In a special episode of Slaughter and May’s Tax News podcast, we asked Arvind Ravichandran, Tax Partner at Cravath, Swaine & Moore LLP, what U.S. tax policy may look like during a second Trump Administration. 

The conversation was politically informed – we asked Arvind about the political landscape in the U.S. to better understand what future tax policy might look like – but not political. Nothing in the podcast is to be taken as endorsing any particular policies or political party. 

You can find the podcast here or by searching “Slaughter and May Tax News” on your preferred podcast app. 

Against which backdrop will U.S tax policy be made?

The Republication Party achieved a trifecta in the U.S. elections in November 2024; Donald Trump won the presidential election and there is a Republican majority in both Houses of Congress, the federal legislature. The Republican Party holds 220 out of 435 seats in the House of Representatives, and 53 out of 100 seats in the Senate. 

This doesn’t necessarily mean that all will be plain sailing for Republican legislative priorities. The Republican Party’s sway over individual Members of Congress is generally less strong than in parliamentary systems, and it is likely that we will see groups coalesce around particular issues (Arvind gave the (in)ability to deduct State and local taxes against federal taxes as an example). Political priorities will also be set with an eye to the mid-term elections - in 2026, there will be elections for the full House and a third of the Senate – and the incumbent Party tends to do less well in mid-term elections (although, in this case, it is thought that the Republican Party could retain the trifecta). 

Another important point concerns procedural rules in the Senate. Sixty votes are needed to overcome the “filibuster” (essentially a way to prevent legislation from being voted on), and the Republican Party does not have a filibuster-proof majority. To reach the sixty votes required to pass most legislation, they would need support from 7 non-Republican Senators. But there is an important exception in relation to tax and spending. 

What’s the significance of Budget Reconciliation?

Budget Reconciliation is a process whereby tax and spending measures can be passed by majority vote (thus side-stepping the filibuster). There are certain rules around this; only tax and spending measures (and not other policies that may have an incidental impact on budget) can be included, and social security measures cannot be passed through Budget Reconciliation. 

A budget resolution will set out the permitted deficit figure over the budget window which tends to be ten years. This is then followed by legislation with more detail on the policy choices which will underpin that number. 

The important element is that the aggregate budget impact of all chosen policies will need to tally with the number in the budget resolution, and Arvind took us through different ways in which the numbers could be calculated and how that calculation could impact policy choices. 

What tax policy options could be on the table?

Various policy options were mooted during the campaign, including business tax cuts amounting to around $1 trillion and tax cuts for individuals amounting to many times that which the podcast discusses in more detail. But will all of these be enacted? How might revenues be raised to counterbalance these spending proposals? 

It seems unlikely that all of the proposed tax cuts will be implemented, and it is even harder to predict how additional revenues might be raised. Arvind told us that, at one (unlikely) end of the spectrum, there could a transformational tax deal where income taxes are largely replaced by tariffs. But other options are more likely – Arvind goes through three more possible tax deals in the podcast!

The one thing that seems clear is that tax will be a priority for the incoming Trump Administration. The Trump campaign and many Senators have identified it as a priority; some have even identified tax reform as something to be achieved within the first 100 days of President Trump taking office. 

Listen to the podcast to find out how you can look out for clues as to what will happen next on U.S. tax policy (besides checking President-elect Trump’s Truth Social account, that is). 

More on our guest

As already mentioned, Arvind Ravichandran is a partner in the Tax Department at Cravath, Swaine & Moore LLP. He advises clients on the tax aspects of mergers and acquisitions, spin offs, joint ventures, strategic alliances, restructuring transactions and related financings, and private equity investments across multiple asset classes. He is also a frequent author on various tax topics and an active member of various tax focused organizations.