Tax Policy Changes in 2025 and Their Effect on Markets

Nicholas Benzor
Principal Planner and Chief Executive Officer
Benzor Capital Wealth

In 2025, tax policy remains a critical factor influencing market dynamics. Two key areas to monitor are the potential extension of the Tax Cuts and Jobs Act (TCJA) of 2017 and ongoing discussions surrounding the State and Local Tax (SALT) deduction cap. Additionally, the scheduled sunset of key TCJA provisions at the end of 2025 poses significant implications for federal income tax, corporate tax, dividend tax, and capital gains tax structures. These developments are expected to influence investor behavior, corporate strategies, and broader economic conditions.

1. TCJA 2017 Extension and Sunset

The TCJA introduced sweeping changes to the U.S. tax system, including reductions in individual and corporate tax rates, an increase in the standard deduction, and other pro-growth measures. However, many of these provisions are set to expire at the end of 2025 if not extended, resulting in significant tax changes across multiple categories.

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Federal Income Tax

Individual income tax brackets are scheduled to revert to pre-2018 levels, resulting in higher marginal tax rates for most taxpayers. For example, the top tax rate would increase from 37% to 39.6%. This change could reduce disposable income for households, potentially curbing consumer spending and economic growth.

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Dividend Tax

Qualified dividend income, currently taxed at lower rates of 15% or 20% for most taxpayers, could be subject to higher ordinary income tax rates if TCJA provisions are not extended. This could deter equity investors who rely on dividend-paying stocks for income.
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Corporate Taxes

The corporate tax rate, which was reduced to a flat 21% under the TCJA, is not scheduled to sunset. However, political debates surrounding corporate taxation could lead to significant changes. If an administration supportive of pro-business policies, such as a possible return of the Trump administration, pushes for further reductions in the corporate tax rate, it could enhance corporate profitability and market valuations. Conversely, proposals from other political factions to raise corporate tax rates post-2025 could erode earnings and weigh on equity markets.
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Capital Gains Taxes

Long-term capital gains, currently taxed at preferential rates (0%, 15%, or 20%, depending on income level), may face higher rates aligned with ordinary income tax levels if TCJA sunset provisions or other proposed tax changes are enacted. This could disincentivize selling assets, leading to reduced liquidity in equity markets.
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Market Impact

The expiration of TCJA provisions could create a drag on economic growth by increasing tax burdens across individuals and businesses. On the other hand, an extension or further reduction in corporate taxes could provide a meaningful boost to corporate earnings and investor sentiment.

2. SALT Deduction Cap

The SALT deduction cap, which limits the deductibility of state and local taxes to $10,000, has been a contentious issue, particularly in high-tax states. In 2025, discussions about adjusting or eliminating this cap could have significant regional and national implications.

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Market Impact

Removing or increasing the SALT cap could provide financial relief to taxpayers in states like California, New York, and New Jersey, potentially boosting regional real estate and spending. However, adjustments to federal revenue could impact Treasury yields and borrowing costs.
Ready to navigate the 2025 tax policy changes with confidence? Schedule a Tax Strategy Session with our team. We’ll explore how these updates impact markets and uncover opportunities to optimize your financial strategy.
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