On Tax. Yes, We Have To.

We know. You’ve finally emerged from HR Block, Tax Slayer, and Turbo Tax ads inundating commercial space across every major network, but this week’s issue (timely enough) addresses the implications and impacts of tax policy on the upcoming 2024 federal elections. In many respects, the two leading presidential candidates’ economic agenda is reflected in their stated tax priorities, and the looming 2025 sunsets for many provisions within 2017’s Tax Cuts and Job Act that will face those elected in November will necessitate focus on tax issues next year. From potential provisions, spending priorities, and electoral impacts, this Prime Politics issue analyzes tax policy in this 2024 election.   

Understood as one of the leading legislative achievements of the Trump presidency, Republican lawmakers passed the Tax Cuts and Job Act (TCJA) through the budget reconciliation process in 2017. When Republicans or Democrats have complete control of the White House, Senate, and House, the budget reconciliation process allows the majority party to bypass the typical 60-vote requirement in the Senate needed to break a filibuster and pass legislation with a simple majority. One limitation to enacting legislation via reconciliation is known as the Byrd rule, which prohibits reconciliation measures from increasing the deficit beyond the window of an enacted budget resolution. The TCJA, passed via reconciliation, is set to expire December 31, 2025. The TCJA enacted a host of changes to the U.S. tax code including lowering individual income tax rates by 2 to 3%; enacting a 21% corporate tax rate; capping “SALT” deductions at $10,000; and changing the U.S. from a global to a territorial tax system with respect to corporate income tax, among many others. Eleven House Republicans votes against TCJA in large part because of the SALT deduction cap – an issue which continues to source of frequent debate this Congress. Notably, many of the TCJA non-corporate provisions are set to expire in the next Congress, given the requirement to comply with reconciliation requirements in 2017.

President Trump had promised “to replace” the U.S. tax code when running in 2016, and the TCJA was a major economic package Trump guaranteed to reshore business and jobs to the U.S. through reduced costs of investment. 

On the 2024 campaign trail, Donald Trump has vowed to extend lower tax rates if elected, and congressional Republicans have already introduced legislation to make the TCJA’s reduction provisions permanent. Trump, especially if Republicans control both the House and the Senate, will press for an extension of many of the expiring TCJA policies, lowering taxes further in other places, and altering America’s trade through a floated universal baseline tariff on all U.S. imports. On the campaign trail, Trump has frequently spoken about his desire to extend the tax cuts enacted as a part of TCJA. Recently, President Biden released a campaign spot featuring Sen. Bernie Sanders, both criticizing any further cuts to wealthy taxpayers. 

For his part, President Biden’s taxation priorities are less cut and dry. As a candidate both in 2020 and beginning his 2024 campaign, President Biden openly voiced support for increasing the tax rates on top earners; a corporate stock repurchase excise tax to 4%; and pushing the corporate income tax rate from 21% to 28%. In his State of the Union address, made just days before Biden released his FY 2025 budget requests, he said, “I also want to propose a minimum tax rate on billionaires of 25 percent.” In Biden’s budget request, that increased minimum tax rate would actually impact all earners with $100 million in wealth. In his budget request, Biden’s White House also directly addressed the sunsetting provisions of the TCJA, saying they plan to raise taxes on those earning over $400,000 annually. According to the Tax Foundation, the hikes from his budget request, modeled over ten years, would raise government revenues by $3.6 trillion.

However adamant Biden has and may be on increased corporate tax rates, his Administration’s record realizing any increased tax revenues is spotty. Despite calling for increased corporate hikes in multiple occasions through both his candidacy and presidency, analysis by the Urban-Brookings Tax Policy Center published in the New York Times found Biden’s policies, from the 2021 stimulus checks to multiple tax incentives for renewable energy and manufacturing in the Inflation Reduction Act and Infrastructure Investment and Jobs Act, have enacted net tax cuts of about $600 billion over four years. Biden’s challenges in raising certain tax rates can be attributed to the Democrats’ slim majority in the Senate, which required buy-in from Sen. Kyrsten Sinema (AZ). In order to secure her vote, Democrats were forced to drop efforts to close the carried interest loophole and raising corporate and individual rates on high earners.

Biden has used tax policy to realize his energy and infrastructure agenda, heralding these laws’ job creation on the campaign trail, but has yet to show the major tax code overhaul he promised, and Trump enacted in 2017.

As both presidential and down-ballot candidates approach the campaign dead sprint this summer and fall, these competing tax policy goals are central to their overall economic messaging. Democrats, led by Biden, discuss the economic turmoil they inherited as a result of the pandemic; tax legislation they used to stave off the worst effects of a recession; and future tax revenues “needed” to increase health coverage, climate work, family leave and education programs in another term. Republicans, on the other hand, will discuss inefficiencies in Biden IRA projects as wasteful use of taxpayer resources; lost American profits caused by low tariffs and higher American corporate tax rates; and the strong economic numbers Trump heralded before COVID emerged in 2020 due in part to TCJA reform. 

Seeing as tax policy can pass through the budget reconciliation process without bipartisan agreement, as both Republicans’ TCJA and Democrats’ Inflation Reduction Act did, these visions can be realized in 2025 should either party gain full control of the House, Senate, and White House. Without a full sweep, however, addressing the sunsetting policies of the TCJA, altering the corporate tax rate, and reauthorizing high-profile provisions like the Child Tax Credit (CTC), R&D amortization, interest expense limitation deduction, and others in the next Congress will be drawn out and contentious. Without the ease of budget reconciliation, any changes and extensions in the tax code will require compromise from all sides – a premise challenging in the best of years. 

Few candidates this cycle will lead off campaign events discussing their tax policy visions; President Biden, even with tax revenues and additional expenditure programs as the center of his domestic agenda, did not mention tax reform until 90 minutes into his State of the Union. However, the promise of budget reconciliation along party lines, looming code deadlines, and opportunities to fund key policy priorities through tax changes in 2025 make this one of, if not the, most important platform points between parties in these 2024 races.

Prime Policy Group | www.prime-policy.com