What would be the impact of Project 2025 on your tax bracket and capital gains under a second Trump term?

• A collection of policy proposals titled Project 2025, aimed at creating an effective conservative administration, includes significant tax law and IRS changes.
• A two-tier tax system, lower capital gains taxes, IRS budget cuts, and scrutiny of tax reporting are part of the plan, while Trump hasn't provided specific tax policy proposals.
• Some Project 2025 plans could be implemented through executive action, but many tax policy proposals would need legislation, which could be challenging without Republican control of Congress.

With former President Donald Trump securing the Republican presidential nomination, both political parties are focusing on Project 2025, a comprehensive policy plan developed by conservative think tank The Heritage Foundation in collaboration with over 100 other right-leaning organizations.

The plan, if implemented, could revolutionize the U.S. tax system and reform the IRS.

What could the implementation of Project 2025 mean for your finances?

The Heritage Foundation published a policy collection in April 2023, which is a roughly 900-page "Mandate for Leadership" that proposes significant changes to the federal government and policy recommendations for the next administration.

The Biden campaign has characterized the initiative as a "blueprint for Trump" on their website dedicated to Project 2025.

Meanwhile, Trump has made statements to distance himself from the mandate.

Trump wrote on July 11 that he has no knowledge about Project 2025, as he has not seen it and does not know who is in charge of it. Unlike the successful Republican Platform, he claims to have had no involvement in its creation.

Several former Trump officials have been linked to Project 2025, and Trump praised the Heritage Foundation in a video from April 2022.

"According to Steven Cheung, a spokesman for the Trump campaign, President Trump has stated that he has no involvement in Project 2025. The only official policy endorsed by President Trump is the GOP Party Platform, which can be found on his website."

The Heritage Foundation declined to provide a statement regarding the organization's stance on Project 2025. Earlier this month, the group clarified that Project 2025 does not represent any candidate or campaign and is a coalition of over 110 conservative groups advocating for policy and personnel recommendations for the next conservative president.

The organization stated that it is ultimately up to President Trump, whom they believe will be the next president, to decide which recommendations to implement.

Some Project 2025 plans could be implemented through executive action, but many tax policy proposals would need legislation, which could be challenging without Republican control of Congress.

Here's what the proposed policies could mean for taxes and the IRS.

Reduce the federal tax brackets

The goal of Project 2025 is to "encourage wealth" through decreasing marginal tax rates, lowering the cost of capital, and expanding the tax base.

The proposed tax system features a "two-rate individual tax system" with flat rates of 15% and 30%, with the higher tier commencing at the Social Security wage base of $168,600 for 2024.

If Congress does not act, some of the seven brackets with a top rate of 37% will increase after 2025 due to provisions from the Tax Cuts and Jobs Act, or TCJA, sunsetting.

According to Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, the Project 2025 proposal would allow you to pay more or less in federal income taxes based on your current tax bracket.

The plan would also eliminate "most deductions, credits and exclusions," including tax breaks for state and local taxes and education.

Nearly 90% of Americans claimed the standard deduction in 2021, compared to about 70% in 2017 before the TCJA was enacted, according to IRS data.

The project proposes a "fundamental reform" that may involve implementing a consumption tax, such as a national sales tax or business transfer tax, on goods and services.

The enactment of these policies could be a challenging task in Congress, according to Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation.

Lower taxes on investment income

The plan suggests reducing taxes on investments for high-income earners, with capital gains and qualified dividends taxed at 15%. Currently, the top rate for long-term capital gains is 20%.

The net investment income tax, or NIIT, would be abolished under Project 2025, which is a levy of 3.8% on assets for higher earners. This tax applies once the modified adjusted gross income, or MAGI, exceeds $200,000 for single filers or $250,000 for married couples filing together.

The proposed tax breaks could be a "big deal" for higher-income investors, as they currently pay a combined 23.8% on capital gains including the NIIT.

Reduced estate and gift taxes

The TCJA's higher estate and gift tax exemptions will expire after 2025, but the plan proposes to make the 2017 TCJA changes permanent and lower the estate and gift tax rate to a maximum of 20%, from the current 40%.

According to Tax Policy Center estimates, less than 1% of taxpayers were subject to estate tax in 2023.

Gleckman stated that if you belong to a certain group, your heirs would be delighted with this proposal.

The 'debate' over U.S. tariffs

The "debate" on conservative trade policy within Project 2025 involves discussing opposing views on tariffs, which are taxes placed on imported goods from another country.

While former White House trade advisor Peter Navarro, who served under Trump, supports U.S. tariffs, including a reciprocal levy, which Trump called for during his 2019 State of the Union address, Competitive Enterprise Institute president Kent Lassman wrote that the U.S. should lower or repeal tariffs to make American goods more affordable.

Gleckman stated that although Trump hasn't mentioned Project 2025, he frequently discusses the topic of tariffs.

In a June meeting with Republican lawmakers, Trump proposed an "all tariff policy" to replace federal income taxes, and he called for a baseline 10% tariff on all U.S. imports and a levy of 60% or higher on Chinese goods.

According to a 2020 working paper from economists at the Federal Reserve Bank of New York, Columbia University, and Princeton University, past U.S. tariffs were mostly borne by U.S. companies and consumers.

IRS plans could have 'direct taxpayer impacts'

The IRS's intrusiveness and accountability will be reduced and increased, respectively, according to Project 2025's proposals.

According to Watson, if these plans are enacted, they could have "direct taxpayer impacts."

The IRS has come under greater scrutiny from Republicans following the approval of nearly $80 billion in funding through the Inflation Reduction Act of 2022.

While some Republicans prioritize agency budget cuts, the plan also includes a 20% increase in resources for the Office of the Taxpayer Advocate, an independent IRS office.

The authors of Project 2025 recommended that Congress increase funding for the Office of the Taxpayer Advocate to better serve taxpayers who have experienced injustices from the IRS.

Proposals have been made to increase the number of presidential appointees, focus on technology, and conduct a thorough examination of information reporting, including tax forms sent to the agency by employers and financial institutions.