In Washington, 2025 is beginning to look a lot like 2017. Republicans again control the White House, the Senate and the House, and several economic proposals are again on the table. But a key difference between then and now is that today the Republican majority in the House is far more narrow. This means more negotiation will likely be required, and agreement on a new tax bill may take months. In the meantime, these are the areas most relevant for investors to keep an eye on.

Income tax rates. The 2017 Tax Cuts and Jobs Act (TCJA) cut ordinary income tax rates virtually across the board. A key feature of that legislation, however, was that the cuts were temporary. They’re set to expire at the end of this year. That’s why, in a recent interview, incoming Treasury secretary, Scott Bessent, noted that his top priority is to maintain the current rates, or ideally, to make them permanent. So this appears to be the most likely centerpiece of any new tax package.

“SALT” cap. The TCJA cut rates and, at the same time, broadened the income ranges covered by each bracket. Consider a married couple with gross income of $400,000 in 2024. In the absence of the TCJA, that couple would have been squarely in the middle of the 33% bracket. But with the benefit of the TCJA last year, that couple landed in a far lower marginal bracket of just 24%. But to help pay for those substantial cuts, the 2017 law imposed a new restriction that, for some taxpayers, resulted in a tax increase.

Prior to 2017, state and local income taxes—often abbreviated as SALT—were fully deductible, providing an enormous benefit to those especially with higher incomes. But since 2017, the SALT deduction has been capped at $10,000. As a result, it’s not uncommon for those with higher incomes, or with high real estate taxes, to lose tens of thousands of dollars in deductions.

For that reason, the SALT cap is extremely unpopular, and it’s seen as unfair, penalizing those who happen to live in high-tax states. Compounding the unfairness, some states have enabled a workaround to skirt the SALT cap while others haven’t. That’s why congressmen like Rep. Mike Lawler of New York have already begun lobbying for a change.

If the TCJA is extended, Lawler has proposed that the cap be raised from $10,000 to $100,000 for individuals and $200,000 for married couples. Other proposals are more modest, but the SALT cap is clearly a key focus. As Andrew Garbarino, another New York House member put it, “There’s about five or six of us that will die on this hill.”

That means they may have significant leverage, since the Republican majority in the House may be no more than five seats. And representatives from higher-tax states have wasted no time reminding the incoming administration that when the TCJA first passed, 11 Republicans voted against it—largely because of opposition to the SALT cap. So it seems likely that any new tax bill will include at least some relief in this area.

The implication for taxpayers: If you have significant state or local taxes, a change to this provision might deliver a meaningful benefit as soon as this year, and that might change the calculus on tax strategies such as charitable giving. Of note, high-income taxpayers who haven’t been able to itemize deductions in recent years may be key beneficiaries of a change to the SALT rule.

Social Security. An unwelcome surprise for many taxpayers is the fact that Social Security benefits are often subject to tax. For individuals with incomes north of about $34,000 or couples with incomes over $44,000, the IRS taxes 85% of Social Security checks. So it’s no surprise that one of the new administration’s more popular proposals is to make Social Security entirely exempt from tax. Unlike the SALT cap, this is one that cuts across geographies and party lines.

The only downside is that the cost would be significant because Social Security is such an enormous part of the federal budget (about 22%). And there is only limited appetite in Congress for further ballooning the country’s debt load. But this is another provision to keep our eye on this year. If it does pass, it would be of particular benefit to those in retirement who regularly complete Roth conversions, because it would provide headroom to complete larger conversions in any given tax bracket.

Spending cuts. How will the government pay for these potentially expensive tax cuts? The new administration has ambitious plans to cut spending, and to that end, a new Department of Government Efficiency will soon open its doors. Scott Bessent, the incoming Treasury secretary, has said that his goal with spending cuts isn’t just to pay for new tax cuts but to also reduce the government’s deficit. His goal is to cut the deficit in half.

If this can be accomplished, it would likely have salutary effects on investment markets. Smaller deficits would allow the government to pay lower rates on new debt offerings, and these lower rates would ripple through the economy, bringing down everything from credit card to car loan to mortgage rates. And lower rates generally provide a lift to stock prices.

A smaller deficit, therefore, should be a welcome development. On the other hand, if the government tightens its belt, the effects might not be all positive. Unemployment could tick up, and certain businesses could see revenue impacted. It’s too soon to tell how the effects will net out, so this is a reason to remain diversified—both between stocks and bonds and within each asset class—and to avoid trading based on expectations.

Tariffs. As I discussed a few weeks back, the Trump administration’s proposal to increase tariffs has been met with raised eyebrows. That’s because there’s near universal agreement among economists that tariffs aren’t a good idea. They cause prices to rise and result in what’s known as “deadweight loss” to the economy. But Scott Bessent argues this view is too simplistic.

For starters, he points out that imports make up only a small slice of consumer spending—just 10%, he says, though others argue that it’s higher. Second, any price increases would be just one-time increases, since tariffs wouldn’t necessarily increase every year. Also, if foreign producers want to remain competitive in the U.S. market, they might cut their own prices, thus moderating the impact on consumers. And finally, Bessent notes that the dollar might strengthen, further offsetting the effect on consumer prices. In other words, we shouldn’t worry that tariff increases are guaranteed to result in the inflation that many fear.

Estate taxes. A final area where there is likely to be horse-trading this year: potential changes to the estate tax. A generous bump in the lifetime exclusion from the estate tax is scheduled to expire at the end of this year. This appears to be another area where the new administration would like to take uncertainty off the table by making the current rules permanent. A key challenge, however, is that no legislation is ever truly permanent, and because the estate tax is a political football, it’s volatile. It can change with each administration, and ultimately, the only rate that matters is the rate that’s in effect in our own final year. That’s why, even if the estate tax does see a reprieve, it’s still worth keeping an eye on if your assets fall somewhere between the old limit and the new limit.​