WASHINGTON – The winner of November’s presidential election will face an epic challenge next year with nearly $4 billion in tax cuts coming due — an issue the Biden White House is highlighting in the run-up to November.
Lael Brainard, director of the White House National Economic Council, in a speech on Friday emphasized the administration’s differences with Republicans on taxes. In her speech at the Brookings Institution, Brainard advocated for higher taxes on corporations and the ultra-wealthy in order to support the middle class.
“The expiration of Trump’s 2017 tax package next year will put tax fairness at the forefront,” Brainard said. “The president is honoring his firm commitment not to raise taxes on those earning less than $400,000 and will further reduce taxes for workers and families, paid for by asking businesses and those at the top to contribute more.”
Many of the 2017 income tax cuts signed into law by then-President Donald Trump are set to expire after 2025. If all of the tax cuts expire, the vast majority of U.S. families would see their IRS payments increase. But if all tax cuts are extended, an additional $4.6 trillion, including the cost of debt service, would be added to the national debt over the next decade, according to the Congressional Budget Office.
Trump, a Republican, says tax increases would destroy the US economy. But Biden, a Democrat, wants to extend tax cuts to the middle class while raising taxes on highly profitable companies and the wealthiest layer of Americans.
In his speech, Brainard said the 2017 tax cuts failed to deliver the growth promised by Republicans, a claim supported by most economic analyses. She argued that the GOP’s rewrite of the tax code allowed wealthy families to follow their own set of rules that helped them pay lower rates than many people with middle-class incomes.
His speech used variations of the word “fair” 16 times, in what is a clear attempt to raise awareness of the issue, as many voters are more focused on inflation, immigration and foreign policy as major political challenges for the country.
Trump argued that the expiration of all his tax cuts would cause mass layoffs that could permanently cripple the economy. His remarks reflect the belief that growth comes from the choices made by companies and wealthy investors, while Biden is betting on growth flowing from the spending and savings of middle-class families who feel more financially secure.
Trump’s 2017 review reduced the corporate tax rate to 21%, with the intention of making it more competitive internationally. The law also temporarily reduced the income taxes paid by most American families, in part by reducing marginal tax rates and increasing the standard deduction.
As a result of these changes, the nonpartisan Tax Policy Center initially estimated that a family in the 40th to 60th income percentile would save, on average, $930 annually. But someone in the top 1% would receive $51,140 and those in the top 0.1% would save $193,380.
While Biden has said he only wants higher taxes on the rich and corporations, Trump tells his supporters at rallies that his Democratic rival would raise taxes on everyone.
The Republican claims that high inflation under Biden, as the country recovered from the coronavirus, amounted to a tax increase, which he said would only get worse if Biden remained in the White House.
“Biden wants to raise taxes on top of that (inflation) and raise taxes on corporations, which will lead to the destruction of their jobs and, you know what, ultimately, it will just lead to the destruction of the country,” Trump said.
However, Trump is also in favor of some huge tax increases, having proposed a 10% tariff on annual imports worth around $3 billion.
A March analysis from the liberal Center for American Progress estimated that companies would pass fees directly to their customers, leaving the typical family to pay $1,500 more a year, a de facto tax increase.
Furthermore, extending all of Trump’s tax cuts, which are set to expire at the end of next year, would come at a substantial price.
In a report published Wednesday, the Congressional Budget Office estimated that extending all cuts would add another $4.6 billion to budget deficits through 2034. That sum includes both lost revenue from the extensions and additional interest paid on a higher national debt.
Brainard, in his speech, said Biden’s tax plan reflects his commitment to “fiscal responsibility.” Still, it is unclear how he would reduce the deficit as much as announced in his budget proposal for the next fiscal year.
Biden’s plan from earlier this year assumed that all of Trump’s tax cuts would expire. That means it does not include the cost of extending tax cuts to those earning less than $400,000, a promise that could erode most of the $3.2 billion in deficit reductions envisioned in his plan.
“President Biden is trying to have it both ways,” said Brian Riedl, a senior fellow at the Manhattan Institute and a former Republican congressional aide. “On the one hand, Biden says he will end Trump’s tax cuts and claim all resulting deficit reductions. But on the other hand, he says he won’t let the tax cuts end for the bottom 98%. And these contradict each other.”
Republicans could also face problems in continuing the 2017 tax cuts without worsening the government’s financial situation.
The prospect of higher debt means lawmakers may have to propose potential spending cuts, said Paul Winfree, former deputy director of the Domestic Policy Council during Trump’s presidency. Higher debt loads could lead to higher interest rates, which would be passed on to consumers in the form of more expensive mortgages and car loans.
“I just don’t know how we can talk about extending all the cuts without also reducing spending,” said Winfree, president and CEO of the Economic Policy Innovation Center, a think tank. “If the federal government continues to spend money at this rate, it will put continued pressure on interest rates.”
