The Trump-Biden battle over the 2017 tax cut

The Trump-Biden battle over the 2017 tax cut

“Donald Trump was very proud of his $2 trillion tax cut that overwhelmingly benefited the wealthy and biggest corporations and exploded the federal debt. That tax cut is going to expire. If I’m reelected, it’s going to stay expired.”

— President Biden, in a social media post, April 23

“Biden has just declared that if he gets four more years, he will drench the middle class in the largest tax increases in the history of our country, vowing repeatedly that he will ensure that the Trump tax cuts, the biggest tax cuts in history …. he wants them to expire.”

— Donald Trump, in a campaign rally, Waukesha, Wis., May 1

Voters in the coming months will hear a lot about the Trump tax cut passed in 2017. For Trump, it’s one of his biggest achievements, though he falsely claims it was the biggest tax cut in U.S. history. (It ranks in eighth place.) For Biden, the tax cut is a disaster that largely rewarded the super-wealthy.

In any case, whoever is elected president this year will have a chance for a do-over. The tax cuts largely expire in 2025 — corporate tax cuts were made permanent — meaning individual taxes will go up sharply if Congress does not act.

Why would tax cuts expire? Because of an accounting gimmick. The revenue loss from tax cuts is measured over 10-year periods because of Senate rules, and Republicans wanted to pass more tax cuts than they could officially afford. So Trump and the Republican-led Congress enacted a tax cut that expired after just nine years so it would seem smaller than it really was.

Biden often has insisted that no one who makes less than $400,000 a year will face higher taxes. But in recent weeks, when he has talked about the tax cut’s expiring, he hasn’t mentioned his $400,000 pledge at the same time. In addition to the social media post above, on April 24 he told the Building Trades Union National Conference: “By the way, that tax credit of his expires next year. Well, let me tell you something: It’s going to stay expired and dead forever if I’m reelected.”

Trump has seized on this lapse to claim that under Biden, everyone’s taxes will go up. “Under crooked Joe, a single individual earning $75,000 a year will pay almost $2,000 more … and a family of four earning $165,000, that’s a lot, a year will see at least 3,000 [dollars] more added onto your taxes,” he told the Wisconsin rallygoers.

Here’s a guide to both candidates’ rhetoric.

Who benefited from the tax cut

The Trump tax bill was a mixture of tax decreases and tax increases. Over 10 years, the individual tax cuts were said by the nonpartisan congressional Joint Committee on Taxation to reduce taxes by $1.1 trillion, while business tax cuts amounted to $650 billion — mitigated by about $300 billion raised by creating a new corporate tax system intended to discourage companies from shifting profits abroad. Technically, the 10-year revenue loss was $1.5 trillion, but once expiring provisions and other gimmicks were considered, the actual 10-year cost was $2.2 trillion.

The Biden campaign defended Biden’s comments about the wealthy mostly benefiting from the tax cut by pointing to estimates from the nonpartisan Tax Policy Center showing that in 2025, the top 1 percent of taxpayers will get an average tax cut of $61,000 compared with an average of $500 for the bottom 60 percent of taxpayers.

But this kind of analysis requires context. It’s a simple fact that any broad-based tax cut is going to mostly benefit the wealthy because they already pay a large share of income taxes.

This year, according to Treasury estimates, the top 0.1 percent of taxpayers will pay 21.4 percent of individual income taxes while earning 8.9 percent of income. The top 20 percent are estimated to pay 93.4 percent of federal individual income taxes, while earning about 60 percent of income. The bottom 60 percent earn about 20 percent of income but overall have negative income tax because of programs like the Earned Income Tax Credit. When payroll taxes are included, the bottom 60 percent pay 8 percent of all federal taxes, compared with 29.4 percent of all federal taxes for the top 1 percent.

From another angle, because there are far more people in the middle class, there are fewer dollars to share per taxpayer when the savings from a tax cut are divvied up. The Joint Committee on Taxation estimated that 572,000 taxpayers will file returns with an income category of more than $1 million, compared with more than 27 million in the $50,000 to $75,000 category and almost 70 million in the under-$50,000 category.

Moreover, when both the Joint Committee on Taxation and the Tax Policy Center looked at the impact of the tax bill, they concluded that most people would see an overall reduction in taxes. This is one reason Trump can cite specific numbers about how eliminating the tax cut would harm individual taxpayers.

Biden’s $400,000 pledge

Trump is being disingenuous when he claims Biden will let everyone’s taxes go up. (His campaign did not respond to a request for comment.) Both examples he gave were for people making less than $400,000. For five years, Biden has been consistent in saying he will not raise taxes on people making less than $400,000 a year, which is about the top 2 percent of taxpayers. Biden reiterated this pledge in the budget plan he released earlier this year.

“This was one of the most egregious and fiscally reckless budget decisions in modern history,” Biden’s 2025 budget says, referring to the 2017 tax cut. “The President, faced with this fiscally irresponsible legacy, will work with the Congress to address the 2025 expirations, and focus tax policy on rewarding work not wealth.”

Among the principles the president listed to guide this debate is a commitment to handle the problem in a “fiscally responsible manner” by paying for “extending tax cuts for people earning less than $400,000 with additional reforms to ensure that wealthy people and big corporations pay their fair share.”

But the budget does not specify how Biden would do that. To fund proposals for social programs, such as universal preschool education and restoring a child tax credit expansion, the 2025 plan already has a bevy of tax increases on the wealthy and companies, including a billionaire wealth tax. It proposes imposing a top tax rate of 39.6 percent for people making more than $400,000 and increasing a tax on investments for people making more than $400,000.

The unspoken cost

Neither Biden nor Trump has explained how he would make up the revenue loss from extending all or part of the taxes, though, separately, Trump has promised to significantly increase tariffs on trading partners, especially China. The Committee for a Responsible Federal Budget, a nonpartisan group, has a nifty interactive calculator that allows people to make choices about what parts of the tax cut they would retain or drop, showing what the revenue loss would be.

For Biden, the 10-year revenue loss for keeping the tax cuts for people making less than $400,000 appears to be between $1.5 trillion and $2.5 trillion over 10 years — which is a further indication of how much of the tax cuts went to people making less than $400,000. For Trump, it would be at least $3.5 trillion — and probably higher — if he wants to retain the entire tax cut.

The trouble is that a lot of the easy revenue raisers, like the international tax reform in the 2017 law, have already been done. For instance, scrapping the mortgage interest deduction — which allows people to deduct the cost of a home mortgage from taxes — would raise $100 billion a year, according to the Joint Committee on Taxation. The 2017 tax bill lowered the cap for the mortgage from $1 million to $750,000, and even that modest change sparked a sharp political fight. The mortgage cap will snap back to $1 million if the tax cut expires with no congressional action.

The Bottom Line

In this debate, Biden and Trump are talking past each other. Trump ignores the fact that Biden has consistently said he will not raise taxes on people making less than $400,000 and pretends Biden will hike taxes on every American. Biden dances past the fact that the Trump tax cut, even if it was tilted toward the wealthy, reduced taxes for all income groups — which is why he has committed, at great revenue loss, to preserve those tax cuts.

Because of the odd way the 2017 tax bill was constructed, whoever is president will face tough negotiations with Congress next year on the path forward unless, by some unexpected turn of events, his party wins not just the presidency but complete control of Congress.

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