It may take just 3 Republicans in the U.S. House to defeat a new Tax Cuts and Job Act (TCJA) extension and exactly 3 of the 12 Republicans, who voted against the TCJA in 2017, have been reelected to the U.S. House.
BACKGROUND
When The Tax Cuts and Jobs Act of 2017 (TCJA) became law, it essentially doubled the federal estate, gift, and generation-skipping tax exemptions from $5,490,000 as was set by The Tax Relief Act of 2010 to a record $11,180,000. Like previous exemption thresholds, the TCJA was indexed to keep pace with inflation and currently stands at $13,990,000 per individual and $27,980,000 per married couple.
Embedded within the expanded exemption thresholds of the TCJA was a sunset provision, which reverts the federal estate, gift, and generation-skipping tax exemptions back to the 2010 threshold (indexed for inflation) on January 1, 2026, resulting in a likely federal estate, gift, and generation-skipping tax exemption of approximately $7,000,000 per person or $14,000,000 per married couple. Consequently, Congress and the President would need to pass new tax legislation (a TCJA 2.0) by the end of 2025 to avoid the sunsetting of the TCJA’s increased tax exemptions.
EXPECTATIONS OF A NEW REPUBLICAN TRIFECTA
The TCJA was arguably one of President Trump’s signature legislative achievements; an achievement made possible by a Republican trifecta in 2017 with a Republican President enjoying the political benefits of Republican control of both the U.S. House and the U.S. Senate. President Trump signed it into law after the legislation passed in Congress without a single vote from a Democrat.
The 2024 election has once again, handed the Republicans a trifecta. With President Trump reelected and the Republicans keeping control of the U.S. House and retaking control of the U.S. Senate, the legislative landscape seems set for Congress and the President to pass new tax legislation by the end of 2025 to avoid the sunsetting of the TCJA’s increased tax exemptions. This political landscape has led many planners and advisors to feel rather confident that TCJA’s high tax exemptions will be extended for their clients come 2026.
A CAUTIONARY TALE LIES WITHIN THE MARGINS
However, a closer look within the margins of the 2024 election could prove to be a cautionary tale for such planners and advisors. While the 2024 election reassembled the Republican trifecta, it did so on much narrower grounds than in 2017. When the TCJA passed in 2017, the Republicans held 239 seats in the U.S. House and 12 of those Representatives (about 5%) voted against the TCJA. It now appears the Republicans will hold 219 seats; 220 if Republicans can fill the seat vacated by former Representative, Matt Gaetz of Florida. In sum, the Republicans face a net loss of about 20 seats from 2017.
Consequently, if every Democrat again voted against a tax bill like the TCJA, it would only take 2 to 3 Republican defectors (or just 1% of the Republican representatives) to sink an effort to pass a new TCJA to extend the sunset. Interestingly enough, of the 12 Republicans that voted against the TCJA in the U.S. House, exactly 3 were reelected to return to the House in 2025: (1) Darrell Issa (California District 48); (2) Chris Smith (New Jesey District; and (3) Elise Stefanik (New York District 21). Those 3 representatives (along with all Democrats), who already unanimously voted against the TCJA in 2017, could collectively sink any effort to extend the sunset via a TCJA 2.0.
It is worth noting that it appears Elise Stefanik is Trump’s presumptive nominee for U.S. Ambassador to the United Nations. So, Elise Stefanik may not serve as a U.S. House Representative in 2025 with her seat being filled by a special election in a district that has not elected a Democrat since 2012. Even still, 5% of Republicans voted against the TCJA in 2017, which would be 11 Republican representatives in 2025. If just one joined the remaining two, who voted against the TCJA in 2017, to defeat a TCJA 2.0, the sunset would indeed occur come 2026. So, while a Republican trifecta is set to return in 2025, this upcoming trifecta is much narrower than before, and this narrow margin might break the possibility of escaping the sunset.
Consequently, planners and advisors would be wise to continue to prepare clients for the pending sunset of the TCJA’s tax provisions. To discuss further, please contact KJK Estate Planning Attorneys, Tim Wilson (TSW@kjk.com) of Susan Friedman (SLF@kjk.com).