Debate Heats up Over More Tax Cuts

IT’S BEEN CLEAR FOR MONTHS that a ferocious debate would erupt soon on extending the 2017 Trump tax cuts — but Republicans have gone beyond that goal: they want to increase the tax cuts, especially for corporations.

THIS IS USUALLY A WINNING ISSUE — like catnip, some Republicans say — because they can argue that failure to extend tax cuts would produce a huge de facto tax increase.

NEVERTHELESS, DEMOCRATS ARE PLANNING a new offensive on “tax fairness,” arguing that wealthy individuals and corporations don’t pay their fair share. Polls generally show that the public agrees, but no one wants tax hikes on them.

TAX CUTS that expire for individuals at the end of 2025 probably will be extended for most brackets, at least for the middle class, but the real Republican target is corporate tax rates; the maximum corporate tax rate was slashed from 35% to 21% in 2017. That was permanent but Republicans now want to lower the corporate tax even more, perhaps to 15% — even though it would increase the deficit by at least $1 trillion over the next decade.

(Extending all of the Trump tax cuts could add $4 trillion over the next decade to the $34 trillion deficit, most analysts believe. Trump’s retort is that without lower rates, the U.S. could face “the biggest tax increase in history.”)

THE KEY, OF COURSE, is which party wins the November election. Republicans have a fair chance of keeping the House, and a very good chance of capturing the Senate.

NEEDLESS TO SAY, both parties have radically different plans for tax cuts. Trump would lower virtually all rates, while Biden would raise rates on wealthy individuals and corporations, allowing the Trump tax law’s individual rate cuts to expire.

BIDEN ADVOCATES using the revenue to pay for new spending on investments in child and elder care, affordable housing and education. He would enact universal pre-kindergarten education, provide 12 weeks of paid family and medical leave, expand anti-poverty tax credits, and create a new tax break for first-time home buyers. Those programs would be funded, he says, by increasing the corporate tax rate from 21% percent to 28%.

NOT SURPRISINGLY, NEITHER PARTY seems very serious about using any revenues to reduce the surging budget deficit. Total U.S. debt should far exceed $40 trillion before the decade ends.

A KEY ISSUE will be the strong anti-corporate mood among progressives, who blame big business for increasing inflation. Fiercely anti-corporate, they cite studies that refute Republicans’ argument that the tax cuts would pay for themselves. Most studies show the 2017 cuts only generated enough GDP growth to offset about 20% of the drop in federal revenue.

AT THE LEAST, INVESTORS WILL HAVE TIME TO DIGEST MAJOR TAX CHANGES. It could be mid-year or later in 2025 before a new tax regime comes into focus, perhaps as the GOP uses the budget reconciliation process to ram it through Congress.

Related: What We’re Hearing on Capitol Hill

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