The Tax Cuts and Jobs Act (TCJA), enacted in 2017, created significant taxpayer relief by lowering individual and corporate income tax rates, offset by curbing deductions. The individual provisions of the law—including the rate structure and higher exemptions under the estate tax and alternative minimum tax—are set to expire at the end of this year. If Congress doesn’t act, individual taxpayers, including S-Corp shareholders, will face significant tax increases.

With Republican control of the House, Senate and White House, congressional leaders aim to use the “reconciliation” procedure to pass a bill with simple majorities. Without reconciliation, legislation requires 60 votes in the Senate and bipartisan cooperation, as Republicans control only 53 Senate seats. However, the Republicans’ narrow margin of control in the Senate and especially the House will make it challenging to achieve consensus among lawmakers. 

Tax legislation will not be crafted in detail until fundamental questions are resolved about the amount of tax cuts, how the bill will be “paid for,” and new revenue sources. For this and other reasons, we expect legislation to carry over into the summer and possibly even the fall.

What’s on the line

A great deal is at stake for community banks, the customers and communities they serve, and the national economy. Abrupt tax increases would harm investment, growth, wages and employment. The pending expiration of key TCJA provisions represents a pivotal opportunity to lobby for a tax system that strengthens community banks to better serve their customers. ICBA’s recommendations include:

  • Extend key expiring provisions of the TCJA.

  • Maintain the current corporate rate of 21%.

  • Enact the Access to Credit for Our Rural Economy (ACRE) Act (H.R. 1822/S. 838) to strengthen rural America.

  • Tax credit unions with assets of more than $1 billion.

These recommendations are important for a community banking sector that serves local communities overlooked by larger, out-of-market banks. (Community banks are the only physical banking presence in one in three counties nationwide.) Specializing in small business and agricultural lending, community banks are responsible for a disproportionate number of Main Street small business loans and roughly 80% of bank agricultural loans. Sensible, pro-growth tax policy is critical to the community bank mission and local economic growth. 

Such policy must include:

  • Extension of the Section 199A deduction. Many community banks have chosen the Subchapter S model, as have many of the small business customers they serve. TCJA created Section 199A, which provides for a 20% deduction of the income of certain pass-through businesses, including Subchapter S corporations. The expiration of Section 199A increases the effective tax rate of qualifying businesses, putting these businesses at a significant disadvantage relative to C-corporations whose rate of 21% does not expire.

  • No estate tax increase. TCJA doubled the estate tax exemption from $5.5 million to $11.4 million, per individual, adjusted for inflation. (In 2024, it was $13.61 million per individual.) An estate tax increase would result in forced sales of many family-owned community banks and small businesses to pay taxes. Forced sales would promote consolidation and harm communities. ICBA supports full and permanent repeal of the estate tax or—at minimum—extension of the current exemption level.

  • Corporate tax rate. ICBA supports the significant and permanent rate reduction for American corporations created by the TCJA, which has promoted business investment and hiring. Most community banks are C-corporations and pay the corporate rate.

Any tax legislation is certain to include “offsets,” or reduced or eliminated deductions or credits to increase tax revenues and effectively “pay for” tax cuts extensions and any new tax cuts. It’s too soon to know exactly what offsets will be considered, but ICBA is focused on ensuring that they do not harm community banks or their customers. 

Adverse potential offsets could include curbing or eliminating the tax exclusion for interest earned on municipal bonds or the deduction for state and local taxes (SALT) paid by businesses, in parallel to the SALT cap imposed on individual taxpayers. An offset that would not only raise revenue but redress a fundamental tax inequity would be taxation of larger credit unions. However, this change faces significant opposition in Congress.

With so much at stake, ICBA urges all community bankers to join our advocacy and amplify our message. As constituents and important members of your communities, your voice has a real impact. Visit our Be Heard Action Center (icba.org/beheard) to take part in grassroots campaigns designed to support our tax legislative priorities. My colleagues and I are committed to promoting community bank interests in the coming months. We will be sure to keep you informed as the legislation advances.