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As the 2024 presidential campaign gathers momentum, a significant portion of the American electorate may find themselves in line for potential tax breaks should former President Donald Trump regain the Oval Office. However, these proposed tax cuts come with a rising price tag that could strain the national budget.
In recent months, Trump has advanced a range of tax cuts aimed at various demographics. This includes incentives for senior citizens, tipped workers, and individuals earning overtime pay. His latest announcement, made while campaigning in New York, targets homeowners residing in high-tax regions by proposing to eliminate the $10,000 cap on state and local tax deductions, a measure introduced in the Tax Cuts & Jobs Act (TCJA) of 2017.
The financial implications of Trump’s proposals are escalating as they are layered on top of plans to extend the TCJA cuts, which are due to expire in 2025. Additionally, he aims to reduce the corporate tax rate from 21% to 15%. To counterbalance the anticipated revenue shortfall from these tax cuts, Trump suggests imposing new tariffs on all imports to the United States.
During a September 14 interview with ABC 13 Las Vegas, Trump referred to tariffs as “the most beautiful word there is.” He expressed confidence that this strategy could significantly decrease the national deficit to what he deemed “a very manageable number” and stated, “Ultimately, we can break it even, and it’s going to generate tremendous growth.”
However, experts caution that the revenue generated from these proposed tariffs is unlikely to cover the extensive tax cuts Trump is proposing. According to a review by TD Cowen analyst Jaret Seiberg, Trump’s ambitious tax breaks could potentially incur costs of up to $9 trillion over the next decade. In contrast, the Tax Policy Center projects that the proposed tariffs might generate only $2.8 trillion over the same period.
Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, remarked on the nature of Trump’s proposals, describing them as “showing up at a location and making a promise to cut a tax based on what people in that location want.” He expressed concern over the cumulative financial burden these promises could impose, noting, “Tariffs can’t cover this whole agenda.”
On the other side of the political spectrum, Vice President Kamala Harris is also promoting an extensive suite of tax benefits aimed at supporting various groups, from new parents to first-time homebuyers. Her campaign proposes raising the corporate tax rate to 28% from its current 21% and rolling back certain tax cuts for high earners instituted by the TCJA.
According to estimates from the Penn Wharton Budget Model, Harris’s tax strategies could increase the deficit by approximately $1.2 trillion over the next decade, compared to the projected $5.8 trillion increase due to Trump’s proposals, even before the SALT deduction cap was considered. If Trump removes this cap, his plans could push the deficit increase to an astonishing $6.9 trillion, as per Penn Wharton’s faculty director, Kent Smetters.
Both candidates’ proposals have drawn criticism from fiscal experts who warn that these strategies could exacerbate the federal deficit, which the Congressional Budget Office estimated could reach $1.9 trillion in fiscal year 2024, reflecting a 27% uptick from earlier forecasts. This increase has been partly attributed to additional U.S. funding for support in Ukraine, Israel, and other nations.
Goldwein’s assessment indicates that both Trump and Harris are likely to operate within a framework of increasing national debt. He noted, “It seems both candidates are likely to be in the red.”
One of the principal expenses associated with Trump’s tax proposals arises from plans to extend the TCJA tax cuts beyond 2025, which Seiberg notes primarily benefited higher-income individuals, a move estimated to cost $4.5 trillion over the upcoming decade, contingent on the SALT deduction cap remaining unchanged.
Seiberg laid out an estimate of the additional fiscal impact stemming from Trump’s recent tax proposals: eliminating income taxes on Social Security benefits could result in a $1.6 trillion cost; doing away with taxes on overtime pay might add $1.1 trillion; reinstating the full SALT deduction is estimated at $1 trillion; lowering the corporate tax rate could add $673 billion; and eliminating taxes on tipped wages might result in a $250 billion cost.
Ultimately, Seiberg posits that Trump’s tax reform agenda could amass a staggering $9 trillion cost over the next decade, a prospect that could face significant resistance within Congress. Both Trump and Harris would need congressional support to implement these tax changes effectively.
Despite the challenges, Trump’s proposals could resonate with many taxpayers. As Seiberg aptly pointed out, “Trump is far from the first candidate to promise a chicken in every pot,” emphasizing the need for skepticism regarding the fulfillment of these ambitious promises.
Source: CBS News