President-elect Donald Trump has suggested a long list of tax cuts, ranging from decreasing the corporate tax rate to abolishing taxes on Social Security benefits, in addition to extending the Tax Cuts and Jobs Act, one of his major accomplishments from his first term. Over ten years, their combined costs could reach $8 trillion to $10 trillion. The top estimate of $10 trillion is double what the federal government has spent on COVID-19 relief. However, Congress must take action to impose tax adjustments. An extension of the TCJA’s individual income tax provisions is a legislative priority for the upcoming year because they are scheduled to expire at the end of 2025.
Trump’s tax policies under scrutiny
In a post on November 6, Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, predicted what would happen with Trump’s tax wish list: “The expiring individual provisions of the TCJA will be extended sometime in 2025.” “It remains to be seen which of these he’ll pursue,” Gleckman wrote, referring to a “lengthy list of highly targeted tax cuts” that include a corporate tax cut to 20% or 15%, the removal of taxes on tips, overtime, and Social Security benefits, and the provision of tax credits for family caregiving and car purchases. Additionally, Trump has suggested raising or adding new tariffs on goods imported from other nations, and he has the authority to do so without the consent of Congress. These would raise government revenue, but as tariffs are usually passed on to consumers in the form of higher prices, they would essentially increase American taxes. On November 2, he advocated for the expansion of the child tax credit in North Carolina.
Impact of Trump’s tax cuts
On December 22, 2017, Trump signed the Tax Cuts and Jobs Act into law. Despite Trump’s frequent claims that it was the biggest tax cut in history, the cut was substantial, costing $1.5 trillion over ten years at the time. Among other things, the law raised the standard deduction and abolished the personal exemption, raised the child tax credit, restricted deductions for state and local taxes, mortgages, and home equity lines of credit, raised the threshold for estate taxes, and altered the marginal tax rates and related income thresholds for individual income taxes. However, Republicans in Congress used reconciliation, a procedure that enables the Senate to pass a measure with a simple majority instead of the 60 votes typically required to end a filibuster and advance legislation, to send the bill to Trump’s desk. With reconciliation, the tax plan could not increase the deficit after ten years and had to reach a predetermined spending and revenue objective.
Trump’s tax plan and economic growth
Republicans crafted the law so that the majority of the individual tax cuts (including all of the aforementioned measures) expire at the end of 2025 to satisfy that budget requirement. Congress must therefore take further action to prolong the cuts. According to estimates from the Congressional Budget Office, the Committee for a Responsible Federal Budget, the Penn Wharton Budget Model, and the Tax Foundation, prolonging the law’s sunsetting provisions would increase the deficit by roughly $4 trillion over ten years. The cost, including interest payments, was estimated by the CBO at $4.6 trillion. The Tax Foundation calculated the cost at $3.5 trillion, whereas PWBM estimated it at $3.83 trillion, including the economic effects of the tax cuts.
| Fact | Detail |
| Tax Cuts and Jobs Act (TCJA) | Lowered business and individual tax rates after being passed in December 2017. |
| Corporate Tax Rate | decreased from 35% to 21% to promote corporate investment. |
| Individual Tax Cuts | Individual tax cuts are temporary and involve a change in tax brackets. |
| Impact on Middle Class | Temporary advantages, while detractors claim the wealthiest benefit more than others. |
| Tax Repatriation | Encouraged businesses to repatriate their foreign profits to the United States at a reduced tax rate. |
| Estate Tax | Richer estates benefited from the exemption, which quadrupled to $11 million per individual. |
Debate over Trump’s tax reforms
Trump has also advocated for the expiration of the TCJA’s cap on state and local tax deductions. The Tax Foundation and CRFB estimate that if the so-called SALT deduction ceiling is not extended, deficits will increase by an additional $1 trillion to $1.2 trillion over ten years. Republicans may need to employ reconciliation once again to pass tax reform in 2025 when they will possess 53 Senate seats. “If lawmakers are unable to agree on deep, longer-term spending cuts or tax increases, GOP lawmakers may be forced to extend all the individual provisions of the TCJA only temporarily, instead of making those 2017 tax cuts permanent,” Gleckman of the Tax Policy Center noted in a post on December 4.
