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Tax featured prominently at several points during the debate between President Biden and Former President Donald Trump on June 27th. The tax discussion generally revolved around the Tax Cuts and Jobs Act of 2017 (TCJA). President Biden alleged that Former President Trump oversaw the passage of the TCJA which amounted to the largest tax cut in American history and added $2 trillion to the debt—he may have understated the effect.
According to Congressional Budget Office reports, the cost of the TCJA through 2027 may total $1.6 trillion, but an extension of the cuts through the following decade could balloon the total cost to $4 trillion.
The TCJA introduced sweeping changes to the U.S. tax code, intended to stimulate economic growth through cuts for individuals and corporations and disincentivize the offshoring of profits—but the intended effect did not come to pass.
High-Level Overview
The TCJA reduced the corporate tax rate from 35% to 21%—this was intended to encourage economic development. It also adjusted individual income tax brackets and increased the standard deduction, subject to expiration in 2025.
The law further eliminated personal exemptions and put a cap on state and local tax (SALT) deductions. The SALT cap disproportionately affected taxpayers in high-tax states, as only those individuals with state tax totals above the cap suffered deleterious tax effects.
One of the most contentious aspects of the TCJA is its effect on the federal deficit via a reduction in federal tax revenue. During the debate, President Biden emphasized the need for a more equitable tax system, arguing the cuts primary favored the wealthy and large corporations at the expense of the deficit. Former President Trump reiterated his position that the TCJA was a catalyst for economic growth, but provided no direct evidence of this effect.
Additionally, the TCJA aimed to reduce offshore profit shifting, partially by lowering the corporate rate and partially by introducing measures such as Global Intangible Low-Taxed Income (GILTI) and the Base Erosion and Anti-Abuse Tax (BEAT). The measures were intended to deter the use of tax havens—but their efficacy has been limited. The share of profits booked in tax havens remains significant.
Outlook
Trump has made it clear that, if elected, he intendeds to extend the TCJA. Speaking to wealthy donors at a recent fundraiser, he emphasized that continuing these tax cuts would be a priority in his second term.
Such an extension would primarily benefit high-income earners, who received the most significant tax benefits from the original legislation. According to the Tax Policy Center, over 60% of the benefits from the TCJA go to the top 20% of income earners—with the wealthiest seeing substantial increases in their after-tax income.
President Biden has indicated he intends to extend aspects of the TCJA that benefit lower- and middle-income individuals, and do so on the strength of higher taxes for those making more than $400,000.
Biden’s budget proposes increasing the corporate tax rate to 28%, implementing a 25% minimum tax on billionaires, and closing various tax loopholes—in addition to raising the top income rate to 39.6%. Biden also plans to restore the expanded Child Tax Credit, which expired in 2021.
Looking forward, it is clear that the path ahead for huge swaths of tax policy very much hangs in the balance of the election.