Tax Experts Warn Project 2025 Could Isolate US in International Tax Policy

Tax experts caution that Project 2025, a controversial policy framework proposing radical tax reforms, could isolate the US from international tax policymaking.

Spearheaded by the Heritage Foundation, a conservative think tank, Project 2025 serves as a blueprint for a potential second term for Donald Trump as US president.

The proposed reforms would eliminate current tax rates and most deductions and credits, replacing them with a 15% rate for individuals earning below the Social Security wage base ($168,000 in 2024) and a 30% rate for those earning more. Additionally, the corporate income tax rate would be reduced from 21% to 18%. Project 2025 also advocates for the US to withdraw from the OECD, which it labels as "a taxpayer-funded left-wing think tank and lobbying organisation."

Despite these proposals, Trump has distanced himself from Project 2025, claiming on his Truth Social network that he is unaware of it and has no idea who is behind it. "I disagree with some of the things they're saying and some of the things they’re saying are absolutely ridiculous and abysmal,” Trump stated. At a July 20 rally, he reiterated, "I don’t know anything about it. I don’t want to know anything about it," attributing the project to "some on the severe right."

However, a CNN review revealed that at least 140 individuals from the Trump administration contributed to Project 2025. Democratic presidential nominee Kamala Harris has also linked Trump to the project, stating, “He and his extreme Project 2025 agenda will weaken the middle class. We know we [have] got to take that seriously.”

Alex Straight, a London-based partner at tax, accounting, and business advisory firm Blick Rothenberg, notes that Project 2025, while not an official manifesto, represents proposals favored by a vocal segment of the Republican party. He compares it to the 2017 Tax Cuts and Jobs Act (TCJA) under Trump, highlighting the lengthy process required to implement full regulations for the new and amended sections of the Internal Revenue Code. Straight argues that achieving the major changes proposed in Project 2025 would require an even greater overhaul of the Code.

“This is not a small undertaking, and our hope is that any changes are fully planned out in advance and there is not a repeat of the rushed rollout of the TCJA,” Straight says. He also notes that the TCJA tax cuts are set to expire at the end of 2025, and extending these provisions would likely be a priority for a second Trump presidency. However, he warns that calls for further tax reductions may only provide temporary respite, with more changes on the horizon if they can balance the books.

Straight emphasizes that for international businesses and individuals connected to the US, potential changes must be considered in relation to their non-US taxes. “Fundamental tax changes may have [an effect] on US tax treaties, and the removal of the US from organisations such as the OECD will only further isolate the US from a tax perspective,” he says.

John Harrington, partner and co-leader of international law firm Dentons’ US tax practice, describes some parts of Project 2025 as “merely aspirational.” He points out the conservative aim of replacing the current income tax with a consumption tax, a goal that Congress has not pursued despite numerous attempts at tax reform.

Harrington acknowledges the objective of making the IRS more efficient and responsive but argues that proposals to modify IRS operations will have limited impact without addressing the underlying complexity of US tax rules. “The IRS is required not just to collect revenue, but to administer the social and economic programmes included in the Internal Revenue Code,” he says. Harrington adds that IRS personnel are often criticized whether they deny benefits or hand out cash without ensuring qualification, complicated by rules where answers are uncertain.

He asserts that neither Project 2025 nor other IRS reform projects will significantly improve interactions with the IRS unless the Internal Revenue Code is simplified. Project 2025 also calls for the US to withdraw from the World Bank and the International Monetary Fund. Harrington warns that such actions would leave the US “on the sidelines” in global tax rule development.

“Perhaps a generation ago, if the [US] did not participate in the OECD or other international organisations on tax issues, that lack of participation would have stymied the development of international rules and standards. That’s just not true nowadays,” Harrington argues. He notes that the OECD has developed initiatives like the Common Reporting Standard and the Multilateral Instrument on BEPS, which most countries participate in.

“Failure by the [US] to participate in the OECD or UN may affect the content of the output of the OECD and UN, but it is not going to stop countries from continuing to develop rules in those fora,” Harrington adds. “The [US] would just have less say in development and implementation of the rules.”

While Trump distances himself from Project 2025, tax experts remain wary of the US potentially adopting these radical rules, which could leave the country adrift from international tax policymakers.

By fLEXI tEAM