Raw: [Trump tax cuts on the line in 2024 election The Hill] {Article Source: https://thehill.com/homenews/4479162-trump-tax-cuts-at-stake-in-2024-election/}
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Trump tax cuts on the line in 2024 election
by Tobias Burns – 02/21/24 6:00 AM ET
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by Tobias Burns – 02/21/24 6:00 AM ET
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The 2017 Trump tax cuts are on the line in the election this year, with Republicans hoping a sweep of Congress and the White House will allow them to extend the former president’s signature law.
Democrats opposed the law when Trump was in power but have supported extending certain cuts, such as the decreased tax rates for people making less than $400,000 a year. Democrats do not want a blanket extension, which would cost nearly $4 trillion over the next decade.
President Biden has supported bumping the corporate tax rate up to 28 percent from Trump’s level of 21 percent. He wants to raise taxes on the wealthy in order to reduce the deficit by between $3 trillion and $4 trillion over 10 years.
A sweep of the White House and Congress would put either party in a better position to accomplish its aims through tackling the cuts with a budget reconciliation measure, a way of getting around the Senate’s 60-vote filibuster.
Republicans, who hold the House and face a favorable Senate map, likely have the best odds at such an outcome, particularly with polls showing Trump with an edge on Biden.
A divided government will likely still deal with the expiring tax cuts, as opposed to having the tax code revert back to its 2017 levels, though what would happen in a situation of political gridlock is a bigger question mark.
“Republicans of course want to extend all of it, a lot of Democrats want to extend a lot of it. There’s certainly pressure that if Congress doesn’t do something, some people are going to have tax increases, and there’s always this idea that tax increases are bad,” Steve Wamhoff, policy director at the Institute on Taxation and Economic Policy (ITEP), a Washington think tank, told The Hill.
Which 2017 tax cuts are to expire in 2025?
While lower corporate tax rate was permanently locked in in 2017, the individual provisions in the Trump tax law will expire at the end of 2025.
Without extensions, married couples making the U.S. median household income of $74,580 will once again pay 15 percent of their income in tax instead of 12 percent. Income tax rates for top earners will bump up to 39.6 percent from 37 percent.
The standard deduction will drop to $6,500 from $12,000 for individual filers and to $13,000 from $24,000 for couples. The $10,000 cap on state and local taxes will go away, along with a 20-percent deduction for pass-through businesses income.
The Joint Committee on Taxation (JCT) estimated the 2017 tax law would add $1.5 trillion to the deficit between 2018 and 2027. Legislation scorers have estimated that extending all provisions that are set to expire or to be downgraded will cost $3.8 trillion through 2033.
The reversions built into the tax law made the deficit-expanding legislation significantly less expensive on paper, something Democrats have blasted as “one of the most egregious and fiscally reckless budget decisions in modern history.”
“President Trump and congressional Republicans deliberately sunset portions of the Tax Cuts and Jobs Act of 2017 legislation after 2025 to conceal both the true increase in the deficit—much larger than the already-massive $2 trillion cost estimate—and the true size of their tax breaks for multi-millionaires and large corporations,” the president’s 2024 budget says.
Republicans try to cement Trump’s tax cuts
Republicans introduced a bill to make the 2017 cuts permanent almost as soon as they retook the House in February last year. They say the work to extend the Trump tax cuts has already begun and that there are numerous points of agreement with Democrats.
“It’s worth highlighting that much of that work is already underway,” Rep. Lloyd Smucker (R-Pa.) said last month at a House Ways and Means Committee markup of the a bipartisan tax deal, which would restore business deductions that were initially canceled to help pay for the Trump tax cuts.
Smucker said he looked “forward to building on [the day’s] bipartisan work as we head into tax reform in 2025.”
One Trump extension with both Democratic and Republican support is the 20-percent pass-through business income deduction.
“I’m proud to be partnering with my Democratic colleagues on several provisions, including making the section 199-A pass-through deduction permanent,” Smucker said in January.
Personal business income is a major portion of the $688 billion annual tax gap, the amount the government is owed in tax every year but fails to collect. Last year, the IRS set up a new pass-through unit in its large business and international division, with its initial $80 billion funding boost from the Inflation Reduction Act.
Critics of Republicans’ 2023 bill to extend tax cuts say its savings are skewed toward the wealthiest Americans.
“The bill would cost $288.5 billion in 2026 alone,” analysts for the ITEP wrote in a 2023 commentary. “In 2026, the poorest fifth of Americans would receive just 1 percent of that total while the richest fifth of Americans would receive nearly two-thirds of that total.”
Former President Trump has yet to provide a detailed tax plan as part of his campaign, but has proposed an across-the-board 10 percent tariff on imported goods, a measure that would have significant effects across many different sectors of the economy.
Which tax cuts do Democrats want to keep?
Biden has proposed extending the Trump tax cuts for people making less than $400,000 a year, describing the expirations in the 2017 law as “problematic.”
Biden’s 2024 budget says America should “[pay] for the continuation of tax cuts for people earning less than $400,000 in a fiscally responsible manner and address the problematic sunsets created by President Trump and congressional Republicans.”
The White House’s 2024 revenue proposals are awash with plans to tax richer citizens, including a minimum income tax for the richest people, capital income taxation reforms and expansions of the net investment income tax. Biden’s framework would generate more than $1.5 trillion in revenue over 10 years, and his revenue scheme overall would shrink the deficit by more than $4 trillion, according to Treasury Department estimates.
Various plans to tax wealthier Americans, including a proposed billionaire tax, failed to make it into law during the first half of Biden’s presidency, when Democrats controlled both the White House and Congress.
“Even when Democrats had the majority, which we had for years, we couldn’t get [more substantial reforms] through here, because there were some Democrats who are closer to Wall Street than I am,” said Rep. Bill Pascrell (D-N.J.), a member of the Ways and Means Committee.
Pascrell said many Democrats want to see wider ranging tax reforms than what the 2017 cuts and their possible extensions could provide, referencing 1986 Reagan-era reforms that had support from top Democrats.
“We can’t even get carried interest legislated. We’ve talked about it for 15 years. We’ve talked about looking fairly at inheritance taxes. We haven’t done anything.”
Deficit fears loom over the coming tax fights
Fights over the 2017 extensions will come against a backdrop of fears over the ballooning national deficit.
Deficits hit a new plateau after trillions of dollars in pandemic stimulus and economic relief approved by Democrats and Republicans. Interest rates that were yanked higher in response to elevated inflation will make paying for those debts more expensive.
Following standoffs and Congressional gridlock over the deficit that nearly resulted in a first-ever U.S. debt default, the Fitch ratings agency downgraded U.S. creditworthiness last summer, citing deficient governance.
As lawmakers consider whether to extend the Trump tax cuts, and whether to expand the child tax credit and reinstitute business deductions that were initially meant to help pay for those cuts, deficit storm clouds are only darkening over the U.S. fiscal horizon.
Experts say these clouds can sneak up on markets at unexpected moments.
“The U.S. does face some constraints,” Charles Dallara, a former executive director of the IMF and assistant Treasury secretary, told The Hill. “Eventually those constraints will either be recognized sensibly by our political leadership or they’ll be recognized in a more disruptive fashion probably by the markets.”
“Market anxiety can surge,” he cautioned. “This could undermine efforts underway by the Fed to bring interest rates down, if suddenly you have a shortage of demand for U.S. treasuries. We know where that leads: It leads to higher rates, because the Treasury has to raise X-amount of dollars.”
Dallara added that financing requirements for U.S. debt levels could become more burdensome in the second half of 2024, which could constrain the Fed’s license to lower rates even if the inflation outlook permits it to do so.
Tags
2017 tax cuts
Biden administration
Joe Biden
Lloyd Smucker
Tax Cuts and Jobs Act
taxes
Trump
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