Donald Trump has left the White House. But many of his typical tax cuts are going nowhere.
Democrats have pledged for years to repeal the 2017 tax cuts and employment bill, which Republicans passed without a single Democratic vote and which is estimated to have cost nearly $ 2 trillion in a decade. President Joe Biden said during a presidential debate in September that he would “get rid of Trump’s tax cuts.”
Biden is now in the White House and his party controls both houses of Congress. However, he and his staff commit to only partially withdrawing the law, focusing on provisions that will help businesses and the very rich. This is a position Biden held throughout the campaign and which he clarified in the September debate by promising to only partially lift a corporate rate cut.
In some cases, including tax cuts that help lower and middle-class Americans, they are trying to make Trump’s temporary tax cuts permanent.
Biden still plans to collect taxes on some businesses and high net worth individuals, and he continues to aim to raise trillions in new tax revenue to offset his proposed federal spending programs, including infrastructure, clean energy and education. However, much of the new revenue could come from efforts to tax investment and labor income for individuals earning more than $ 400,000 in ways unrelated to the 2017 law.
Biden didn’t include tax hikes in the $ 1.9 trillion stimulus plan he proposed last week that is designed to contain the pandemic and help people and businesses endure the economic pain it caused.
His candidate for Treasury Secretary Janet Yellen told a Senate committee this week that the president will withhold reversal of portions of the tax law until a later cleanup date, which will most likely mean as part of a major infrastructure package he plans to unveil next month . Republican lawmakers repeatedly questioned Yellen about Biden’s tax plans, warning that lifting the 2017 cuts would hurt American workers and businesses and push companies to send jobs overseas.
Yellen said Biden has made it clear that he “wants to lift portions of the 2017 tax cuts that will benefit high-income Americans and large corporations.” But she added that “he was very clear that he did not support full repeal.”
Biden could end up cementing as many Trump tax cuts as he rolls back. To meet a budget constraint needed to pass the 2017 bill without a Democratic vote, Republicans imposed tax cuts on individuals that were due to expire in late 2025. On Thursday, Sen. Chuck Grassley, a Yellen, Republican from Iowa, responded that she would work with Congress to make tax cuts permanent for families earning less than $ 400,000 a year.
Such a move would most likely reduce the tax revenue Biden could otherwise collect from his proposed changes to the Trump tax by at least half and even two-thirds, according to New York Times calculations. The calculations used analyzes from the Joint Tax Committee of Congress, the Tax Policy Center, the Federal Responsible Budget Committee, and the University of Pennsylvania Penn Wharton Budget Model.
Overall, Biden’s proposed legislative changes could generate additional revenue of just $ 500 billion over a decade. In contrast, according to budget model calculations, he proposed roughly $ 2 trillion in tax increases unrelated to the law.
The 2017 law cut taxes for individuals and lowered the corporate rate from 35% to 21%. A new allowance has been created for owners of certain businesses, such as limited liability companies, whose owners pay taxes on their profits through the individual tax code. There has also been a revision of how the United States taxed the income that companies earn overseas. Republicans said this would encourage them to invest and create jobs in America.
Most American workers received at least a minor tax cut under the law. The benefits went heavily to high earners: Initial estimates by the Joint Tax Committee indicated that more than a fifth of the tax savings from the law in 2021 would go to people earning $ 500,000 a year or more. This proportion will increase sharply by 2026, when the individual tax cuts expire as planned.
Democrats denounced the bill as a giveaway for the rich, and it has struggled to gain wide popularity. An online survey by research firm SurveyMonkey for The Times found last month that Americans remained divided over whether to support or oppose the law. Only one in five respondents were sure they had received a tax cut.
During the presidential campaign, Biden proposed trillion-dollar tax hikes for businesses and the rich, but his plans failed due to a complete repeal of Trump’s tax law. He said he would only increase income taxes to pre-Trump levels in the top brackets, an increase from 37% to 39.6%. He called for the corporate tax rate to be raised from 21% to 28% where Trump set it – still below the 35% maximum that preceded the law.
Even Biden’s international tax plan, designed to encourage domestic investment and job creation while boosting large corporate revenues, would work within the limits of what Trump and Republicans did in 2017. Rather than scrapping the overhaul, Biden would double the rate of taxes – while removing a new exemption that Democrats say encourages overseas business investment.
The result is that Trump’s 2017 cuts will rule tax policy for years to come, said George Callas, executive director of Steptoe, a Washington law firm who advised Wisconsin spokesman Paul Ryan on writing the law on tax cuts and jobs . Callas said the Biden Plan “in a sense admits that the new architecture of the international tax system that the TCJA has created will be accepted as the future architecture.”
Democrats say the changes Biden is proposing to the law will rebalance his incentives to invest and attitudes toward the United States while ensuring that businesses and the rich pay their “fair share” in taxes.
Senator Ron Wyden of Oregon, the chairman of the finance committee that will be the starting point for all Senate tax changes Biden made, said in an interview that his top tax priorities were in many ways the same as Biden’s.
This includes capping a deduction for high earners who run businesses that aren’t organized as corporations and revising the overseas investment in qualified business asset exemption – the provision that Democrats say encourages offshoring, although Republicans like Callas disagree. Wyden also wishes to levy taxes on heirs with great wealth and on capital gains for high earners in a variety of ways.
“There is a wide range of Senate Democrats who agree that the 2017 bill was a giveaway for the rich and multinational,” said Wyden. “Certainly there is support for the withdrawal of the corporate interest rate, whereby the individual rate will be raised again.”
Republicans have already begun defending these parts of the law both inside and outside of Congress, warning that the changes proposed by Biden would encourage more companies to move overseas.
“An increase in the US tax rate or a burden on the international regime would adversely affect US global competitiveness,” said Rohit Kumar, co-chair of the National Tax Office of PwC and former deputy chief of staff to Sen. Mitch McConnell of Kentucky. Who was the Republican leader during the tax cut debate.
“Doing both would be a double blow that would ultimately hurt US workers and anyone with a pension or 401 (k) invested in US companies,” said Kumar.
Republicans in Congress also pushed through several changes to the law they wrote and passed as part of the stimulus package last year. For example, they relaxed the restrictions the law placed on the ability of companies to deduct operating losses from previous years’ taxes in order to reduce their tax burdens.
Those regulations alone add up to a $ 160 billion law change – more money than Biden could expect in a decade if Trump’s lowering of the highest income tax rate for the rich is reversed.