How Taxes Will Be Shaped by the 2024 Elections

Trump: My Council of Economic Advisors estimates that this change along with a lower business tax rate would likely give the typical American household around a $4,000 pay raise. And that’s money that will be spent in our economy …

Davison: We saw some of that, but we didn’t see the level that the Trump administration and the Trump Treasury at the time projected would happen.

They threw out some numbers, there would be, you know, billions and billions or, you know, as much as a trillion dollar of, um, you know, offshore cash coming back into the U.S. That didn’t happen. They projected that there’d be an average of $4,000 tax cut per household. That also didn’t happen. That they would see their earnings go up by $4,000. That was also not accurate.

Mohsin: It’s hard to assess just how these tax cuts measured up to their projections because they went into effect in 2018. Two years later, COVID hit and upended the entire economy.

Davison: So the scorecard on how well this performed is really murky, though by kind of every, major scorekeeper who’s looked at this, the Congressional Budget Office, the Joint Committee on Taxation, several outside think tanks, the tax cuts did not pay for themselves in, in increased economic output. That is pretty clear, um, across the board.

Mohsin: And extending these tax cuts would only further add to the country’s spiraling debt.

Coming up, we get into that, and what Trump and Biden want to do about the individual tax cuts that are up for debate next year.

To understand what’s at stake for Americans in the tax rate debate ahead, I sat down with Bill Hoagland. He’s senior vice president at the Bipartisan Policy Center.

He came to the think tank after over 30 years on Capitol Hill, including time as an advisor to former Republican Senate Majority Leader Bill Frist. He says he’s seen great examples of bipartisan compromise over the years — and he thinks this tax bill could be just that sort of opportunity.

Hoagland: I think there is bipartisan support for many elements of the tax cut, particularly as it relates to the individual tax cuts.

Mohsin: But he told me, there’s also bipartisan concern, about the country’s rising debt and deficits.

Hoagland: And therefore, the politics of this are that you’re not going to be able to easily extend these tax cuts, which some people would say another ten years would be a $7 trillion hit to the deficit, unless you offset that.

You don’t offset those kinds of tax cuts unless you’re looking at some major spending reductions. So unless it’s a clean sweep for Republicans — House, Senate, and the White House — this is not going to be as smooth sailing.

2024 Elections & Tax Issues

Mohsin: Not that either party has proven they’re committed to real action on the nation’s debt pile. In the past 16 years, under Presidents Obama, Trump, and Biden, the federal debt has more than tripled to $34 trillion.

But they are concerned with these expiring tax laws. So, break it down for me. If Trump is elected, what has he said about what he would do on tax policy and what do we know about what his campaign is thinking?

Davison: Trump is, is, is easier to describe, partially because he hasn’t said all that much specifically.

Mohsin: Bloomberg’s Laura Davison again.

Davison: He talks about taxes a lot when he’s on the campaign trail.

Trump: You’re gonna have the biggest tax cut …

Davison: At a rally in New Jersey, which is notably a very high tax place, a couple weeks ago, he said that he was going to pass a middle class, upper class, lower class, and business class tax cut.

Trump: You’re suffering under some of the highest property taxes and sales taxes in the nation.

Davison: But he hasn’t gotten down to the policy specifics of what this looks like. He’s been meeting with a lot of folks who have advised him previously on taxes. And they’ve been pitching him on some ideas on going further than just renewing the tax cuts, you know, having bigger cuts than what he did in 2017.

But his campaign hasn’t endorsed any of these ideas. I should be very clear that, um, they’re still thinking, yes, tax cuts, but publicly they have not gotten into the details about what this looks like.

Mohsin: I asked Laura what part of Washington is most important for Republicans to clinch if they want to see those tax cuts extended:

Davison: The White House is probably the most determinative factor, because, I’ll say that most people are expecting control of Washington to be divided, and whether that means Biden or Trump in the White House, people are sort of anticipating that the House will go to the Democrats and Republicans will have the Senate, and the big wild card on how this debate goes is whether it’s Biden or it’s Trump.

Biden is almost totally on the other end of the spectrum. He has a, you know, multi hundred page plan on what he would do for tax cuts. Part of this is the advantage of being the incumbent is that you have, um, the Congressional Budget Office and, um, OMB, uh, when he put out his budget proposal earlier this year, he has a full tax plan.

It broadly looks like two things. One, raising taxes on corporations, both raising the corporate rate from that 21 level to 28 percent, as well as making sure that companies operating offshore are paying a higher tax rate.

And then on the individual side, Biden has said he wants to keep all of the tax cuts, including the Trump tax cuts, in place, for people making under $400,000. But then having people above that amount pay more.

Mohsin: Because when it came to the individual side of the 2017 tax law, it was the highest earners who benefited the most.

Davison: And that’s a lot because of this pass through deduction that I talked about. So people who owned small businesses, both got the individual rate cuts, but also got a much bigger tax cut on their business income.

Mohsin: At a campaign event in Scranton, Pennsylvania in April, Biden hammered home the difference between his and Trump’s approaches to the issue of high earners — comparing what he called his “Scranton values” to Trump’s “Mar-a-Lago values.”

Joe Biden: For more than 40 years, our Republican friends have promised the best way to grow the economy from the top down. But here’s what they don’t tell you. It’s never worked. The benefits don’t trickle down and the very wealthy pay less in taxes and we have to borrow more and invest less …

Mohsin: Biden is proposing measures like increasing the tax rate on the money you make off of investments, called capital gains … getting rid of that pass through deduction, and creating a so-called billionaires tax.

Davison: This concept of taxing the really, really wealthy, is wildly popular with both sides of the aisle.

Mohsin: In fact, a recent Bloomberg News / Morning Consult poll found that 77% of swing state voters supported a billionaires tax to make up for Social Security shortfalls.

Davison: 77 percent of people in the U.S. don’t agree on anything.

Mohsin: In spite of this, our most recent poll found that more swing state voters trust Trump on taxes over Biden.

Whoever wins the White House in November, what they decide to do about the expiring tax cuts has huge implications for the U.S. economy.

Davison: Renewing the Trump tax cuts is incredibly expensive. It cost about 1.5 trillion in the first place for both the corporate side, the individual side, all of that. To renew just the individual side for the next decade cost 4.6 trillion.

Basically, you know, an, an increase of, you know, somewhere from two to three X, just to increase a portion of them. And so that’s going to be a huge fight in Congress of, you know, between Republicans and Democrats, do they add to the deficit? Do they pay for them?

Mohsin: I asked Bill Hoagland, from the Bipartisan Policy Center about this. He said, in some ways, the way we talk and think about tax cuts, as they relate to national debt … [and] it’s short sighted. We’re all concerned about the taxes we pay today, but if we keep letting the debt creep up, we could be paying the price tomorrow.

Hoagland: What is this debt that we’ve accumulated? It’s a tax on you, your generation, future generations. It is a form of a tax. It will be paid in the future. One way of looking at this is, we don’t need to further add to the already very high level of debt that we’re already incurred.

(Credit: Bloomberg)