Project 2025 Tax Overhaul Blueprint: What You Need to Know

If you’ve been on social media or tuned into the news lately, you may have heard about Project 2025, a controversial policy blueprint developed by the Heritage Foundation. A 900-page mandate from the conservative think tank is getting attention for its eyebrow-raising proposals. 

The legal organization, Democracy Forward has described Project 2025 as "among the most profound threats to the American people."  On its website, the Heritage Foundation says of its plan, "It's past time to lay the groundwork for a White House more friendly to the right."

The significant changes presented in the four pillars of Project 2025, designed for the next Republican administration, would fundamentally alter the federal government. That includes everything from public education and the Federal Reserve to the IRS and the United States tax system. 

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(It should be noted that former President Donald Trump tried to distance himself from the policy document during his campaign, saying he hadn't read it.)

However, taxes and tax policy are already set to be a major issue following the 2024 presidential election. Several key provisions of the Tax Cuts and Jobs Act (TCJA, also commonly referred to as the “Trump tax cuts”) are scheduled to expire at the end of next year.

So, with the election decided, it is important to be informed about various proposals that could impact your finances — including those in Project 2025.

What does Project 2025 say about taxes? 

Regarding taxes, Project 2025 provides for several significant changes, some of which are summarized below.

Income tax rates

Changing to two income tax rates: 15% and 30%

Currently, there are seven different income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These marginal rates are tied to inflation-adjusted federal income tax brackets. 

Chapter 25 of the project's “Mandate for Leadership,” states, “The Treasury should work with Congress to simplify the tax code by enacting a simple two-rate individual tax system of 15 percent and 30 percent that eliminates most deductions, credits and exclusions.”

The Project 2025 playbook suggests that the 30% tax rate should begin “at or near the Social Security wage base,” currently $168,600.

• Critics contend that such a drastic tax rate simplification might not account for varied individual financial situations.
• There are also concerns that two tax rates and eliminating deductions and credits would be less fair, increasing the tax burden on middle-income earners.

Some question whether a two-rate system would lead to a loss of federal revenue.

Capital gains tax rate

Imposing a 15% tax on capital gains and dividends

Advocates suggest this would incentivize investment and entrepreneurship. However, those opposed argue a 15% capital gains tax rate is too low. This is tied to existing concerns that lower capital gains rates disproportionately benefit the wealthy and that cutting capital gains tax rates can lead to a loss of government revenue. 

Additionally, some argue that maintaining a separate capital gains tax rate alongside ordinary income rates works against simplifying the tax code.

'Trump tax cuts'

Extending and expanding the 2017 Tax Cuts and Jobs Act

Supporters argue that this would stimulate economic growth. However, critics point to studies suggesting that these cuts have contributed to the national debt. (The Congressional Budget Office estimates that extending the 2017 tax cuts alone would increase the deficit by $4.6 trillion by 2028.)

Another concern is data indicating that nearly half of the tax benefits in the TCJA have benefited the top 5% of U.S. taxpayers.

Aside from potentially adding to wealth inequality, it would be difficult to maintain the 2017 tax cuts without significant reductions in federal spending.

Overtime pay

Giving employers more flexibility to calculate overtime

You might be wondering what overtime pay has to do with taxes. Well, recently, former President Trump floated the idea of no taxes on overtime pay. The proposal is estimated by the Tax Foundation to cost at least $145 billion over the next ten years.

Regarding overtime, Project 2025 states, “Congress should provide flexibility to employers and employees to calculate the overtime period over a longer number of weeks.”

 The Center for American Progress has said that approach would "put more power in the hands of employers to exploit employees.”

Corporate tax rate

Lowering the corporate tax rate from 21% to 18%

Supporters have argued that this reduction might stimulate economic growth by encouraging business investment and job creation. They also contend that a lower corporate tax rate would make the U.S. more competitive, potentially attracting foreign investment. 

Meanwhile, opponents worry that reducing the corporate tax rate could significantly reduce government revenue.

There’s also the longstanding debate over studies showing limited economic benefits associated with corporate tax cuts. Additionally, some say that lowering corporate taxes shifts the tax burden to individuals and encourages tax avoidance.

Project 2025 plans

In different “reform stages,” Project 2025 proposals include eliminating individual and corporate income taxes in favor of a consumption tax.

Proponents argue this would simplify the tax system and encourage saving and investment. However, critics warn that such a shift could burden people with lower and middle incomes who spend more on essential goods and services.

Project 2025 also proposes significant changes to the IRS, including budget cuts and increased presidential appointments within the agency. 

Additionally, the project advocates a three-fifths vote threshold for future tax increases. In an “intermediate tax reform” stage, the project would repeal the clean energy tax breaks and “all tax increases passed as part of the Inflation Reduction Act.”

While supporters argue changing the IRS would reduce government overreach, opponents worry it could hamper the agency's ability to enforce tax laws and collect revenue effectively. (The IRS has recently increased its compliance efforts relative to high earners and large corporations.)

Beyond taxes, Project 2025 proposes other sweeping changes, including but not limited to:

• Eliminating various federal agencies, including the U.S. Department of Education
• Restricting abortion access
• Increasing presidential authority
• Cutting federal funding for renewable energy research
• Implementing stricter immigration policies

Project 2025 taxes: Bottom line

Project 2025 is seen as a conservative (some say "radical") roadmap for overhauling federal government structure and policy for the next Republican White House administration.

Supporters argue that proposed tax "reforms" would simplify the tax code and boost economic growth and competitiveness. (*Revenue estimates don't appear in the Project 2025 playbook.)

However, opponents warn of negative consequences like increased income inequality, ballooning national debt, reduced government capacity to provide essential services, and unchecked authority.

In any case, and especially in the current highly charged political environment, it’s important to remain informed about potential tax changes that could affect your finances.

Related

• What's Wrong With Trump's Plan to End Taxes on Social Security
• Types of Income the IRS Doesn’t Tax
• How Harris vs. Trump Might Handle the TCJA Expiration
• What Could the Election Outcome Mean for the EV Tax Credit?