Executive orders flew fast and furious during U.S. President Donald Trump’s first days in office, but potential tax changes will be constrained by a more measured pace and a strained balance sheet.
“The U.S. system for legislating tax is quite different than the Canadian system,” said Kevyn Nightingale, leader of cross-border tax planning with Levy Salis LLP in Toronto. In Canada when the finance minister announces a tax proposal, that proposal typically becomes law and is effective retroactively, he said.
That stands in contrast with the U.S., where “nothing is law until it’s law,” Nightingale said. “The president doesn’t sit as a member of Congress — as a representative or as a senator — and so all he can do is put forward a wish list, hoping that somebody in the Senate or House will pick it up and run with it.”
An easy tax win for Trump could be making the expiring individual and estate provisions of the Tax Cuts and Jobs Act of 2017 permanent.
Trump’s tax plan is largely a “continuation of the status quo,” said Max Reed, a cross-border tax lawyer and principal of Polaris Tax Counsel in Vancouver. “There are enough people in the Republican Party who care about the budget deficit that they can’t do so much in the way of tax cuts. Not sunsetting the 2017 [tax cuts] is about as good as they’re going to be able to do.”
The U.S. estate tax exemption for individuals — nearly $14 million for 2025 — was slated to drop to about $7 million in 2026. (All figures are in U.S. dollars.)
“Estate tax … generates a tiny fraction of the U.S. budget,” Nightingale said — $24 billion in 2023 compared to $6 trillion in government spending.
In addition to wealthy U.S. persons, wealthy Canadians can be subject to U.S. estate tax at death if they own more than $60,000 in “U.S.-situs” property, such as a home in the U.S. or shares of a U.S. corporation, and their worldwide estate exceeds the exemption. U.S. estate tax applies to the U.S.-situs property and is imposed at graduated rates, ranging from 18% to 40%. (Even if such a Canadian’s worldwide estate is below the exemption, their executor must file a U.S. tax return.)
In total, the extension of the 2017 tax cuts is projected by the U.S. Department of the Treasury to cost $4.2 trillion over 10 years — a sum that potential revenues from trade tariffs wouldn’t readily cover. The Committee for a Responsible Federal Budget, a non-partisan, non-profit organization in Washington, D.C., estimates tariff revenues of roughly $1.6 trillion over 10 years, based on the U.S. increasing the tariff rate on all Chinese imports by 10 percentage points and on all Canadian and Mexican imports by 25 percentage points.
(As of press time in January, no tariffs had been implemented, but Trump said he planned a 10% tariff on imports from China and 25% on imports from Canada and Mexico beginning Feb. 1.)
Nightingale said he doesn’t expect Trump’s tariff threats to be fully implemented, given the negative impact they’d have on the U.S. economy.
The impact of Trump’s income tax changes — primarily the extension of the 2017 tax cuts — are projected to add 2.42% to U.S. gross domestic product (GDP) over the next decade, while the tariffs are expected to reduce U.S. GDP by 1.65%. The result is a gain of 0.77%, as projected by the Tax Foundation in Washington, D.C.
Further, the U.S. deficit in 2024 was $1.91 trillion, according to the Congressional Budget Office (CBO), which projects the deficit to grow to $2.7 trillion by 2035 as outlays — especially for social security, Medicare and interest cost — outpace revenues.
By 2035, the deficit is projected to equal 6.1% of GDP — “significantly more than the 3.8% that deficits have averaged over the past 50 years,” the CBO said in a budget and economic outlook report in January.
Propping up government revenues through seigniorage — printing money — will continue, Nightingale said. Generally, politicians “keep printing more money than they take in in taxes, because it’s hard to get people to vote for tax; it’s easy to get people to vote for inflation, because it’s hidden,” he said.
Overall, “the United States is not on the road to increasing its taxes substantially,” Nightingale said, which has negative implications for Canada as the tax gap between the two countries grows.
This article appears in the February issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.