President-elect Donald Trump may begin his next nonconsecutive term with Democratic control of both chambers of Congress, including a 53-47 Senate majority. But, the House Republican lot is probably no higher than a small 221-214, or perhaps a chair more.
Despite his overwhelming mandate to govern, the past and future president has won victories in the common ballot and the Electoral College. In order to make the most of the moment, the momentum, and the popular mandate to restore the economic disaster that former presidents Joe Biden and Vice President Kamala Harris left behind in his first year in office, he would be wise to prioritize preserving and expanding the economic legacy from his first 2017 to 2021 term and doing so within the ( relative ) grace period of his first 100 days in office.
Making permanent use of Trump’s location 2017 Tax Cuts and Jobs Act and expanding the baby tax breaks a top priority are two things that need to happen. Here’s how Trump can do it without increasing the imbalance.
( Illustration by Tatiana Lozano / Washington Examiner, AP Photos, Getty Images )
Some of the court’s most significant individual income tax measures are scheduled to expire at the end of 2025, despite the TCJA’s major economic profit, which is to lower the corporate tax rate from the world’s anomalous 35 % to the German normal of a smooth 21 %. Individual income tax rates would rise without an extension, as would the child tax credit and standard deduction, which would also be reduced by half.
The center and working groups saw increases in real disposable income as a result of the doubled child tax breaks and common deduction. Additionally, it fundamentally simplified the taxation approach for the country’s tens of millions of people. Whereas two-thirds of tax filers used the standard deduction before the TCJA went into effect, then only 1 in 10 income filers, who are disproportionately rich, choose the difficulty of itemizing their tax deductions.
Trump can get to his various proposed tax breaks in the future, but for the TCJA, time is of the essence. Remember that 62 % of taxpayers would face a tax increase if they failed to extend the TCJA’s individual provisions before they expired. Trump should use the state and local tax exemption and the loan interest deduction to fund the continuation of the TCJA and improve the CTC for the working class.
While the TCJA capped the SALT deduction at$ 10, 000 and the MID at$ 750, 000, both are also due to expire.
According to a dynamic analysis from the Tax Foundation, implementing all of the worthwhile tax cuts would cost the Tax Foundation about$ 2.2 trillion in lost revenue over the next ten years. Additionally, according to economists, the SALT deduction would no longer generate a little more than$ 2 trillion in federal revenue over the course of ten years, with annual increases of more than$ 200 billion starting in 2026.
The SALT calculation is poor economy, but it’s even worse elections. Uncapped, the majority of the SALT deduction would go to the top 1 % of workers. The federal government was able to deduct 40 % of all income collected by California’s top marginal tax rate prior to the TCJA’s unconstrained SALT calculation. Even with the$ 10, 000 cap in place, more than 75 % of the benefit goes to the top 20 % of earners. In consequence, letting the SALT deduction cover expire would climb levies on working-class citizens in red states to fund democratic state tests, such as taxpayer-funded Medicaid for illegal immigrants.
In contrast, wealthy blue-state residents would be forced to pay for the policies they supported by eliminating the SALT deduction in order to keep the TCJA individual provisions in place. Making those TCJA provisions permanent would increase GDP by 0.5 % and employment by nearly 700,000 people, besides those immediate advantages for the middle class and working class.
The MID is also a foretasteful candidate for cutting. The MID, in the opinion of Federal Reserve Bank of St. Louis economists, reduces homeownership rates and housing affordability in a similar way to the SALT deduction. A 5 % increase in homeownership and a 4 % decrease in home prices would be caused by eliminating the MID. It could also help pay for the expansion of the child tax credit, a crucial campaign promise that Vice President-elect J. D. Vance made unwaveringly.
With the$ 750, 000 cap, the MID deduction costs the federal government about$ 30 billion per year, but if the cap expires, the cost balloons to more than$ 60 billion in 2026. At least$ 60 billion in federal revenue could be added if the MID were completely eliminated.
The TCJA doubled the CTC from$ 1, 000 to$ 2, 000 per year per child, with$ 1, 400 of that amount refundable for lower-income earners who pay little to nothing in net federal income tax. According to the TCJA, the CTC gradually phases out for joint filers who make at least$ 400,000 and for single filers who make at least$ 200,000.
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Further extending the CTC from$ 2, 000 to$ 3, 000 would cost less than$ 60 billion annually assuming that the SALT deduction would be used to pay for the bulk of the TCJA. In other words, the wealthy receive yet another tax break that would benefit the working and middle classes in a pro-family, pro-natalist way.
Trump was elected president in the hopes of reversing the effects of Bidenomics, which included a multiracial and disproportionately working-class coalition. Trump should reward his supporters by halting painful tax increases, perpetuating his economic legacy, and launching progrowth and profamily initiatives that will ease our persistent deficit crisis.
