) would see their taxes decrease by an average of $1,310.
  • High-income households would get an average tax cut of nearly $1,430.

These benefits would come at a high cost for the Social Security retirement trust fund.

Currently, income taxes paid on Social Security retirement benefits go into the Social Security retirement trust fund and the Medicare Hospital Insurance trust fund,9 supplementing the Social Security and Medicare taxes workers pay through paycheck withholdings or self-employment taxes.

Without that supplementation, the Committee for a Responsible Federal Budget (CRFB) estimates the fund would become insolvent by 2032 — one year earlier than current projections. Medicare would become insolvent by 2030 — six years earlier than currently projected.10

Despite Republican control of the House and Senate, this may be a tough campaign promise to deliver on. Any changes to Social Security require at least 60 Senate votes,11 so Republicans would need some Democratic support to pass the changes.


Overtime Pay

Currently, non-exempt and hourly employees receive 1.5 times their regular pay rate for any hours the work in excess of 40 per week. Trump promised to end taxes on overtime wages.

We don’t have details on how this proposal would work, but the CRFB illustrated the tax savings for someone currently earning overtime pay.12

Say an hourly employee works an average of 50 hours per week and makes $40 per hour. Their gross income is $110,000 per year. That's 40 hours per week at $40 per hour, plus 10 hours per week at $60 per hour, multiplied by 50 weeks out of the year.

Now, let's assume they have an effective tax rate of 25%. They would owe roughly $27,500 in income taxes on that salary.

Now, say the employee no longer had to pay taxes on overtime. Their gross pay would still be $110,000 annually but only $80,000 would be taxable. With a 25% effective tax rate, they would owe $20,000 in federal income taxes — $7,500 less than they would've owed if they were salaried.

This simple illustration doesn't take into account other situations that might impact their taxes, like their filing status and potential tax deductions and credits, but it shows the potential tax savings for workers who qualify for overtime pay.


Introducing a Deduction for Auto Loan Interest

Another proposed policy would allow individuals to deduct interest paid on auto loans — similar to how mortgage interest is currently deductible.

However, roughly 90% of taxpayers claim the standard deduction rather than itemizing,13 and that’s likely to continue if Trump extends the expiring TCJA provisions. As a result, CNBC estimated this tax break would primarily benefit wealthy taxpayers who already itemize and buy more expensive cars.14


Potential Impact of New Tariffs

One of Trump's more contentious economic proposals involves imposing new tariffs on imported goods.

To pay for tax cuts, Trump promised to raise the current tariff on goods imported from China to 60% and impose a universal 20% tariff on all U.S. imports.

Trump insists that foreign countries would pay tariffs, but importers (i.e., American companies) say that they will end up paying the tariffs and will need to pass those higher costs on to consumers.15

One item of note: The Biden administration kept most of the Trump first-term administration tariffs in place. This past May, tariff hikes on an additional $18 billion of Chinese goods were announced, which included semiconductors and electric vehicles.16


Balancing Benefits and Drawbacks

The immediate impact of Trump's proposals — if enacted — depend on your particular situation. Variables to consider include your income, the source of that income, where you live, how much you pay in state and local taxes (including property taxes) and how much interest (if any) you owe on a car loan or mortgage.

As always, it's best to consult with a trusted tax professional to understand how any changes to the tax code will impact you in 2025 — and beyond.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Tax Policy Center, “How did the Tax Cuts and Jobs Act change personal taxes?” updated January 2024, accessed November 12, 2024. Back
  2. IRS.gov, “Topic No. 556, Alternative Minimum Tax,” updated November 8, 2024, accessed November 11, 2024. Back
  3. Tami Luhby, “Trump suggests reversing his cap on state and local tax deductions,” updated September 18, 2024, accessed November 12, 2024. Back
  4. Ian Berlin and William G. Gale, “No tax on tips: An answer in search of a question,” Brookings, published September 17, 2024, accessed November 11, 2024. Back
  5. Congressional Research Service, “Taxation of Tipped Income,” updated October 28, 2024, accessed November 11, 2024. Back
  6. Howard Gleckman, “Exempting Tips from Federal Income Tax Would Benefit Very Few Workers,” published September 19, 2024, accessed November 11, 2024. Back
  7. Nathan Goldman and Christina Lewellen, "What If Tips Didn't Get Taxed?" NC State University, published August 26, 2024, accessed November 14, 2024. Back
  8. Tax Policy Center, “T24-0048 – Exclude Social Security Benefits from Gross Income, by ECI Percentile, 2025,” published August 1, 2024, accessed November 11, 2024. Back
  9. SSA.gov, "Taxation of Social Security Benefits," accessed November 14, 2024. Back
  10. Committee for a Responsible Federal Budget, “Donald Trump’s Suggestion to End Taxation of Social Security Benefits,” published July 31, 2024, accessed November 11, 2024. Back
  11. Lorie Konish, “Trump promised no taxes on Social Security benefits. It’s too soon to plan on that change, experts say,” CNBC, published November 6, 2024, accessed November 11, 2024. Back
  12. CRFB.org, “Donald Trump’s Proposal to End Taxes on Overtime,” published September 24, 2024, accessed November 11, 2024. Back
  13. Tax Policy Center, “What are itemized deductions and who claims them?” updated January 2024, accessed November 11, 2024. Back
  14. Greg Iacurci, “Here’s who would benefit from Trump’s proposed tax break on car loan interest,” CNBC, published October 14, 2024, accessed November 11, 2024. Back
  15. PBS News, “Trump favors huge new tariffs. How do they work?” published September 27, 2024, accessed November 11, 2024. Back
  16. Erica York, "Tracking the Economic Impact of the Trump-Biden Tariffs," published June 26, 2024. Accessed November 15, 2024. Back