US tax law will be changed next year; The presidential election will determine how

nOT only Taxes are one of the only certainties in life, they are also one of the only certainties in this presidential election. That’s because of the tax expiration passed in 2017, the major legislative accomplishment of Donald Trump’s term in the White House. This introduces a financial cliff. By the end of 2025, someone must sign new rules into law, or most Americans will see income taxes rise sharply.

Thus, tax negotiations are guaranteed to occupy much of Kamala Harris or Donald Trump’s first year in office, giving them a chance to put their stamp on America’s tax code. Mr. Trump favors broad, sweeping cuts that he believes will revitalize investment and innovation, while Ms. Harris hopes to use tax changes to reduce inequality.

Mr. Trump, unsurprisingly, hopes to keep many of the original cuts in place. These include: reductions in most individual income tax rates; Double the estate tax exemption, paid after death; And rules that make it easier for companies to account for more investments. Enacting these extensions would cost the federal government about $4.6 in lost revenue over the next decade, according to the Congressional Budget Office, a nonpartisan drawer keeper.

This will be just a starting point for Mr. Trump. As the election turns more competitive, the former president pledges more tax cuts. In 2017, he reduced the corporate tax rate from 35% to 21%. Now he wants to take it less, perhaps to 15%. Another promise is to exempt employees such as waiters from taxes on tips. Mr. Trump also said he would make Social Security benefits tax-free in order to help retirees. He has promised to reverse one measure of his 2017 law: It would have allowed residents of high-tax states to subtract more of their local taxes from their federal tax bills.

Added up, Mr. Trump’s tax platform is expensive, hitting 10TRN over the next decade, according to Andrew Lautz of the Bipartisan Policy Center, a Washington-based think tank. DC. Mr. Trump has proposed some compensation, including higher tariffs (see Trade Brief) and eliminating green energy tax credits in the Biden administration. However, these will be insufficient to plug the fiscal holes, meaning the federal deficit – expected to reach 6% of gross domestic product– It may expand to 8% or so under Mr. Trump. The Committee for a Responsible Federal Budget says (CRFB), a non-profit group.

Ms. Harris’s tax plans depend heavily on Joe Biden’s budgets. She pledged to extend Mr. Trump’s tax cuts to individuals earning less than $400,000 a year. For those mentioned above, the tax rate will return to the pre-2018 level of 39.6%. It also wants to partially undo cuts in corporate tax, at 28% of companies. Most controversially, it wants to tax the unrealized capital gains of the wealthiest Americans — a useful revenue source but difficult to manage and potentially harmful to growth.

At the same time, Ms Harris proposed a range of tax cuts, largely in the form of targeted credits. She wants to nearly double the tax credit for families with children to $3,600 a year, as well as give a $6,000 tax credit to families with newborns. For low-income Americans, she would like to expand the earned income tax credit (EITC), a type of reverse income tax. It has proposed down payment assistance of $25,000 for first-time homebuyers and a discount of up to $50,000 for business startups. Like Mr. Trump, she pledged to exempt taxes on tips (indeed, Mr. Trump mocked her for copying that idea).

Touch, Ms. Harris’s proposals would generate nearly $2 in federal revenue over the next decade. But higher taxes — especially an increased corporate tax — will weigh on growth. The Tax Foundation, another Washington think tank, estimates its plans will be reduced gross domestic product By about 2% over the next decade. The result will be a continued increase in the deficit, but perhaps not as large as Mr. Trump’s. Its plans could add $3.5 to the national debt, according to CRFB. Ms. Harris will at least succeed in her goal of making the tax system a little better at redistributing income from the rich to the poor.

As long as Congress is divided, neither Mr. Trump nor Ms. Harris will be able to present their full plans. But that’s why the expiration of the 2017 tax provisions is so important. Both the House and Senate will be very eager to find a way to extend the cuts, at least partially. That would give the president leverage to push for a new bill along the lines of what he pledged during the campaign. Therefore, voters have a real choice between different visions of who should pay taxes, and how much they should pay. ■

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