Who Wins the White House Could Reshape Your Taxes

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In twenty seventeen, President Donald Trump passed historic tax cuts. They had two main parts, corporate and individual. The corporate side, which let big businesses pay less to the irs, that was all permanent, but the personal tax cuts those have a taking time around them.

If Congress does not act, all of the personal side tax cuts expire in the next year and a half.

That's Bloomberg Politics editor and tax policy expert Laura Davison as we barrel towards November's election. Which party takes the White House in Congress will have a big impact on your taxes.

The political issue here is that then you will have big corporations paying a drastically lower rate than smaller businesses, as well as individual households will also face a relatively small but still a tax hike as well. So that's going to be the political pressure on both sides going into twenty twenty five.

Today on the show, we dig into the twenty seventeen tax cut that's about to be up for debate again. I speak with Laura and with Bill Hoaglan from the Bipartisan Policy Center about the nuts and bolts of this law and what a second Biden or Trump administration would mean for taxpayer's wallets and the broader economy. From Bloomberg's Washington Bureau. This is the Big Take DC podcast. I'm your host Sleiah Mosen. Back in twenty seventeen, Donald Trump announced a pretty big new tax proposal.

At the heart of our plan is a tax cut for everyday working Americans.

The Tax Cuts and Jobs Act.

Our tax plan will ensure that companies stay in America, grow in America, and hire in America.

Laura Davison and I are recovering the Trump administration at the time. She's an expert when it comes to wonky tax policies, so I asked her to walk me through Trump's big tax bill.

The twenty seventeen tax cuts were basically a goal that Republicans in Congress have had for years, and finally when Trump got elected, they had a Republican trifecta. They had majorities in the House, Senate, Trump and the White House and said, Okay, this is our moment to push through a big tax cut, sort of in the style of what Reagan did in the eighties.

We presented a complete program of reduction in tax rates.

Here's President Ronald Reagan in the summer of nineteen eighty one.

Again, our purpose was to provide incentive for the individual, incentives for business, to encourage production and hiring of the unemployed, and to free up money for investment.

Reagan cut personal taxes, the amount you pay on your income each April, across the board, by twenty five percent. He fundamentally changed the tax code, especially as it related to the highest income earners.

Essentially thirty years later, the tax code hadn't been substantially updated since then. Like, okay, we want to overhaul a lot of how taxes are paid. And so the two big goals they had were to reform corporate taxation and then to make a tax cut politically popular to get people behind it. They were like, look, we need to do some things that really resonate with voters.

Let's break that down First. Trump and fellow Republicans wanted to tackle corporate taxes. Trump's plan brought that rate down from thirty five percent to twenty one.

They also wanted to change the way that US multinational companies, companies that operate globally pay their taxes. Like what companies we're talking about, Procter and Gamble, Coca Cola, you know, all of the tech companies, Apple, Google, Facebook, They have money that they're earning all over the world.

That meant their tax payments were complicated, and they took advantage of that.

They were playing a lot of games. You know, they were able to like book money in countries that had a lot lower tax rate and not pay US income taxes.

The Trump administration wanted to incentivize these huge multinational companies to keep their business in America, to not gain the system by keeping their business in other countries with lower tax rates.

They basically said, for every big company that has money offshore, we want to charge a one time tax and then that money can continue to grow and you can use that in your offshore subsidiaries tax free going forward. But they also said, when you earn income in the US, you pay US income rates, and then when you earn money offshore, you pay a lower rate. Essentially, the idea was to bring the IP back to the US, bring the headquarters back to the US, and still have the

But that lower tax rate only applied to large corporations, the pfizers and apples of the country. Other American businesses like your local bookstore or mom and pop grosser. They wouldn't benefit because most small businesses don't file their taxes as corporations. They file business taxes on their owner's personal

So they were really close.

Now, corporations would be paying only twenty one percent, but individuals and small businesses could still pay up to thirty nine percent. That's a huge gap. So lawmakers added another key provision to the tax bill, letting small business owners deduct twenty percent from their personal tax payments.

So small businesses basically got one fifth that their their earnings tax free.

Let's recap. Multinational corporations got a major tax break, and it incentivized offshore companies to keep their business based in the US, and small businesses could write off a fifth of their earnings. But there's another side of the twenty seventeen tax bill. The part meant to get most Americans behind it, cutting the amount individuals have to pay when they file their taxes each year. The bill expanded tax credits for families with more kids.

Another thing that ended up being quite politically difficult was what they did to the State and local tax deduction, which is called SALT and this was a tax break that says that basically, anything you pay to a local jurisdiction or a state, you can deduct that from your federal tax bill as well, so you're not paying taxes twice on the same income.

When the bill came up for vote, Congress pretty much voted along party lines. Not a single Democrat supported it, but with Republicans in control of Congress and the White House, it passed in December of twenty seventeen. Trump touted the win at a rally in Florida.

I can think of no better Christmas present for the American people than giving you a massive tax cut. That's what's happening.

But tax cuts are not free.

So the bill cost about one point five trillion dollars, which is a pretty massive sum. But they were able to include in this legislation a lot of what they call pay for is things that offset the cost.

Plus. Advocates argue these tax cuts would boost the economy.

The idea here is that that would stimulate economic growth when you provide a simpler and lower tax rate for businesses, that then they would invest more in workers, invest more in equipment. There were certain tax provisions that encourage businesses to buy more computers, trucks, factory materials, things like that to increase productivity.

You can hear Trump making a very similar argument to the one Reagan pioneered in the eighties at an event for the Conservative Heritage Foundation in October of twenty seventeen.

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 four thousand dollars pay raise, and that's money that'll be spent in ourica.

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 as much as a trillion dollar of offshore cash coming back into the US. That didn't happen. They projected that their be an average of four thousand dollars tax cut per household. That also didn't happen. That they would see their earnings

It's hard to assess just how these tax cuts measured up to their projections because they went into effect in twenty eighteen. Two years later COVID hit and appended the entire economy.

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 things tanks. The tax cuts did not pay for themselves in an increased economic output. That is pretty clear across the board.

And extending these tax cuts would only further add to the country's spiraling debts. 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 from Americans and the tax read debate ahead, I sat down with Bill Hogland. He's

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

But he told me there's also bipartisan concern about the country's rising debt and deficit.

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 seven trillion dollar 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 sweepe for Republicans House, Senate and the White House, this is not going to be as smooth sailing.

Not that either party has proven their committed to real action on the nation's debt pile. In the past sixteen years under Presidents Obama, Trump, and Biden, the federal debt has more than tripled to thirty four 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.

Trump is easier to describe, partly because he hasn't said all that much specifically.

Bloomberg's Laura Davison.

Again, he talks about taxes a lot when he's on the campaign trail.

You're going to have the biggest tax cut.

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

Do you're suffering under some of the highest property taxes and sales taxes in the nation.

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 twenty seventeen. But his

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

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 on 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 multi hundred page plan on what he

Because when it came down to the individual side of the twenty seventeen tax law, it was the highest orders who benefited the most.

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.

At a campaign event in Scranton, Pennsylvania, and 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 Mara Lago values.

For more than forty years, our Republican friends have promised the best way to grow the eccounters from the top down. But here's what they don't tell you. It's never worked. The benefits don't trickle down. The very wealthy paid lesson taxes, and we have to borrow more and invest liss.

Biden is proposing measures like increasing the tax rate on the money you make off of investments called capital gains, getting rid of that passed through deduction, and creating a so called billionaire's tax.

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

In fact, a recent Bloomberg News Morning Consult poll found that seventy seven percent of Swing state voters supported a billionaire's tax to make up for Social Security shortfif.

Seventy seven percent of people in the US don't agree on anything.

In spite of this, our most recent poll found that Morris Wing 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 US economy.

Renewing the Trump tax cuts is incredibly expensive. It costs about one point five 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 four point six trillion. Basically, you know, 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?

I asked Bill Hoagman from the Bipartisan Policy Center about this. He said that in some ways, the way we talk and think about tax cuts as they relate to the national debt, 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.

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

Thanks for listening to The Big Take DC podcast from Bloomberg News. I'm sali Emosen. This episode was produced by Julia Press. It was mixed by Veronica Rodriguez and fact checked by Audreyana Tapia. It was edited by Aaron Edwards and Wendy Benjaminson, who provides editorial direction with Elizabeth Ponso. The clips you heard of Reagan are courtesy of the Ronald Reagan Presidential Library. Naomi Shaven and Kim Gettleson are