As the dust settles from the recent election, many businesses, particularly in the consumer products sector, are closely monitoring potential changes in tax and tariff policies that could impact their operations. Under the new administration, we anticipate several key proposals that could affect corporate tax rates and international trade agreements. This article outlines potential tax and tariff adjustments and their implications for the consumer products industry.
Tax Policy & Tariff Implications
- Corporate Tax Rate Reduction
- Extension of Key Provisions under the TCJA
- Tariff Implications
During President-elect Trump’s previous term, a key principle of his economic agenda was reducing the corporate income tax rate. The 2017 tax law, commonly known as the Tax Cuts and Jobs Act (TCJA), lowered the rate from 35% to 21%. When Trump begins his second term, we expect efforts to further reduce the rate to 20% or even 15% for certain domestic manufacturers. Consumer products firms with significant U.S. operations or domestic manufacturing could benefit immediately from lower corporate taxes. Reduced taxes provide more flexibility in pricing strategies, potentially mitigating challenges from inflation or increased costs.
For the 2025 tax year, the top rate for long-term capital gains and qualified dividends is 20% for individuals earning over $533,400 and for married couples filing jointly earning over $600,050. Trump proposes retaining the separate capital gains rate income brackets indexed for inflation. If the TCJA expires at the end of 2025, capital gains and qualified dividend rates would be tied to ordinary income tax brackets, potentially increasing taxes for some individuals.
For 2025, the estate and gift tax exemption is $13.99 million per person, allowing married couples to shield nearly $28 million without paying any federal estate or gift tax. This provision is also scheduled to expire at the end of 2025, potentially reducing the exemption to approximately $7 million for individuals and $14 million for couples. Trump aims to make the increased TCJA exemption permanent.
These proposals to maintain lower capital gains and qualified dividend taxes and significantly reduce estate taxes could impact the consumer products industry, primarily privately held companies. By reducing tax burdens, extending these provisions might ease business exits, allow for more tax-efficient succession planning, encourage investments in the consumer products space, and boost mergers and acquisitions activity.
In addition, under Section 199A, which was first introduced in the TCJA, pass-through business owners may be eligible to deduct up to 20% of qualified business income from ordinary taxable income. Trump proposes to make this TCJA policy permanent. This important tax deduction has provided our consumer products clients with significant tax savings, enhancing their ability to reinvest in operations, hire additional staff, or reduce prices for competitive advantage.
As Trump returns to the White House, his “America First” trade policies, including higher tariffs on imports from countries like China, are expected to continue. Previous tariffs on steel, aluminum, and various consumer goods significantly impacted prices and supply chains. Trump seeks to maintain or expand these tariffs, raising import costs for companies relying on overseas suppliers. The impact on consumer goods will differ by industry, with those dependent on foreign raw materials facing higher costs. Companies may shift supply chains to less affected regions or increase domestic production to mitigate these effects.
Preparing for the Impact of Corporate Tax Cuts
As consumer products companies brace for the changes that may come with the second Trump administration, minimizing the impact of tariff impositions is crucial while maximizing potential benefits from domestic incentives and tax relief. By staying informed and working closely with us, we can help you navigate these changes and position your company for continued success in an ever-changing market.
To learn more about the effect of new tax policies on the consumer products industry, please connect with us.
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