As the 2024 elections loom, the rhetoric is heating up on competing visions of taxes from Democrats and Republicans. The outcome of the election will determine whether the individual provisions in the 2017 Trump tax cuts are extended, modified, or thrown into the legislative dust bin. (source)
President Biden, lawmakers on key tax writing committees, and tax advocates of various ideological stripes are battling over what their agenda should be in 2025, when taxes will return to the limelight of fiscal policy debates. The Trump Tax Cuts and Jobs Act (TCJA), a centerpiece of Republican tax policy, changed the tax code by cutting the corporate tax rate from 35 percent to 21 percent and by bringing down individual tax rates by between 0 and 4 percentage points, depending on the tax bracket.
Starting in 2026, the individual tax rate reductions in the TCJA will also expire, along with the cap on state and local tax deductions, the boost in the child tax credit, the increase in the standard deduction, the limit on personal exemptions, and the repeal of an alternative minimum tax on corporations. If Republicans can retake the White House and Senate while holding the House, they will have the chance to extend many — if not all — of these expiring provisions.
However, the current tax fight extends beyond the TCJA and into renewed proposals to tax rich Americans, a pledge that Biden has made repeatedly in the past. His most recent revenue proposals include a plan to increase the top tax rate on long-term capital gains and certain dividends to 44.6 percent as a way to normalize the effective tax rates between high and low earners.
Republicans and Wall Street commentators are up in arms about the proposed changes. The tax fight comes at a time of ballooning U.S. deficits and rising U.S. interest costs that will cause interest costs to more than double with respect to gross domestic product by 2054, according to the most recent budget outlook from the Congressional Budget Office.
While Biden’s various revenue proposals, according to various estimates, could slash the deficit by between $2 trillion and $5 trillion over the next 10 years, extending all of the Trump tax cuts could add as much as $3.5 trillion to the deficit, according to the Joint Committee on Taxation, the official scorer of U.S. tax laws.
Despite rhetorical hostility from Democrats to the Trump tax cuts, the 2017 law has not been substantially changed during the Biden administration despite the president’s efforts to raise taxes on wealthier Americans and corporations. This ongoing tax battle underscores the importance of understanding tax laws and their implications on the economy and individual financial obligations.