The 2025 election is set to trigger a $6 trillion divide over tax policy. While former president Donald Trump is looking to lower the corporate tax rate and permanently extend his 2017 Tax Cuts and Jobs Act, President Joe Biden is calling for a fairer tax code, keeping the Trump tax cuts for families making under $400k, but raising rates for the ultra rich. Regardless of their stance, tax policy will be the first order of business with the tax bill expiring in 2025.
But the outcome of the election gets a bit more complicated. A Trump win may not necessarily mean the Republican party is on board with Trump’s policy proposal.
Yahoo Finance’s Washington Correspondent Ben Werschkul said that while Republicans are united around Trump as their nominee, they are still divided over how to address the 21% federal corporate tax rate if the GOP controls Washington next year. The pro-business wing makes the case that lower rates can allow companies to invest in their workers and better the economy, while the populist wing maintains the need for corporate responsibility through higher taxation.
A fair tax code is how we invest in to make this country great.
As I gave you the largest tax cut in history. I also gave you the largest regulation cut in history.
The outcome of the 2024 presidential election is set to trigger a $6 trillion fight over taxes. With the Tax Cuts and Jobs Act expiring in 2025, tax policy is expected to be the first order of business regardless of who wins, even as pressure builds to rein in the national debt.
So, tax policy is a real focus in this election, going back to 2017. That's the year that Donald Trump signed his tax cuts into law. And within that bill, a whole lot of individual tax cuts had an expiration date set for the end of 2025. That's in about 16 months time. And what that means is whoever wins in November has a real big say over tax policy, because Washington has to have some sort of deal by the end of next year. The question is who's President, who's in control of the Senate, who's in control of the house.
President Biden and former President Trump have both called for an extension of tax cuts for Americans earning less than $400,000, but that's about all they agree on. Biden wants to increase the corporate tax rate to 28% and raise the individual rate to 39.6% for the ultra wealthy. Trump wants to lower the corporate tax rate to 20% and make the 2017 tax cuts permanent.
A lot of people are watching, wondering what'll happen if Republicans sweep entirely, meaning they control the Congress and the White House, likewise with Democrats, or if it's split. But even if there's a sweep of one party or other, we don't know for certain what the tax bill will be. A great example is divisions within Republicans on corporate taxes.
Trump argues corporate tax rates need to remain low for the US to remain competitive in the world, but he faces opposition from some Congressional Republicans. One influential Congressman's even floated raising the corporate tax rate to 25%, saying we should not be doing the bidding of corporate America.
This debate within the GOP on corporate taxes is representative of the different wings of the party. There's a pro-business wing, and their essential case is that lower rates across the board for corporate America are good for the economy overall. If companies pay less taxes, they are able to invest more in their businesses, and invest more in their workers. There is a populist wing of the party that is pushing back on that notion a little bit.
That debate's complicated by concerns about the country's growing debt. The national debt ceiling is set to be reinstated in January, after a two-year suspension.
We are at a moment where the fiscal warning signs are really just so bright, so loud, and it's as though nobody who's running for office is paying attention. We have a debt as a share of the overall economy. It's about to be 100%, and in the next few years it's going to be the highest it's ever been as a share of the economy.
The Congressional Budget Office now projects the annual deficit to total roughly $2 trillion in 2024. That's a 27% jump in just 4 months. The CBO estimates the federal debt held by the public to skyrocket to more than 122% of GDP in the next decade.
Interest payments are the single fastest growing part of the federal budget. They are going to be $900 billion this year, or about $6,600 per family. So interest now is costing us more than overall national defense. It's an economic risk and it's a national security risk, and yet our candidates have not put forth any plans to address the debt, but on the tax side, they're talking about a lot of tax cuts that would make it worse.
Trump says he'd unleash oil drilling to help pay off the debt. He's also said the tax cuts will pay for themselves with economic growth above 3%, but the CBO estimates a permanent extension of the Trump tax cuts would cost $400 billion per year, $4 trillion over a decade.
Tax cuts do not pay for themselves. What they do do is they grow the economy. So lower taxes will generate growth, but only enough to cover about roughly 20% of the cost of a tax cut.
On the opposite end, Biden wants to pay for the extension of middle class tax breaks by raising taxes on the ultra rich.
Both of these presidents have actually added to the debt when the economy was strong and growing, and what you should be doing is running budget surpluses, or at least much smaller deficits. That's no longer the norm. The more you borrow, the more that increases inflation. And so with all the talk about this being an important issue for voters, and their concern about the high and growing costs of so many goods, the more the government borrows, the more that pushes that inflation up further, instead of helping to bring it down. I would say the first step here would be to actually have a plan to bring our national debt down. If both candidates could commit to a simple pledge of saying no more borrowing, no new borrowing other than for emergencies, that would really help the fiscal situation. And what that would require is if you want to cut taxes, okay, how are you going to offset that cost?
Both Biden and Trump have seen incredible increases in the national debt in their time in office. The question is whether we've reached such a high level, it's almost $35 trillion as we sit here today, whether that incredible level changes the calculus in the year ahead, as they talk about things like tax cuts.
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Debate over the rollout of next year’s tax policies comes amid growing concerns about the country’s rising debt. The Congressional Budget Office projects federal debt held by the public to skyrocket to more than 122% of GDP in the next decade.
The President of the Committee for a Responsible Federal Budget Maya MacGuineas argues the rapid rise in the country’s debt now poses a “national security risk.” She said both candidates need to have a plan to address the debt, and offset the costs of the tax cuts they want to implement.