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October 23, 2024 13 mins

Are tax increases on the horizon in 2025, no matter who takes office? In this episode, we explore why changes to the tax code could hit your wallet, regardless of which party comes out on top.

Joining Kyle Hulehan is Erica York, Senior Economist and Research Director. They break down the expiration of the Tax Cuts and Jobs Act, Trump’s plans for the tax code, and Harris’s proposals to raise taxes.

Links

  • Expiring TCJA Tax Provisions in 2026 Would Produce Substantial Tax Hike across the US See more
  • Tax Calculator: How the TCJA’s Expiration Will Affect You See more
  • Why Are the Individual Tax Cuts Expiring? See more
  • Tracking 2024 Presidential Tax Plans See more
  • Harris Tax Plan Ideas: Details and Analysis See more
  • Trump Tax Plan Ideas: Details and Analysis See more
  • Options for Navigating the 2025 Tax Cuts and Jobs Act Expirations See more

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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

(00:02):
foundation podcast.
I'm your host, Kyle Houlihan,and today we are back with
another election episode with mycohost, Erica York, senior
economist and research directorhere at the tax foundation,
Erica.
How are you doing today?

Erica York (00:16):
Doing all right.
Thanks, Cal.

Kyle Hulehan (00:17):
You know, we're all, you know, battling these
seasonal allergies.
We've got some sniffles going onand it's, it's not just those of
us who you can see on camera,even our producer Dan.
So we're a little bit deepervoiced today.
Um, so if you could just bearwith us through that, I think
we're, you know, I wouldn't callit our Jordan flu game or
anything, but if you want to,you can.
Um, so we're, we're, we'rebattling out here for you guys.

(00:39):
Um, So anyway, let me just runthrough what we're going to do
real quick for the episodetoday.
You know, we're heading intothat final stretch of election
season.
So today we're tacklingsomething that's going to impact
all of you, no matter who wins.
Here's the deal.
Whether you're rooting for oneside or another, there's a
chance your taxes are going toincrease.
In this episode, we're going todive into why that is.

(01:01):
So let's just jump right in totoday's what's in the news
segment.
So Erica.
Take care.
Could you explain to us, youknow, why would tax cuts be
expiring?
You know, there's the tax cutsand job, job tax, which is set
to expire in 2025, you know,what does that mean for us
regular folks?
And you know, how big of a, of atax cut are we going to lose?

(01:21):
You know, how big of a hit arewe going to take?

Erica York (01:23):
Yeah, so in 2017, Congress enacted a very large
tax cut that cut taxes forindividuals, lowered rates,
increased the standarddeduction, boosted the child tax
credit, but it did thattemporarily.
And they put a sunset on that.
So after 2025, All of thoseprovisions are scheduled to go
away.
We've estimated that 62 percentof tax filers would see their

(01:46):
taxes go up.
Um, along with those individualexpirations, there's some
business tax provisions phasingout.
Um, all together, we'veestimated that in a situation
where those tax cuts are gone.
Um, people on average, taxpayerson average would see tax
increases somewhere around 2,800 on average.

(02:08):
Now, you know, individualtaxpayer situations will vary.
We've got a tax calculator atour website where you can plug
in your own information or seesample tax filers and see how
that tax change that's scheduledto happen will affect you.
would impact your situation.
Um, but ultimately what thatmeans is that Congress is going
to have to do a tax bill in thenext year or two, um, to avert

(02:31):
that automatic tax hike.
Um, so it doesn't matter who'spresident, um, that's an issue
that they will have to deal withbecause those tax cuts are just
on a glide path to expire nomatter what, unless Congress
enacts something to change it.

Kyle Hulehan (02:48):
Yeah, and I think we forget that a little too
easily that, you know, we'vebeen talking about the election
and the president and howimportant that is, but you need
Congress at the end of the dayto do something to make a lot of
this happen.
And right now, Congress hasn'tdone a lot but shifting gears
here, we'll move over to Trump.
You know, Trump's still talkingabout exempting various things
from the tax code.
Uh, you know, he likes to throwsome stuff out there.

(03:11):
And the tariff conversation, youknow, it just never really seems
to end.
Could you maybe give us anupdate on, on some of those
things and maybe where, uh,Donald Trump stands on the TCGA
expirations

Erica York (03:22):
Yeah.
So on TCGA, Trump has talkedabout extending all of it.
And then on the campaign trail,he's identified lots more tax
cuts he would like to add on topof that.
Um, we've talked aboutexemptions for tips, exemptions
for overtime, exemptions forsocial security benefits.
He's kind of been brainstormingsome other exemptions, but I
wouldn't yet call them concrete.

(03:44):
Proposals, he said he wouldconsider exempting certain types
of workers from tax, likefirefighters, police officers,
um, active duty, militaryveterans.
But I wouldn't say that, like,he's actually promised that that
is going to be something hewould pursue.
And then, um.
Of course, on the tariff side,we know he's proposed these
universal tariffs on all importsof either 10 percent or 20%.

(04:07):
He's talked about significantlyhigher tariffs on Chinese
imports.
And then in the last couple ofweeks, he's tossed out what
sounds like, you know, somehyperbolic numbers, um,
considering tariffs of howeverhigh it takes.
Um, there's a question of, well,I I mean, it takes to do what?
We don't exactly know what thegoal is, but he's thrown out 200

(04:27):
percent tariffs, 1000 percenttariffs.
Again, I don't see these as likeconcrete proposals.
I just see them as indicative ofthe seriousness with which he
wants to pursue more tariffs ifhe's reelected.

Kyle Hulehan (04:41):
and, you know, I'll, I'll follow up with this.
Cause this has been in the newsrecently.
Um, which is that he has, um,you know, recently, again,
started talking about maybeReplacing individual, uh, income
taxes with tariffs.
Why is that such a bad idea?

Erica York (04:56):
Well, when it's just not possible, we import about 3
trillion worth of goods on ayearly basis.
Um, And we, raised trillions ofdollars of individual income tax
revenue.
So about the size of that taxbase.
Um, so if you put a really highpercentage tax on imports, you

(05:16):
would discourage imports, whichmeans you would actually raise
less revenue.
So it's just mathematicallyimpossible to make up all of our
tax collections with tariffs.
Um, it's also misguided becausetariffs invite foreign
retaliation and they increasethe Tensions, um, with, with our
trading partners, most of whatwe import comes from friends and

(05:37):
allies.
And so it would be prettymisguided to slap huge taxes on
imports that we're buying fromour allies.
And then the other issue isdistributional.
Um, if you look at theindividual income tax code, it's
highly progressive.
Lower income and middle incometaxpayers pay a smaller burden

(05:57):
than higher income taxpayers.
Tariffs would reverse that.
They create a larger burden onlower and middle income
households.
And so it would be a hefty taxhike on low and middle income
households and a massive tax cuton high income households if we
were to switch to tariffsinstead of income taxes.

Kyle Hulehan (06:16):
And that in general is kind of like the
opposite of how our system isset up, which is it's intended
to be more progressive.
So that's not ideal in thatsense.
Um, but switching gears here,we're going to move over to,
what Kamala Harris thinks of theTCGA expirations.
And, and maybe, you know, she'stalked about, Raising taxes on
the wealthy, you know, andcorporations, does she address,

(06:37):
the coming expirations in hertax policies?

Erica York (06:40):
She doesn't have any specifics.
Um, the white house budget thisyear had like three bullet
points on the loomingexpirations to outlining their
big picture goals.
Those goals are continue the taxcuts for people making under
400, 000, let them expire Forpeople making over 400, 000 and

(07:02):
then pay for that partialextension with even more tax
increases on businesses and highnet wealth or high income
people, but that doesn't reallygive us anything to go on.
Um, we don't know, like, is itjust a hard cut off?
Is there a phase out for some ofthese provisions?
Do they all get continued or isit just some of them?

(07:22):
Um, so there are more questionsthan there are answers, but the
general idea is.
Some type of continuation of thetax cuts for the vast majority
of taxpayers paid for by evenhigher taxes that haven't been
specified.

Kyle Hulehan (07:37):
All right.
So.
What should we expect in thefuture with these expressions
coming in 2025?
Congress hasn't done anythingabout it yet.
You know, we don't know what'sgoing to happen in the election
yet.
So, so how do you see thisplaying out?

Erica York (07:49):
I see it as like a big tax showdown.
Of course, how, how it getsdebated in Congress and dealt
with.
With Congress, working with theWhite House will ultimately
depend on the outcome of theelections, who takes the house,
who takes the Senate, who takesthe White House.
We could have a divided controlsituation where parties have to

(08:10):
deal with each other and say,all right, we'll compromise on
this so that we can get this.
You could have a unifiedcontrol, um, where More
agreement amongst, um,politicians on what to do.
But either way, it's going to bereally tough, particularly
because of our fiscal situation.
If you just continued everythingthat's expiring, that would be a

(08:32):
tax cut of more than 4 trillionover the decade.
When we're already runningdeficits that will exceed 20
trillion over the decade.
So there's going to be a lot ofpressure to reduce the cost, to
find ways to offset the cost ofproviding tax cuts.
And that of course, just furthercomplicates the political
situation.
So lots of deal making, um, lotsof pressure and lots of

(08:57):
uncertainty for taxpayers asthey wait to see what Congress
and the next president willultimately do.

Kyle Hulehan (09:02):
Well, hopefully sooner rather than later, we can
get some sort of plan in place,maybe reduce some spending,
maybe have some options thatcould actually help people so we
could continue tax cuts.
Uh, because I personally don'twant to be paying 2, 800 more
myself.
So let's move on real quick tolistener questions.
We've got a great question from,uh, Andres.

(09:22):
so let me read that for youhere.
In a recent episode, both taxplans that are currently being
presented by the candidates weredubbed.
Bad.
What criteria do you thinkCongress should consider when
developing tax legislation inorder for it to be deemed a good
tax plan?
AKA, what's your criteria fordetermining whether a tax plan
is ultimately great versus not?

Erica York (09:42):
I love this question.
Um, so at tax foundation, webelieve in 4 principles of sound
tax policy.
We think taxes should be simple,neutral, transparent and stable.
And so those are 4 criteria thatwe use to evaluate a tax plan.
For instance, if you look atwhat we wrote about the
proposals to exempt tips fromincome tax, which Trump first

(10:04):
proposed, and then Harris alsoadopted, that sounds simple at
first, but I'm going to go towhether it's neutral or not, it
violates that principle ofneutrality because depending on
how someone Um, Receives theircompensation, they would be
taxed differently.
And so it creates a really bigincentive for people to
recognize as much of theirincome as possible and tips,
which wouldn't be taxed ratherthan wages or salaries that do

(10:27):
face the tax.
And then if we look at thesimplicity side of it, simple
means.
it should be simple for thetaxpayer as well as for the
government to enforce.
if the IRS has to come up withrules to avoid abuse of that,
that becomes really difficult toenforce.
So that's one way that weevaluate tax policy, just a
qualitative assessment ofwhether it meets Those

(10:48):
principles.
We also have a model, a taxfoundation where we can estimate
the impact that a given taxpolicy change will have on the
economy will have on incomes,jobs, wages.
And so that also gives you anidea whether a tax policy is pro
growth or not.
And even if it's pro growth, itmay not be really efficient at
boosting growth.

(11:08):
Um, you know, a different typeof tax can have a different
effect on the economy, and youmight have one tax change that,
for the revenue that is lost, ithas a really powerful effect in
boosting the economy.
You might have another taxchange that, even though it
boosts the economy, it costs theIt costs a lot of revenue to do
it, so it's not really efficientat, you know, driving new

(11:28):
investment or driving, um, morelabor force participation.
So that's another indicator thatwe can use to say, well, is this
pro growth?
Is it really powerful progrowth?
Um, is it going to shrink theeconomy?
And so that combination of doesit meet these principles?
What does it do to the economy?
Lets us see whether it generallymoves the tax code in a good

(11:50):
direction or a bad direction.

Kyle Hulehan (11:52):
And in general, if people are curious to know more
about the model, is there, isthere a place on the website
they can go for that?

Erica York (11:57):
Yeah, we have a really long methodology paper
that like goes into all of theequations that are in the model
that's available on our website.
We also have a like higher leveloverview that just gives you a
big picture idea of the movingpieces like the tax calculator
that we use.
And other assumptions that wehave in the model to estimate
how, you know, people changetheir labor force decisions in

(12:20):
response to a tax change orbusinesses change their
investment decisions in responseto a tax change.
That's all on our website.

Kyle Hulehan (12:26):
Awesome.
Well, if you guys want to divefurther into that, you can check
that out on our website.
Erica, thank you for being onthe show today.

Erica York (12:32):
For sure.
Thanks, Kyle.

Kyle Hulehan (12:34):
All right.
And so before we sign off, youknow, if you've got any of those
burning questions on taxes inthe election, send them our way.
I know that we're in thehomestretch.
We really only have like, Onemore episode before the
election, or maybe that'll beafter the election.
But, uh, you can find us atpodcast at tax foundation.
org.
If you want to email us, or ifyou want to, you know, slide
into the DMS on Twitter, uh, atdeduction pod.

(12:55):
Thank you for listening.
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