Trump tax cuts on the line in 2024 election

Trump’s 2017 tax cuts are being contested in this year’s election, with Republicans hoping for an overwhelming majority in Congress and the White House to approve an extension of the former president’s signature law.

Democrats opposed the law when Trump was in office, but have supported extending certain tax breaks, including lower rates for people making less than $400,000 a year. Democrats do not want a full extension that would cost nearly $4 trillion over the next 10 years.

President Biden supports raising the corporate tax rate from President Trump’s level of 21% to 28%. He wants to raise taxes on the wealthy and reduce the budget deficit by $3 trillion to $4 trillion over 10 years.

A clean sweep of the White House and Congress would put both parties in a better position to achieve their goals by tackling the cuts through budget reconciliation measures, a way to avoid a 60-vote filibuster in the Senate. It turns out.

Republicans, who control the House and face favorable conditions in the Senate, would be most likely to favor such an outcome, especially as polls show Trump leading Biden. .

A divided government would likely continue to address expiring tax cuts rather than restoring the tax code to 2017 levels, but what happens in a political deadlock is an even bigger question mark.

“Republicans of course want all extensions, and many Democrats also want significant extensions. There is certainly pressure on some people to raise taxes if Congress does nothing, and tax increases are “There’s always this idea that it’s bad,” said Steve Wamhoff, policy director at the Institute on Taxation and Economic Policy (ITEP). Washington think tank told The Hill.

Which 2017 tax cuts expire in 2025?

The corporate tax rate cut was made permanent in 2017, but individual provisions of the Trump tax law expire at the end of 2025.

Without the extension, a married couple with the median U.S. household income of $74,580 would again pay 15% of their income in taxes instead of 12%. The income tax rate for high-income earners will be raised from 37% to 39.6%.

The standard deduction will be reduced from $12,000 to $6,500 for individual filers and from $24,000 to $13,000 for married couples. The $10,000 cap on state and local taxes would be eliminated, and pass-through business income would be deducted by 20%.

The Joint Committee on Taxation (JCT) estimates that the 2017 tax law will add $1.5 trillion to the budget deficit from 2018 to 2027. Legislative Scorer estimates that extending all provisions scheduled to expire or be downgraded would cost $3.8 trillion by 2033.

The setbacks built into the tax law made the deficit-expanding bill significantly cheaper on paper, but Democrats have slammed it as “one of the most egregious and fiscally reckless budget decisions in modern history.” I’m blaming.

“President Trump and Congressional Republicans have intentionally repealed portions of the 2017 Tax Cuts and Jobs Act after 2025, resulting in a real increase in the deficit that is far greater than the already massive $2 trillion cost estimate.” “Gives a break to the very wealthy and big corporations,” the president’s 2024 budget says.

Republicans seek to strengthen President Trump’s tax cuts

The Republicans introduced bill to make Permanent cuts will be made in 2017, around the same time as the House of Representatives was retaken in February last year. They say work has already begun on extending the Trump tax cuts and there are many areas of agreement with Democrats.

Rep. Lloyd Smucker (R-Pennsylvania) told the House Ways and Means Committee last month that the markup to the bipartisan tax agreement would restore business deductions that were not initially applicable, saying, It is worth emphasizing that much is already underway.” It was canceled to fund the Trump tax cuts.

“I look forward to future developments,” Smucker said. [the day’s] I would like to advance bipartisan efforts toward tax reform in 2025. ”

One of President Trump’s extension proposals, which has support from both Democrats and Republicans, is the 20% pass-through business income deduction.

“I’m proud to work with my Democratic colleagues on several provisions, including making the Section 199-A pass-through deduction permanent,” Smucker said in January.

Personal business income accounts for the bulk of the $688 billion annual tax gap that governments owe but don’t collect. Last year, the IRS created a new pass-through unit in the large business and international division following an initial $80 billion funding boost from the Inflation Control Act.

Critics of the Republican 2023 tax cut extension bill argue that the party’s savings are skewed toward the wealthiest Americans.

“The bill would cost $288.5 billion in 2026 alone,” ITEP analysts wrote in a 2023 commentary. “In 2026, the poorest fifth of Americans will receive just 1 percent of that total, while the richest fifth of Americans will receive nearly two-thirds of that total.” It will happen.”

Former President Trump has not yet laid out a detailed tax plan as part of his campaign, but he has proposed imposing a flat 10% tariff on imported goods, which would have a major impact on many sectors of the economy. right.

Which tax cuts do Democrats want to keep?

Biden proposed extending the Trump tax cuts for people making less than $400,000 a year, calling the expiration of the 2017 law “problematic.”

Biden’s The 2024 budget says: This is what America should do.”[pay] It calls for continuing tax cuts for people making less than $400,000 in a fiscally responsible manner and addressing the problematic sunset created by President Trump and Republicans in Congress. ”

White House 2024 Profit proposal is There are many plans to tax the wealthy, including a minimum income tax for the richest, capital income tax reform, and an expansion of the net investment income tax. The Treasury Department estimates that Biden’s framework would generate more than $1.5 trillion in revenue over 10 years and reduce the deficit by more than $4 trillion over his overall spending plan.

Various plans to tax wealthy Americans, including a proposed billionaire tax, failed to pass during the first half of Biden’s presidency, when Democrats controlled both the White House and Congress.

“Even when Democrats had a majority for years, we didn’t get it.” [more substantial reforms] There were Democrats who were closer to Wall Street than I was,” said Rep. Bill Pascrell (D.N.J.), a member of the Ways and Means Committee.

Pascrell said many Democrats want broader tax reform than the 2017 tax cuts and possible extensions, pointing to a 1986 Reagan-era reform that had support from Democratic leaders. .

“We can’t even legislate interest. We’ve been talking about it for 15 years. We’ve talked about looking at inheritance tax fairly. We haven’t done anything.”

Concerns about budget deficits looming over future tax battles

The fight over the 2017 extension will take place against a backdrop of concerns about the country’s ballooning national deficit.

Budget deficits have hit a new plateau in the wake of trillions of dollars in pandemic stimulus and economic relief packages approved by Democrats and Republicans. Interest rates have been raised in response to rising inflation, making payments on these debts even more expensive.

Fitch ratings agency downgraded the U.S.’s credit rating last summer, citing governance deficiencies, after a standoff over the budget deficit and a deadlock in Congress brought the country close to defaulting on its debt for the first time in history.

The outlook for the U.S. budget is marked by a storm of deficits, as lawmakers consider whether to extend the Trump tax cuts, expand the child tax credit and restore business credits originally intended to pay for the tax cuts. The clouds are just getting darker.

Experts say such clouds can creep into the market at unexpected moments.

“The United States faces some constraints,” Charles Dallara, former IMF director and assistant secretary of the Treasury, told The Hill. “Ultimately, these constraints will be recognized wisely by political leaders, or perhaps more destructively by markets.”

He warned that “market uncertainty may increase.” “This could undermine the Fed’s ongoing efforts to lower interest rates if there was suddenly a lack of demand for U.S. Treasuries. We know where that will lead. This will lead to higher interest rates as they will have to raise more money.

Dallara said funding requirements based on U.S. debt levels could become even more burdensome in the second half of 2024, potentially constraining the Fed’s license to cut interest rates even if the outlook for inflation makes it possible. He added that there is.

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