October 9, 2024 • 20 mins
Neither presidential candidate has a perfect tax plan. But what changes could Trump and Harris make to their respective tax plans to better serve American workers and the economy? In this episode, we dissect their plans and provide practical solutions for improvement.
Joining Kyle Hulehan is Erica York, Senior Economist and Research Director. Trump could boost take-home pay by expanding the standard deduction and rethinking tariffs. Meanwhile, Harris could spark wage growth by lowering corporate taxes and broadening investment deductions, all while protecting workers.
Links:
https://taxfoundation.org/research/all/federal/kamala-harris-tax-plan-2024/
https://taxfoundation.org/research/all/federal/donald-trump-tax-plan-2024/
https://taxfoundation.org/research/all/federal/donald-trump-tax-plan-2024/
https://taxfoundation.org/blog/trump-overtime-tax-exemption/
https://taxfoundation.org/blog/kamala-harris-corporate-tax-rate-by-state/
https://taxfoundation.org/blog/trump-mckinley-tariffs-great-depression/
Follow us!
https://twitter.com/TaxFoundation
https://twitter.com/deductionpod
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Kyle Hulehan (00:00):
Hello and welcome to the deduction, a tax
foundation podcast.
I'm your host, Kyle Hohenhand.
And today we are back withanother election episode.
We are with our cohost, EricaYork, senior economist and
research director here at taxfoundation.
Erica, how are you doing today?
Erica York (00:16):
Doing well, Kyle.
Glad to be back for anotherepisode.
Kyle Hulehan (00:19):
Yeah.
So you know what we're here for.
We're talking the election andtaxes, but let me break down
real quick.
What we're doing for today'sepisode.
Uh, you know, it's beeninteresting.
I've, I've been looking at thecomments a little bit and I can
see that people can't reallydecide whether we're pro Trump
or pro Harris.
And, and it will say, I thinkwe're doing our best to just
call balls and strikes here.
(00:40):
Not have an agenda.
Uh, I would say, I think some ofour answers are a little bleak,
uh, in our last episode, Erica,you said that both candidates
need to go back to the drawingboard with their tax and
economic plans, And so todaywhat we're hoping to do is
provide a ray of hope, a littlebit of hope here.
We're going to chat aboutrealistic ways to improve these
(01:01):
tax plans.
For each candidate, keeping itin aligned with their parties
and their platform.
So maybe just, maybe this willbe a little bit more optimistic
and a little bit more hopeful Solet's just slide right in.
So we're going to do what's thenews.
Erica, we've discussed Trump'stax plans already.
People know what we think alittle bit, but give us a quick
(01:21):
recap.
And while you're at it, sharewith us some practical ideas of
how to fix Donald Trump's plan.
Erica York (01:27):
So Trump's plan outlines a whole bunch of
different ways to cut taxes.
First by making the 2017 tax lawthat he signed when he was
president the first time, um,into a permanent piece of policy
rather than letting it expire.
And then on top of that, addinga bunch of different other tax
cuts, maybe lowering thecorporate rate further.
He's talked about 20 percent and15%.
(01:50):
He's talked about no taxes ontips, no taxes on overtime
income, no taxes on socialsecurity income.
He's also, most recently, talkedabout, um, not capping the SALT
deduction as part of permanencefor that 2017 tax law.
In all, it adds up to More than7 trillion of tax cuts that he's
(02:10):
promised.
And one of the themes that we'reseeing in these recent ideas is
targeted tax cuts for differenttypes of workers.
And so that's the idea that Iwent back to the drawing board
on and said, all right, we've,we've seen these ideas from
Trump of carving out, you know,tip income or overtime income,
and just use those as a coupleof examples that we And explain
(02:33):
why they're not the best taxpolicy.
Um, imagine a waitress who makes30, 000 and a cashier who makes
30, 000.
Under the TIP exemption, thewaitress would see a tax cut
while the cashier wouldn't.
That violates all kinds ofprinciples of tax policy like
equity and neutrality and reallycreates some unfair treatment
across workers who should betreated the same.
(02:55):
You can imagine a similar sortof situation with the overtime
proposal.
Imagine someone who earns 45,000.
And that's through working 50hours a week at one job and
someone who also earns 45, 000.
But they split their timebetween two jobs.
And so even though they mightwork 50 hours a week, they don't
qualify for overtime pay becausethey're Working full time at one
(03:17):
job and part time at another orsomething like that.
So under the overtime exemption,the first worker would get a big
tax cut, while the second workerwouldn't get a tax cut, again,
violating these principles ofneutrality.
So a better way to offer reliefto workers, no matter what their
type of income is or theirworking situation, you could do
a couple different things.
(03:38):
One would be increase thestandard You can think of that
as like the zero bracket.
That's what you get to deductwhen you're filling out your tax
forms and you don't pay any taxon that amount.
The 2017 tax law actually nearlydoubled the standard deduction.
So increasing that zero bracketby quite a bit, and you could
further increase it to furtherincrease the amount of money
(03:58):
that people just take homewithout paying tax on.
And it doesn't matter.
What type of income you earn orwhat type of job you have, you
can take that standarddeduction.
Another way to provide reliefwould just be to lower marginal
tax rates.
So reducing across the board,the bite that the income tax
takes out of your income, um,across different income levels.
(04:18):
So both of those would be muchmore neutral and much more
simple to administer than thesevarious, Narrowly targeted tax
cuts.
And then the final thing I wouldsay, um, and this unfortunately
probably isn't quite asrealistic is that when you
impose a tariff that actuallyincreases the tax burden on
labor, it increases prices inthe economy, which means with
(04:42):
your after tax income, you canactually afford less.
When you consider how aftertaxes, those prices have gone
up.
So tariffs are themselves a taxon working households.
They create a larger tax burdenon lower and middle income
households that need to dohigher income households.
So removing the tariffs wouldalso be a better way to make
(05:02):
sure that tax relief is targetedto low and middle income
workers.
Kyle Hulehan (05:05):
We just can't get away from tariffs, can we?
We're, we're always, we're juston this and they aren't good.
But we recently released someanalysis that shows maybe how
bad they are.
Trump's tariffs have reachedhistoric levels.
Is it, is this right?
I
Erica York (05:20):
Yeah, so we did some math and we found that if Trump
were really to impose this 20percent tariff on absolutely
everything, bananas, coffee,everything in between, as well
as increased tariffs on productsthat we import from China to 60%
That would take the averagetariff rate, the average tax
(05:40):
rate that we pay on importsseven times higher than it is
right now.
And you have to go all the wayback to 1934 in the midst of the
Great Depression and theaftermath of the Holly Smoot
tariffs to see a average tariffrate that high.
Um, so it really is anunprecedented increase, um,
from, from the rate that we havenow going up more than seven
(06:03):
times to hit that rate duringthe Great Depression.
Kyle Hulehan (06:06):
mean, I think everyone feels like things are
expensive right now.
And, and I don't think that thiswould help at all.
And honestly, you know, we'regoing to switch gears here.
And we're going to, we're goingto move on to Harris though.
And could you just.
Quickly, same thing again, recapthe tax plan issues and
realistic changes to improve it.
Erica York (06:25):
Harris's tax policies are primarily higher
taxes on businesses and highincome or high net wealth
households.
Some of those ideas includeraising the corporate income tax
rate from 21 percent to 28%,raising the tax rate on long
term capital gains up to 28percent for high earners.
Um, raising the top marginalincome tax rate up to 39.
(06:48):
6 percent and then, um, raisinga bunch of other different types
of taxes and then using thathigher tax revenue to increase
targeted tax credits, whetherit's the child tax credit,
premium tax credits, the earnedincome tax credit, home buying
tax credits, home building taxcredits, or the most recently
announced, um, America forwardtax credits.
(07:10):
Which are targeted, probablyinvestment tax credits.
We don't know exactly yet orproduction tax credits for
certain types of industries likebiotech, other types of advanced
manufacturing.
So one of the things we've heardHarris talk about recently is
that through these targetedinvestment tax credits, she is
(07:30):
wanting to drive broad basedeconomic growth.
And so that's the theme that I'mgoing to go back to the drawing
board on.
And it doesn't take, um, it'spretty easy to see that higher
taxes on all types of businessincome combined with targeted
tax credits for very smallbusinesses.
Specific types of technologydoesn't really create a business
(07:53):
environment that's conducive tobroad growth.
It's actually less favorable togrowth and investment overall,
unless you're in one of thelucky industries that qualifies
for a new subsidy.
Um, and so one way to improvethis tax plan, um, honing in on
this idea of increasinginvestment across the board and
increasing growth across theboard would be to say, instead
(08:16):
of targeting All industries withhigher taxes and then narrow
industries with tax creditsreverse that.
And instead of relying on reallynarrow policies, look at a
policy like full expensing,which allows deductions for
capital investment acrossindustries.
It doesn't matter what type oftechnology you're investing in,
(08:37):
what type of industry you're in.
Um, if it's machinery orequipment or research and
development, you deduct thatcost immediately, and that
lowers the cost of capital andencourages new investment.
And I think we see Harris kindof understand this theme.
One of the policies she hasproposed is to increase the
deduction for startup expenses.
(08:58):
Right now, that's limited to 5,000, and she's proposed
increasing it to 50, 000,showing that she understands the
benefit of allowing Businessesto deduct their real expenses.
This would just continue it toall types of business
investment.
And so I think that's one waythat you could see an
improvement, um, and help movethat tax plan in the right
(09:20):
direction, but still, some ofthe big things that she relies
on are, you know, The corporatetax increase higher tax rates
elsewhere, and those increasingthe tax burden at the margin,
um, discourage that marginalactivity.
So still a lot of room forimprovement.
Kyle Hulehan (09:36):
So real quick, just to hone in on this real
quick, with these R& D credits,just to make this clear for our
listeners, with these credits,what would happen is, you know,
some people will get them.
So some industries might grow alot, But it's not that broad
base that you're going to get.
It's not going to be awidespread growth for all
industries.
It's just some people are goingto benefit.
Erica York (09:55):
Yeah, that's exactly right.
So for example, the highercorporate tax rate we project
would raise about a trilliondollars in revenue.
And the Harris campaign has saidthat these tax credits would
cost about 100 billion.
So a fraction of the higher taxrevenue on the corporate rate
Would go into these tax creditsand these tax credits wouldn't
(10:17):
be broadly available.
They would only be available forthis really specific qualifying
activity.
So you might be able toincentivize more of that
qualifying activity, but at thesame time, you're discouraging
activity everywhere else.
So that doesn't result in broadbased growth.
That actually results in lessgrowth overall, but within some
of these sub industries whereyou're doing billions of dollars
(10:39):
of subsidies, they may still beable to grow profitably.
Even in spite of the higher rateelsewhere.
Kyle Hulehan (10:46):
And so you just talked about the corporate
income tax rates.
We put out some analysis sayingthat, uh, her plan would hurt
workers wages and maybe the U Swouldn't be as competitive.
Could you just break that downfor us real quick?
I
Erica York (10:58):
portion of the corporate tax is borne by
workers.
And the way that happens is thatthe corporate tax reduces
investment.
And when investment goes down,workers are less productive.
They have less machinery andequipment to work with, um,
fewer factories, less technologyimprovement.
And so worker productivity fallsor isn't as high as it would be
(11:19):
otherwise.
And in the long run, what driveswage increases is productivity
increases.
So when you discourageproductivity, you discourage
wage growth.
And a ton of studies have beendone on this, finding different
range of estimates for how muchof the corporate burden is borne
by workers ranges from 25percent to 60 percent or 70%.
(11:41):
Um, in our modeling at taxfoundation, we use a 50, 50
split.
So right, right in the middle,half of the burden is.
Born by workers in the form oflower wages, half of the burden
is born by shareholders in theform of lower returns.
And of course, shareholdersthemselves aren't just the
wealthy.
Um, if you've got a pension or a401k, you're also invested in
(12:01):
the stock market.
So the corporate rate can affectyou that way.
we use some data from thealliance for competitive
taxation that took that range ofestimates for how much of the
share of the corporate burdenworkers bear.
bear and looking at what wouldhappen under 28 percent rate,
their analysis found thatworkers wages would be lower on
average by anywhere from 250 toabout 600 annually.
(12:26):
And that can vary by state thatcan vary by congressional
district.
Based upon, you know, differentfactors.
Um, so we, we took their dataand we put it to a map and you
can see that on our website.
Um, and we've got, we've got itin table form too.
So you can see what thatestimate looks like.
And what we find is that acrossAll of the states and all of the
districts, um, average wageswould be lower under a higher
(12:50):
corporate tax rate.
And that suggests another areafor Harris to go back to the
drawing board on and find a wayto raise revenue.
That doesn't fall so hard onworkers.
That doesn't reducecompetitiveness and reduce
investment because that's atrade off Probably not worth the
higher revenue.
There are much better ways toraise revenue that won't
(13:11):
directly lower worker wages inthis way.
Kyle Hulehan (13:13):
think I promised that we were going to be more
optimistic in this episode.
And so I'm going to say, we didprovide you plans of how this
could be better.
Some realistic ways of thingsthat they could do to make this
a little bit better, to improveplans and to help you guys, um,
we're going to, we're going tojump over to these questions,
but I couldn't help, but saythat it ended a little bleakly
still, even though I promisedoptimism, but we're going to
(13:36):
head over to some, to somelistener questions.
Um, so.
We have a question from Jason.
Do either candidates includedetails of how they will reduce
government spending?
If so, which can, whichcandidates tax proposals would
work best?
Erica York (13:53):
So the answer is no.
Um, partly because thecandidates probably would
increase spending.
So we know for sure that Harriswants to increase spending in
certain areas.
Um, she's calling it thisopportunity economy idea.
Ideas for education, forhealthcare, for housing, for,
um, childcare, where governmentspending would go up.
(14:15):
We don't have a precise.
Numbers on that.
Um, and you know, differentestimating groups in, in the
think tank space have tried toput a range out there.
Um, we've tried to put a rangeto this too, looking at what
proposals were included in thewhite house.
Budget this year.
and it really varies.
It varies from, you know, atrillion dollars to quite a bit
(14:38):
more than a trillion dollars inincreased spending.
Um, and what we've found is thatwith the tax increases that
Harris has proposed, those alonewould increase revenue by about
4 trillion over the 10 yearbudget window.
She uses up quite a bit of thatwith the tax credits that she
has proposed.
So.
(14:58):
You get to a trillion and a halfrevenue left over after that,
and that goes pretty quickly.
If you look at the education,the child care, the health care,
the housing initiatives, thosecould very quickly use up all of
that revenue and you'd be intodeficit increasing territory.
Now with, um, with Trump, wehaven't seen very many details
(15:18):
at all on the spending side.
Um, you know, there are these,these vague ideas to find
efficiencies to reduce waste,fraud, and abuse.
That's really a drop in thebucket of the federal budget.
Um, if you, if you want toreduce government spending, you
really have to talk about majorreforms.
Um, not just efficiencies hereand there.
(15:40):
Efficiencies are important, butthey don't balance the budget.
And when we look at the taxside, Trump is proposing way
more tax cuts than he isproposing offsets to that.
Even with the higher tariffs, wefind that just on the tax side
alone, the budget deficit couldincrease by close to 4 trillion
over 10 years, and we haven'tseen Anything close to 4
(16:05):
trillion in spending savingsoutlined by the Trump campaign.
So unfortunately, um, bothcandidates when it comes to
budget math are probably goingto increase the deficit Harris
by a little bit Trump bypotentially a lot.
Kyle Hulehan (16:17):
we'll go on to our next question.
And this is, uh, I believe it'sgoing to be pronounced just
stain.
Uh, Why are we even entertainingsome of these concepts that
Donald Trump is putting out ifhe has no intention of
implementing them once he getshis presidency?
Does anyone think he'slegitimately going to do these
ideas?
And so I pulled this one outbecause I believe this question
(16:39):
highlights a crucial issue,which is, can we separate?
Rhetoric and unrealisticcampaign promises from the
candidates actual plans and howcan we have confidence in their
proposals when they may not beoffering realistic solutions?
So Eric, I'm just going to letyou run with this.
Erica York (16:55):
Yeah.
I, I got a question similar tothis from a reporter a couple of
weeks ago, and it wasessentially along the lines of
like, Are we just in a policy bya soundbite season?
And I think the answer is yes,but just because, you know,
these are coming out assoundbites and comments here and
there, rather than a fullyfleshed out policy proposal,
(17:16):
doesn't mean that we should justshrug them off.
Um, if all we're getting issoundbites, that's what we're
getting.
That's what we have to go on,um, that lets us know the
direction that the candidateswant to go.
And so whether it's the ideathat like, Hey, I don't think
Trump is going to pursue thesetariffs.
I think that he keeps bringingtariffs up as the solution for
(17:39):
any question that's asked,whether it's about the budget,
whether it's about childcare,whether it's about, you know,
actual trade related questions,whether it's about manufacturing
in America, that the answer istariffs tells us he's probably
pretty serious about the idea oftariffs and we should take that.
Policy proposal.
Seriously.
We could also look at Trump'stime in office when he did
(18:02):
impose tariffs.
Um, any, any chance that hecould when, um, like a U.
S.
T.
R.
investigation had tariffs as apossible policy that he could
implement.
He chose to implement that.
So So I think it's very clearthat he's in favor of tariffs.
If we look at the tax ideas, um,you know, the, the idea of no
(18:22):
tax on tips got brought up thissummer.
Now there are five bills inCongress that propose different
ways of getting rid of taxes andtips.
So again, I think that's areally serious indication that,
Hey, lawmakers in Congress aregoing to run with these ideas
and if Trump is, you know,Reelected there, there's
possible, um, possible scenarioswhere legislation has already
(18:46):
been introduced and that getsworked into whatever type of tax
bill gets worked on next year.
Um, so just because the ideasseem unrealistic or unworkable,
I don't think that means that weget to write them off as.
They're not going to happen.
We don't have to take themseriously.
I think it's an idea or anindication that we need to take
them even more seriously.
(19:06):
Um, if, if these are the ideaswe're getting on tax policy,
that shows the direction thattax policy would likely go.
Kyle Hulehan (19:14):
And I think quite honestly that this goes for both
candidates when I say this isWe've been very clear is like,
we're not getting enoughdetails.
We're not getting enough, youknow, uh, plans from them to
really know what's going tohappen.
This doesn't even just apply toTrump is that we're not, we're
not getting realistic solutionsand realistic options from
either one of them.
And it's, it's just not enough.
And I think you've laid that outfor us so clearly today, Erica.
(19:37):
And I just want to thank you forbeing on the show.
Uh, this is really tremendousstuff.
I
Erica York (19:42):
Thanks.
Kyle Hulehan (19:43):
And that's been another episode of the deduction
before we sign off.
If you have any burningquestions, you can email us at
podcast at tax foundation.
org, or you can find us onTwitter at deduction pod.
Thank you for listening.
Hello and welcome to the deduction, a tax
foundation podcast.
I'm your host, Kyle Hohenhand.
And today we are back withanother election episode.
We are with our cohost, EricaYork, senior economist and
research director here at taxfoundation.
Erica, how are you doing today?
Erica York (00:16):
Doing well, Kyle.
Glad to be back for anotherepisode.
Kyle Hulehan (00:19):
Yeah.
So you know what we're here for.
We're talking the election andtaxes, but let me break down
real quick.
What we're doing for today'sepisode.
Uh, you know, it's beeninteresting.
I've, I've been looking at thecomments a little bit and I can
see that people can't reallydecide whether we're pro Trump
or pro Harris.
And, and it will say, I thinkwe're doing our best to just
call balls and strikes here.
(00:40):
Not have an agenda.
Uh, I would say, I think some ofour answers are a little bleak,
uh, in our last episode, Erica,you said that both candidates
need to go back to the drawingboard with their tax and
economic plans, And so todaywhat we're hoping to do is
provide a ray of hope, a littlebit of hope here.
We're going to chat aboutrealistic ways to improve these
(01:01):
tax plans.
For each candidate, keeping itin aligned with their parties
and their platform.
So maybe just, maybe this willbe a little bit more optimistic
and a little bit more hopeful Solet's just slide right in.
So we're going to do what's thenews.
Erica, we've discussed Trump'stax plans already.
People know what we think alittle bit, but give us a quick
(01:21):
recap.
And while you're at it, sharewith us some practical ideas of
how to fix Donald Trump's plan.
Erica York (01:27):
So Trump's plan outlines a whole bunch of
different ways to cut taxes.
First by making the 2017 tax lawthat he signed when he was
president the first time, um,into a permanent piece of policy
rather than letting it expire.
And then on top of that, addinga bunch of different other tax
cuts, maybe lowering thecorporate rate further.
He's talked about 20 percent and15%.
(01:50):
He's talked about no taxes ontips, no taxes on overtime
income, no taxes on socialsecurity income.
He's also, most recently, talkedabout, um, not capping the SALT
deduction as part of permanencefor that 2017 tax law.
In all, it adds up to More than7 trillion of tax cuts that he's
(02:10):
promised.
And one of the themes that we'reseeing in these recent ideas is
targeted tax cuts for differenttypes of workers.
And so that's the idea that Iwent back to the drawing board
on and said, all right, we've,we've seen these ideas from
Trump of carving out, you know,tip income or overtime income,
and just use those as a coupleof examples that we And explain
(02:33):
why they're not the best taxpolicy.
Um, imagine a waitress who makes30, 000 and a cashier who makes
30, 000.
Under the TIP exemption, thewaitress would see a tax cut
while the cashier wouldn't.
That violates all kinds ofprinciples of tax policy like
equity and neutrality and reallycreates some unfair treatment
across workers who should betreated the same.
(02:55):
You can imagine a similar sortof situation with the overtime
proposal.
Imagine someone who earns 45,000.
And that's through working 50hours a week at one job and
someone who also earns 45, 000.
But they split their timebetween two jobs.
And so even though they mightwork 50 hours a week, they don't
qualify for overtime pay becausethey're Working full time at one
(03:17):
job and part time at another orsomething like that.
So under the overtime exemption,the first worker would get a big
tax cut, while the second workerwouldn't get a tax cut, again,
violating these principles ofneutrality.
So a better way to offer reliefto workers, no matter what their
type of income is or theirworking situation, you could do
a couple different things.
(03:38):
One would be increase thestandard You can think of that
as like the zero bracket.
That's what you get to deductwhen you're filling out your tax
forms and you don't pay any taxon that amount.
The 2017 tax law actually nearlydoubled the standard deduction.
So increasing that zero bracketby quite a bit, and you could
further increase it to furtherincrease the amount of money
(03:58):
that people just take homewithout paying tax on.
And it doesn't matter.
What type of income you earn orwhat type of job you have, you
can take that standarddeduction.
Another way to provide reliefwould just be to lower marginal
tax rates.
So reducing across the board,the bite that the income tax
takes out of your income, um,across different income levels.
(04:18):
So both of those would be muchmore neutral and much more
simple to administer than thesevarious, Narrowly targeted tax
cuts.
And then the final thing I wouldsay, um, and this unfortunately
probably isn't quite asrealistic is that when you
impose a tariff that actuallyincreases the tax burden on
labor, it increases prices inthe economy, which means with
(04:42):
your after tax income, you canactually afford less.
When you consider how aftertaxes, those prices have gone
up.
So tariffs are themselves a taxon working households.
They create a larger tax burdenon lower and middle income
households that need to dohigher income households.
So removing the tariffs wouldalso be a better way to make
(05:02):
sure that tax relief is targetedto low and middle income
workers.
Kyle Hulehan (05:05):
We just can't get away from tariffs, can we?
We're, we're always, we're juston this and they aren't good.
But we recently released someanalysis that shows maybe how
bad they are.
Trump's tariffs have reachedhistoric levels.
Is it, is this right?
I
Erica York (05:20):
Yeah, so we did some math and we found that if Trump
were really to impose this 20percent tariff on absolutely
everything, bananas, coffee,everything in between, as well
as increased tariffs on productsthat we import from China to 60%
That would take the averagetariff rate, the average tax
(05:40):
rate that we pay on importsseven times higher than it is
right now.
And you have to go all the wayback to 1934 in the midst of the
Great Depression and theaftermath of the Holly Smoot
tariffs to see a average tariffrate that high.
Um, so it really is anunprecedented increase, um,
from, from the rate that we havenow going up more than seven
(06:03):
times to hit that rate duringthe Great Depression.
Kyle Hulehan (06:06):
mean, I think everyone feels like things are
expensive right now.
And, and I don't think that thiswould help at all.
And honestly, you know, we'regoing to switch gears here.
And we're going to, we're goingto move on to Harris though.
And could you just.
Quickly, same thing again, recapthe tax plan issues and
realistic changes to improve it.
Erica York (06:25):
Harris's tax policies are primarily higher
taxes on businesses and highincome or high net wealth
households.
Some of those ideas includeraising the corporate income tax
rate from 21 percent to 28%,raising the tax rate on long
term capital gains up to 28percent for high earners.
Um, raising the top marginalincome tax rate up to 39.
(06:48):
6 percent and then, um, raisinga bunch of other different types
of taxes and then using thathigher tax revenue to increase
targeted tax credits, whetherit's the child tax credit,
premium tax credits, the earnedincome tax credit, home buying
tax credits, home building taxcredits, or the most recently
announced, um, America forwardtax credits.
(07:10):
Which are targeted, probablyinvestment tax credits.
We don't know exactly yet orproduction tax credits for
certain types of industries likebiotech, other types of advanced
manufacturing.
So one of the things we've heardHarris talk about recently is
that through these targetedinvestment tax credits, she is
(07:30):
wanting to drive broad basedeconomic growth.
And so that's the theme that I'mgoing to go back to the drawing
board on.
And it doesn't take, um, it'spretty easy to see that higher
taxes on all types of businessincome combined with targeted
tax credits for very smallbusinesses.
Specific types of technologydoesn't really create a business
(07:53):
environment that's conducive tobroad growth.
It's actually less favorable togrowth and investment overall,
unless you're in one of thelucky industries that qualifies
for a new subsidy.
Um, and so one way to improvethis tax plan, um, honing in on
this idea of increasinginvestment across the board and
increasing growth across theboard would be to say, instead
(08:16):
of targeting All industries withhigher taxes and then narrow
industries with tax creditsreverse that.
And instead of relying on reallynarrow policies, look at a
policy like full expensing,which allows deductions for
capital investment acrossindustries.
It doesn't matter what type oftechnology you're investing in,
(08:37):
what type of industry you're in.
Um, if it's machinery orequipment or research and
development, you deduct thatcost immediately, and that
lowers the cost of capital andencourages new investment.
And I think we see Harris kindof understand this theme.
One of the policies she hasproposed is to increase the
deduction for startup expenses.
(08:58):
Right now, that's limited to 5,000, and she's proposed
increasing it to 50, 000,showing that she understands the
benefit of allowing Businessesto deduct their real expenses.
This would just continue it toall types of business
investment.
And so I think that's one waythat you could see an
improvement, um, and help movethat tax plan in the right
(09:20):
direction, but still, some ofthe big things that she relies
on are, you know, The corporatetax increase higher tax rates
elsewhere, and those increasingthe tax burden at the margin,
um, discourage that marginalactivity.
So still a lot of room forimprovement.
Kyle Hulehan (09:36):
So real quick, just to hone in on this real
quick, with these R& D credits,just to make this clear for our
listeners, with these credits,what would happen is, you know,
some people will get them.
So some industries might grow alot, But it's not that broad
base that you're going to get.
It's not going to be awidespread growth for all
industries.
It's just some people are goingto benefit.
Erica York (09:55):
Yeah, that's exactly right.
So for example, the highercorporate tax rate we project
would raise about a trilliondollars in revenue.
And the Harris campaign has saidthat these tax credits would
cost about 100 billion.
So a fraction of the higher taxrevenue on the corporate rate
Would go into these tax creditsand these tax credits wouldn't
(10:17):
be broadly available.
They would only be available forthis really specific qualifying
activity.
So you might be able toincentivize more of that
qualifying activity, but at thesame time, you're discouraging
activity everywhere else.
So that doesn't result in broadbased growth.
That actually results in lessgrowth overall, but within some
of these sub industries whereyou're doing billions of dollars
(10:39):
of subsidies, they may still beable to grow profitably.
Even in spite of the higher rateelsewhere.
Kyle Hulehan (10:46):
And so you just talked about the corporate
income tax rates.
We put out some analysis sayingthat, uh, her plan would hurt
workers wages and maybe the U Swouldn't be as competitive.
Could you just break that downfor us real quick?
I
Erica York (10:58):
portion of the corporate tax is borne by
workers.
And the way that happens is thatthe corporate tax reduces
investment.
And when investment goes down,workers are less productive.
They have less machinery andequipment to work with, um,
fewer factories, less technologyimprovement.
And so worker productivity fallsor isn't as high as it would be
(11:19):
otherwise.
And in the long run, what driveswage increases is productivity
increases.
So when you discourageproductivity, you discourage
wage growth.
And a ton of studies have beendone on this, finding different
range of estimates for how muchof the corporate burden is borne
by workers ranges from 25percent to 60 percent or 70%.
(11:41):
Um, in our modeling at taxfoundation, we use a 50, 50
split.
So right, right in the middle,half of the burden is.
Born by workers in the form oflower wages, half of the burden
is born by shareholders in theform of lower returns.
And of course, shareholdersthemselves aren't just the
wealthy.
Um, if you've got a pension or a401k, you're also invested in
(12:01):
the stock market.
So the corporate rate can affectyou that way.
we use some data from thealliance for competitive
taxation that took that range ofestimates for how much of the
share of the corporate burdenworkers bear.
bear and looking at what wouldhappen under 28 percent rate,
their analysis found thatworkers wages would be lower on
average by anywhere from 250 toabout 600 annually.
(12:26):
And that can vary by state thatcan vary by congressional
district.
Based upon, you know, differentfactors.
Um, so we, we took their dataand we put it to a map and you
can see that on our website.
Um, and we've got, we've got itin table form too.
So you can see what thatestimate looks like.
And what we find is that acrossAll of the states and all of the
districts, um, average wageswould be lower under a higher
(12:50):
corporate tax rate.
And that suggests another areafor Harris to go back to the
drawing board on and find a wayto raise revenue.
That doesn't fall so hard onworkers.
That doesn't reducecompetitiveness and reduce
investment because that's atrade off Probably not worth the
higher revenue.
There are much better ways toraise revenue that won't
(13:11):
directly lower worker wages inthis way.
Kyle Hulehan (13:13):
think I promised that we were going to be more
optimistic in this episode.
And so I'm going to say, we didprovide you plans of how this
could be better.
Some realistic ways of thingsthat they could do to make this
a little bit better, to improveplans and to help you guys, um,
we're going to, we're going tojump over to these questions,
but I couldn't help, but saythat it ended a little bleakly
still, even though I promisedoptimism, but we're going to
(13:36):
head over to some, to somelistener questions.
Um, so.
We have a question from Jason.
Do either candidates includedetails of how they will reduce
government spending?
If so, which can, whichcandidates tax proposals would
work best?
Erica York (13:53):
So the answer is no.
Um, partly because thecandidates probably would
increase spending.
So we know for sure that Harriswants to increase spending in
certain areas.
Um, she's calling it thisopportunity economy idea.
Ideas for education, forhealthcare, for housing, for,
um, childcare, where governmentspending would go up.
(14:15):
We don't have a precise.
Numbers on that.
Um, and you know, differentestimating groups in, in the
think tank space have tried toput a range out there.
Um, we've tried to put a rangeto this too, looking at what
proposals were included in thewhite house.
Budget this year.
and it really varies.
It varies from, you know, atrillion dollars to quite a bit
(14:38):
more than a trillion dollars inincreased spending.
Um, and what we've found is thatwith the tax increases that
Harris has proposed, those alonewould increase revenue by about
4 trillion over the 10 yearbudget window.
She uses up quite a bit of thatwith the tax credits that she
has proposed.
So.
(14:58):
You get to a trillion and a halfrevenue left over after that,
and that goes pretty quickly.
If you look at the education,the child care, the health care,
the housing initiatives, thosecould very quickly use up all of
that revenue and you'd be intodeficit increasing territory.
Now with, um, with Trump, wehaven't seen very many details
(15:18):
at all on the spending side.
Um, you know, there are these,these vague ideas to find
efficiencies to reduce waste,fraud, and abuse.
That's really a drop in thebucket of the federal budget.
Um, if you, if you want toreduce government spending, you
really have to talk about majorreforms.
Um, not just efficiencies hereand there.
(15:40):
Efficiencies are important, butthey don't balance the budget.
And when we look at the taxside, Trump is proposing way
more tax cuts than he isproposing offsets to that.
Even with the higher tariffs, wefind that just on the tax side
alone, the budget deficit couldincrease by close to 4 trillion
over 10 years, and we haven'tseen Anything close to 4
(16:05):
trillion in spending savingsoutlined by the Trump campaign.
So unfortunately, um, bothcandidates when it comes to
budget math are probably goingto increase the deficit Harris
by a little bit Trump bypotentially a lot.
Kyle Hulehan (16:17):
we'll go on to our next question.
And this is, uh, I believe it'sgoing to be pronounced just
stain.
Uh, Why are we even entertainingsome of these concepts that
Donald Trump is putting out ifhe has no intention of
implementing them once he getshis presidency?
Does anyone think he'slegitimately going to do these
ideas?
And so I pulled this one outbecause I believe this question
(16:39):
highlights a crucial issue,which is, can we separate?
Rhetoric and unrealisticcampaign promises from the
candidates actual plans and howcan we have confidence in their
proposals when they may not beoffering realistic solutions?
So Eric, I'm just going to letyou run with this.
Erica York (16:55):
Yeah.
I, I got a question similar tothis from a reporter a couple of
weeks ago, and it wasessentially along the lines of
like, Are we just in a policy bya soundbite season?
And I think the answer is yes,but just because, you know,
these are coming out assoundbites and comments here and
there, rather than a fullyfleshed out policy proposal,
(17:16):
doesn't mean that we should justshrug them off.
Um, if all we're getting issoundbites, that's what we're
getting.
That's what we have to go on,um, that lets us know the
direction that the candidateswant to go.
And so whether it's the ideathat like, Hey, I don't think
Trump is going to pursue thesetariffs.
I think that he keeps bringingtariffs up as the solution for
(17:39):
any question that's asked,whether it's about the budget,
whether it's about childcare,whether it's about, you know,
actual trade related questions,whether it's about manufacturing
in America, that the answer istariffs tells us he's probably
pretty serious about the idea oftariffs and we should take that.
Policy proposal.
Seriously.
We could also look at Trump'stime in office when he did
(18:02):
impose tariffs.
Um, any, any chance that hecould when, um, like a U.
S.
T.
R.
investigation had tariffs as apossible policy that he could
implement.
He chose to implement that.
So So I think it's very clearthat he's in favor of tariffs.
If we look at the tax ideas, um,you know, the, the idea of no
(18:22):
tax on tips got brought up thissummer.
Now there are five bills inCongress that propose different
ways of getting rid of taxes andtips.
So again, I think that's areally serious indication that,
Hey, lawmakers in Congress aregoing to run with these ideas
and if Trump is, you know,Reelected there, there's
possible, um, possible scenarioswhere legislation has already
(18:46):
been introduced and that getsworked into whatever type of tax
bill gets worked on next year.
Um, so just because the ideasseem unrealistic or unworkable,
I don't think that means that weget to write them off as.
They're not going to happen.
We don't have to take themseriously.
I think it's an idea or anindication that we need to take
them even more seriously.
(19:06):
Um, if, if these are the ideaswe're getting on tax policy,
that shows the direction thattax policy would likely go.
Kyle Hulehan (19:14):
And I think quite honestly that this goes for both
candidates when I say this isWe've been very clear is like,
we're not getting enoughdetails.
We're not getting enough, youknow, uh, plans from them to
really know what's going tohappen.
This doesn't even just apply toTrump is that we're not, we're
not getting realistic solutionsand realistic options from
either one of them.
And it's, it's just not enough.
And I think you've laid that outfor us so clearly today, Erica.
(19:37):
And I just want to thank you forbeing on the show.
Uh, this is really tremendousstuff.
I
Erica York (19:42):
Thanks.
Kyle Hulehan (19:43):
And that's been another episode of the deduction
before we sign off.
If you have any burningquestions, you can email us at
podcast at tax foundation.
org, or you can find us onTwitter at deduction pod.
Thank you for listening.
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