We are currently witnessing one of the most volatile periods of US politics in a divided America. With only three months left until the November election, the Republican’s primary candidate, Donald Trump, just barely survived an assassination attempt, and the Democrat’s primary candidate, Joe Biden, stepped down in favour of Kamal Harris.
A key priority for any future administration is the current tax laws. The Tax Cuts and Jobs Act of 2017 (TCJA), which former President Trump signed during his first term, is set to expire at the end of 2025. The TCJA most controversially cut the corporate tax rate from 35 to 21 per cent. The question now is whether we will see a Trump tax law sunset 2025 or if the TCJA gets extended.
Trump wanted to cut taxes to 15% per his original economic plan, which he mentioned during a policy speech to the Detroit Economic Club in 2016. In that speech, he said, “Under my plan, no American company will pay more than 15% of their business income in taxes.”
In the campaign trail leading up to the 2024 election, Trump shared his plans with American business leaders to cut the corporate tax rate to 20 from 21 per cent. Last year, in an NBC interview, when asked about lowering it to 15 per cent, he responded, “I’d like to lower them a little bit if we could.” He said the rate cut would depend on the state of the economy.
The TCJA expires at the end of 2025, but Trump and former running candidate Joe Biden have expressed interest in extending it beyond that. Despite the fact that Kamala Harris has since taken over as the Democrats' nominee, it’s likely that she’ll stay on the same track regarding taxes. If that’s the case, both candidates are willing to increase budget deficits as part of extending tax cuts. Trump wants to extend all parts of the TCJA, while the Democrats intend to preserve some of the tax cuts for lower-income households and raise corporate tax rates to 28 per cent.
If Trump is elected, the tax law sunset 2025 won’t materialize. We can expect an extension of his tax laws beyond 2025, with possible amendments that would cut corporate tax rates from 21 to 20 per cent. Despite Trump’s previous interest in pushing for 15% tax rates, he has been reluctant to push this agenda during his 2024 campaign.
Certain exceptions apply to companies that fall under specific tax laws; gambling companies in New Jersey that offer casino games and sports wagering, for example, are taxed on their gross gaming revenue (GGR) between 14.25 and 15 per cent. Gambling company taxes likely won’t get lowered under Trump’s administration; it’s likelier that there will be steep increases led by local politicians and lawmakers. In New Jersey, policymakers are looking favourably at raising company gambling taxes to 30%. Despite Trump’s favourable views on sports betting, his administration opposed legalizing sports betting in New Jersey in 2017, so it is unlikely he will intervene in the future. Since then, a majority of all states have legalized gambling with similar tax regimes as New Jersey, and lawmakers in different states are looking to raise gambling company taxes further.
Fully extending the TCJA beyond 2025 at the current tax rate of 21 per cent is estimated to add $4.6 trillion to the budget deficit over the next decade. The Congressional Budget Office initially estimated that economic growth from Trump’s tax laws would cover around 20% of tax cuts. Still, according to a recent study by the National Bureau of Economic Research (NBER), the effects were smaller. At the same time, the costs of extending the significant parts of the TCJA have increased by about 50% since 2018. Proponents of extending the tax laws, including former President Trump, continue to argue that extensions would be paid in part by faster economic growth, although at an overall deficit. If the tax laws are amended to allow for deeper tax cuts, the deficit can be expected to balloon further over the next decade.
It’s difficult to tell what Harris's stance is on the TCJA since she only recently took over as the Democratic party's primary candidate. Analysts have so far pinpointed that the areas where she is likely to differ from President Biden are abortion rights, climate change, and student debt relief. If that’s the case, Harris might be in favour of not raising taxes on anyone making less than $400,000 and tax cuts for families through child tax credits.
It’s still early days, and these discussions are ripe for speculation; if Trump wins the election, the Republicans must control both houses of Congress to freely act on extensions and further corporate tax cuts.
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