Tax and economic policy rose to the forefront of the 2024 presidential campaign following mid-June meetings where former President Donald Trump threw out a raft of significant new tax proposals, including exempting tips from income, replacing income taxes with tariffs, and lowering the corporate rate to 20%. President Joe Biden and Democrats responded by trumpeting their own tax policy priorities.
Trump talked tax across a variety of events, including at a Las Vegas campaign rally, separate meetings with Senate and House Republicans, and a meeting with CEOs at the Business Roundtable, an influential trade group representing some of the country’s largest companies.
Trump often unveils proposals without much warning, and it can be difficult to gauge which off-the-cuff statements may fade and which will solidify into core aspects of his platform. The former president told members of the Business Roundtable that he planned to lower the current corporate income tax rate by one point, from 21% to 20%, which was the rate goal in an early draft version of the Tax Cuts and Jobs Act. Trump did not discuss the 20% rate proposal in his meetings with congressional Republicans, and the corporate rate remains a source of some contention among Republicans. Some Trump campaign surrogates have discussed focusing on holding the line on the 21% rate, while others have touted the possibility of further lowering the rate to 15%, Trump’s original goal during the 2017 process that led to the TCJA becoming law. House Ways and Means Chair Jason Smith, R-Mo., has publicly said deficits may be a concern among House Republicans and that there is even support for raising the rate.
Earlier in the day he mused to congressional Republicans that tariffs could be a revenue source to replace or reduce personal income taxes. Preliminary estimates by nongovernmental experts suggest raising enough revenue from tariffs to offset an elimination of income taxes would be difficult to impossible. But the tariffs Trump has promised — 10% across-the-board tariffs on imports from most countries, 65% or more on Chinese products — could factor into debate around extending current income tax rates set by the TCJA, or pay for a reduction to the corporate income tax rate. If elected Trump could put in place the tariffs without new law, due to the broad powers granted to the presidency for trade negotiations and enforcement. Trump is also likely to threaten additional tariffs in OECD Pillar 2 negotiations.
Trump also proposed making tipped income tax-free during a campaign event in Nevada, expected to be a key toss-up state, and has since repeated the proposal, though with little detail about implementation.
It's unclear how much weight Trump will put behind the tariffs for income tax reductions, or elimination, proposal, or another recent campaign trail suggestion of eliminating taxes on tipped wages. However, if he is elected again and sees these as key campaign promises that could put them at the forefront of Republican proposals next year. Control of Congress, and growing concern over debt and deficits due to the heightened costs of borrowing for the federal government in a higher interest rate environment, will be significant factors as far as how realistic of a chance those proposals have to become law.
But Trump’s recent tax policy ideas, as well as a June 12 National Economic Council memo on taxes, highlight how next year’s anticipated fiscal debate, forced by the sunsetting of most of the Tax Cuts and Jobs Act, could put pocketbook and economic issues at the forefront of the 2024 campaign.
At a June 13 event held at the National Press Club, prominent Republican and Democratic pollsters, including one working with the Trump campaign, said that both sides would begin to emphasize their differences on tax policy and the importance this election will have on the potentially historic fiscal debate expected in 2025. One, Jim McLaughlin, who works for the Trump campaign, said that Trump would begin to focus criticism on Biden’s tax positions, while Stan Greenberg, a well-known Democratic pollster predicted that Democrats would begin to campaign more on Trump’s renewed embrace of corporate America, extending the health insurance premium tax credit that also expires next year, and expanding the child tax credit.
A few days later, Sen. Elizabeth Warren, D-Mass., sought to anchor Democrat positions on the left in next year’s tax battle by suggesting that raising the corporate tax rate and taxes on the wealthy should be red lines, and without those it would be better to let the temporary portions of the TCJA expire. While Warren does not represent the median Democratic viewpoint in the Senate, her prominence among activists on the political left could increase public pressure to raise the corporate rate.
Democrats have also gone on the attack following Trump’s comments to House Republicans on replacing income taxes with tariffs, noting that the distribution of taxes would rise for lower-income households while increasing costs of goods and, possibly, the federal deficit and debt.
The cost of proposals figures into how realistic they may be. Under the rules of budget reconciliation, the procedure used to circumvent the higher 60-vote threshold often necessary to advance legislation in the Senate, bills passed under those special fiscal rules cannot add to the deficit outside the standard 10-year budget window. It’s for this reason the personal income tax cuts and other measures within the TCJA were designed to expire, as were portions of the 2021 American Rescue Plan and the 2022 Inflation Reduction Act.
Debt and deficits may also start to matter again politically. On June 18, the Congressional Budget Office raised its estimate for the federal deficit in FY24 from $1.4 trillion to $1.9 trillion, and now believes the U.S. will exceed $50 trillion in debt by 2034 if current policy holds. While debt has steadily risen under both Democratic and Republican lawmakers, especially during both the Trump and Biden administrations, the higher interest rate environment post-COVID and highest level of U.S. debt as a percentage of gross domestic product since World War II have heightened concerns, as annual debt service has begun to surpass other areas of federal spending. Social Security and Medicare also face significant budgetary shortfalls in the first half of the next decade, according to current projections.
Smith, the current Ways and Means Committee chairman, has said publicly that offsetting the cost of tax cuts will be a key internal debate amongst congressional Republicans, some of whom are more concerned over growing debt than others.
Budget reconciliation legislation could also address federal spending, trade, and healthcare, further complicating the politics around such bills. The outcome of the 2024 elections, at the presidential and congressional levels, will go far in determining the starting point for the debate.
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