September 11, 2024 • 14 mins
While tax policy was almost nonexistent in the first debate between Vice President Kamala Harris and former President Donald Trump, this episode will explore each candidate’s latest proposals in greater depth. We’ll break down Kamala Harris's updated tax plan, highlighting her capital gains adjustments and new deductions for startups. We’ll also take a closer look at Trump’s plans for tax cuts and tariffs, discussing what they could mean for American families and businesses.
Erica York, Senior Economist and Research Director, joins Kyle Hulehan to discuss the debate. We’ll highlight the key issues likely to be discussed and consider the serious implications for national debt and economic growth.
Links:
https://taxfoundation.org/research/all/federal/donald-trump-tax-plan-2024/
https://taxfoundation.org/research/all/federal/kamala-harris-tax-plan-2024/
https://taxfoundation.org/research/federal-tax/2024-tax-plans/
Follow us!
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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 Holahan.
And today we are back withanother election episode with my
co host, Erica York, senioreconomist and research director
here at the tax foundation.
Erica, how are you doing today?
Erica York (00:15):
Hey Kyle, doing well.
Glad to be back for anotherepisode.
Kyle Hulehan (00:17):
All right, folks, let's just dive right in.
We know you're busy and hustlingand bustling.
So the goal with these episodesis to keep things going.
Quick and to the point.
Think of this is as theturbocharged guide to the big
issues in the election on taxes,and we're trying to get it all
in in about 10 minutes.
Everything you didn't know ontaxes for this election cycle.
So we're just going to kick itoff with the what's in the news
(00:39):
segment that we've had from lastweek.
Um, we'll chat about Trump's taxplan briefly.
And of course, we're going tohave some listener questions
like we mentioned last week.
But this is the what's in thenews segment.
So right now, uh, Kamala Harrisrecently announced some new
ideas for her tax plans.
Could you walk us through that,Erica?
Erica York (00:58):
Yeah.
So in the last week or so, whileHarris has, for the most part,
endorsed the policies inPresident Biden's proposed
presidential budget, she hasmentioned two ways that she
would revise that the first ispulling back on one of the tax
hikes that Biden proposed, andthat was Biden's proposal to
raise the top tax rate oncapital gains to be the same as
(01:20):
the ordinary income tax rate,which he proposes increasing to
39.
6%.
Harris has said instead of goingall the way up to 39.
6%, she would raise the rate to28%, where it sits today is at
20%.
She also supports the increasein the net investment income
tax, which is a tax that hitsinvestment income, like capital
(01:41):
gains raising that tax to reach5%.
So all in the top rate thatHarris is proposing on capital
gains would be a rate of 33%.
The other change that we heardHarris announced in the past
week or so is a new proposal toincrease a deduction that
startup firms used to deducttheir startup expenses.
(02:02):
think things like legal fees ormarket surveys that people pay
for before they actuallyactively engage in a business.
Right now, they can deduct about5, 000.
That's reduced dollar for dollaras those expenses exceed 5, 000.
And if they do exceed that, theyhave to deduct them over 15
(02:22):
years.
So starting spreading that outover time.
Harris's proposal would, um,increase that deduction to 50,
000.
So allowing more immediatededuction, um, to be taken up
front, which moves in the rightdirection.
My colleague Garrett Watson hasestimated that this would cost
somewhere in the ballpark of 20billion over 10 years though.
So this is a really small taxcut in the context of 4 to 5
(02:46):
trillion of tax hikes that areprimarily targeted at businesses
and high income individuals.
So while it's a good policy,it's relatively small in the
context of everything else thatHarris is considering.
Kyle Hulehan (02:57):
So we're going to move from, from some smaller
suggestions, some of the smallerinnovations that, uh, you know,
Harris has to, to the big plansthat Donald Trump has.
Uh, what are the main featuresof Donald Trump's tax plan that
we should know about?
Erica York (03:11):
Similar to what we said about Harris a couple weeks
ago, Trump doesn't have one youknow, campaign tax policy plan,
but he's got several differentideas that he has tossed out.
One of those is permanence forthe tax cuts and jobs act
provisions that are otherwiseexpiring after the end of 2025.
So that's tax cuts forindividuals.
(03:32):
for estates and for businesses.
There are some businessprovisions phasing out as well.
So Trump would make all of thatpermanent.
That's about 4 trillion of taxcuts.
He has also talked about furtherreductions to the corporate tax
rate.
It now sits at 21%.
He has talked about lowering itto 20 percent or to 15 percent
(03:53):
or in the last week, he talkedabout a 15 percent rate.
only for companies that producedomestically, which would
presumably exclude companiesthat successfully compete
overseas with foreign, um,companies.
A lot would still need to bedetermined with the design of
something like that.
He's also promised further taxcuts to specific groups of
(04:13):
people by exempting tips fromtaxes and by exempting social
security benefits from taxes.
We've also heard Senator J.
D.
Vance float in an interview,something that sounded like a
universal 5, 000 child taxcredit, but the campaign and
Trump himself have not saidanything further about that.
(04:34):
So I think that was more of likea one off policy idea rather
than something that the campaignis actually fully behind.
And then of course we have thetariffs.
Kyle Hulehan (04:43):
Yeah, so we've talked about tariffs a lot.
We know what's going on ontariffs.
We did a whole episode ontariffs.
And if you want to go check thatout, it is right there in our
feed.
You will see it right there justa few episodes back.
But let's let's chat about theTrump tariff initiatives.
What should we keep in mind withthat?
Erica York (04:58):
So Trump has proposed a 10 percent tax on all
imports and an additional 60percent tax on imports from
China.
He's also talked about takingthat 10 percent rate to 20
percent and potentially imposinga host of other tariffs on
various imports that we get fromdifferent countries.
Now, the way that he talks abouttariffs is makes it sound like
(05:18):
he would be imposing a tax onChina or a tax on the EU
requiring those governments topay money to the U.
S.
Treasury.
He also greatly overstates howmuch revenue could be raised by
tariffs.
At one point he floatedreplacing the entire individual
income tax with tariffs, whichis mathematically impossible.
(05:38):
He also talks about tariffs asif they would have no effects on
people or businesses in theUnited States.
And so I think it's good totake.
each of those in turn and figureout what really goes on when the
US imposes tariffs.
So tariffs will harm businessesand workers and consumers across
both countries or economiesinvolved.
(05:58):
And if we back up for a secondand think about why, that's
because when we trade with otherbusinesses and other countries,
that creates a net benefit forboth countries by specializing
Things that we have acomparative advantage in, we get
gains from trade.
If you put a tax on trade andreduce trade, you get a mirror
(06:19):
effect.
Instead of getting gains fromtrade, you lose those gains.
And so it creates a net cost forboth economies involved.
To clarify some of the pointsthat, that Trump usually
mentions about tariffs.
First, they are not a tax that'simposed on China or on the EU.
They are a tax on the person orthe firm importing the good into
(06:39):
the United States.
Of course, that's the legalincidence, the economic burden
of tariffs.
Could be shared by others in theeconomy.
So you could make a theoreticalcase that the foreign company
exporting goods to the UnitedStates could bear some of the
tariff burden if in light of thetariff and how that changes
supply and demand, they would beforced to lower their prices in
(06:59):
that way, they could bear someof the burden.
But if we look at the 2018, 2019tariffs that Trump imposed, we
don't find that effect at all.
Instead, we find that the fullburden of the tariff passed
through to U.
S.
import prices.
So it was the people and thefirms in the U.
S.
buying goods from foreignbusinesses who had to bear the
economic cost of the tariff.
(07:21):
Now, when Someone importinggoods in the U.
S.
Bears that cost of the tariff.
They, too, could shift theburden further again, depending
on factors like supply anddemand and how responsive people
are.
A business could pass some ofthat higher cost along to its
consumers.
So final retail consumers likeyou and I, when we go to the
store, would pay a higher priceor the business might have to
(07:43):
Oh, uh, so it, uh, um, lowersincome and reduces revenue.
eat that higher cost.
So it reduces their revenue andultimately affects their
workers.
And another way that consumerscan bear the burden of tariffs
is if they have to switch to ahigher price domestic
alternative.
So say in light of the tariffbeing applied to the good it's
no longer attractive to buy thatimported good.
but instead I switch tosomething that otherwise I
(08:03):
wouldn't have purchased, ormaybe I'm priced out of the
market entirely, those are alsoconsumer costs associated with
tariffs.
So, bottom line, tariffs are nota free lunch.
They are not a magic tool thatwe can use to make other
governments pay revenue to us.
They make us poorer and theymake us less productive.
And that inflicts pain upon ourtrading partners too.
(08:26):
I think the big risk to be awareof is that in his pursuit of
tariffs, Trump could offsetpotentially the entire benefit
of the tax cuts that he'soutlined.
Kyle Hulehan (08:36):
Yeah, unfortunately, the older and
older I get, the more I realizedthere is no magic tool.
There's a trade off toeverything.
there's pros and cons toeverything.
Nothing is quite perfect.
Perfect.
And I imagine some of the thingsyou just talked about as we kind
of switch gears here, uh, willbe mentioned in the upcoming
debate.
The debate is tomorrow.
We're recording the day beforethis.
(08:56):
So what do you think or what doyou expect that will come up in
the topics and discussionsduring the debate?
Erica York (09:01):
So maybe I'm in a cynical mood today, but I expect
we'll hear a lot of things abouttax and tariff policy that
aren't true.
I'm sure we'll hear that the2017 tax cuts were only tax cuts
for the wealthy.
That's not true.
The 2017 tax law cut income taxrates.
across the income spectrum,we've found that if that entire
(09:22):
law is allowed to expire, 62percent of taxpayers would see
their taxes go up.
So it affects a broad swath ofAmerican taxpayers.
I also expect we'll hear Trumptalk about China paying tariffs.
The one truth we might hear isthat Harris is rightfully points
out the economic effects ofTrump's proposed tariffs and
calling them a tax on U.
(09:43):
S.
Consumers, a tax increase onmiddle class households.
So there might be a bit of truthbringing out through the debate
if that gets brought up.
But big picture, I don't thinkeither candidate is going to
seriously outline how they'regoing to deal with the real
trade offs of tax policy withdebt and deficits, with the need
to incentivize investment in theUnited States, incentivize
(10:05):
saving, incentivize growth.
I'm sure we'll hear more of thesame platitudes that don't add
up to fiscally responsible orpro growth tax plans.
Kyle Hulehan (10:14):
Yeah, I think once again, we're going to be left
wanting a little bit more fromour candidates, um, to switch
over now.
We're going to get to yourquestions.
The questions that you guyssubmitted to us and we're going
to have the expert here, Erica,answer these.
You don't want me answeringthese.
Um, so the first question isfrom Quinton.
Candidates for years have saidthey want to fix the national
(10:34):
debt.
Our debt crisis is gettingworse, yet I've never seen it
make a difference in my dailylife.
Is it time to stop having thedebt be a part of our political
debates?
What do you think of this?
Erica York (10:44):
I think it's actually time for the debt to
become more a focus in ourpolitical debates and for
policymakers to make good on thebig talking points that they
offer.
Now, the reason I think that isbecause both major trust funds,
the trust fund for SocialSecurity and for Medicare, are
facing insolvency within recentyears.
roughly a decade.
(11:05):
When that happens, if Congressdoes nothing else, then benefits
will automatically be cutbecause the trust funds just
won't have the money there tokeep paying the promised
benefits.
Now, for years, we've heardpoliticians talk about this, but
unfortunately, Congress has onlyallowed the fiscal situation to
deteriorate even further.
If we keep up on the track thatwe're on right now, Federal debt
(11:26):
will rise above our nation's alltime high and all time high that
was set in the aftermath ofWorld War II by 2027.
Interest on the debt now alreadyexceeds our defense spending
this year.
So I think we're at a pointwhere lawmakers need to match
their talk with action.
That involves some really toughtrade offs and some discussions
(11:47):
about how do we reform spendingprograms?
How do we reform the tax code?
And at some point, The fiscalsituation will be a forcing
mechanism requiring action onthat.
The longer we wait, the worsethat adjustment will be, so
sooner rather than later isbetter, but I think it still
needs to be part of the nationalconversation.
Kyle Hulehan (12:07):
And our final question here comes from Joyce.
Me and my husband are teachers.
Do we really need to care aboutthe fight over capital gains,
whatever the heck those taxesare?
Erica York (12:17):
So raising the rate on long term capital gains and
on dividends, that tax increasewould only directly apply to
people who have more than 1million in income.
So I understand thinking that itdoesn't matter because it
doesn't directly affect what I'mgoing to fill out on my form
1040, but I think the Biggerpicture conversation about how
(12:38):
do we raise revenue and whatincentives do we want to create
within our tax system isabsolutely something that we
should all have a conversationabout.
Of course, all taxes that we canimpose involve trade offs.
They all create A negativeeffect on the economy, but in
particular taxes on investmentand taxes on saving exacerbate a
(12:59):
bias that we already have intoday's tax code that places a
higher burden on income that isput away to save to invest to
consume later than on incomethat is consumed right away.
And when we have a tax systemthat's biased against saving and
investment, that means Americanincomes are lower than they
otherwise would be.
would be because we don't haveenough domestic saving to
(13:22):
fulfill all of the investmentopportunities that exist in the
American economy.
More returns to thoseinvestments flow to foreigners.
And as we increase the tax rateson saving and on investment,
that becomes more true.
And so all that to say, I think.
It does matter because it doesaffect the incentives that
determine the level ofinvestment and the level of
(13:44):
saving in the U.
S.
economy, and that affects all ofus, even if it doesn't change
one of the lines on our Form1040.
Kyle Hulehan (13:49):
Erica, thank you for being on the show today.
Erica York (13:52):
Thanks, Cal.
Kyle Hulehan (13:52):
Before we sign off, I just want to let you
know, if you have any burningquestions on taxes and the
election, as we discuss all ofthis in the coming weeks, you
can find us at deduction pod onTwitter, and you can send us
questions there, or you canemail us your questions at
podcast at tax foundation.
org.
Thank you for listening.
Hello and welcome to the deduction, a tax
foundation podcast.
I'm your host, Kyle Holahan.
And today we are back withanother election episode with my
co host, Erica York, senioreconomist and research director
here at the tax foundation.
Erica, how are you doing today?
Erica York (00:15):
Hey Kyle, doing well.
Glad to be back for anotherepisode.
Kyle Hulehan (00:17):
All right, folks, let's just dive right in.
We know you're busy and hustlingand bustling.
So the goal with these episodesis to keep things going.
Quick and to the point.
Think of this is as theturbocharged guide to the big
issues in the election on taxes,and we're trying to get it all
in in about 10 minutes.
Everything you didn't know ontaxes for this election cycle.
So we're just going to kick itoff with the what's in the news
(00:39):
segment that we've had from lastweek.
Um, we'll chat about Trump's taxplan briefly.
And of course, we're going tohave some listener questions
like we mentioned last week.
But this is the what's in thenews segment.
So right now, uh, Kamala Harrisrecently announced some new
ideas for her tax plans.
Could you walk us through that,Erica?
Erica York (00:58):
Yeah.
So in the last week or so, whileHarris has, for the most part,
endorsed the policies inPresident Biden's proposed
presidential budget, she hasmentioned two ways that she
would revise that the first ispulling back on one of the tax
hikes that Biden proposed, andthat was Biden's proposal to
raise the top tax rate oncapital gains to be the same as
(01:20):
the ordinary income tax rate,which he proposes increasing to
39.
6%.
Harris has said instead of goingall the way up to 39.
6%, she would raise the rate to28%, where it sits today is at
20%.
She also supports the increasein the net investment income
tax, which is a tax that hitsinvestment income, like capital
(01:41):
gains raising that tax to reach5%.
So all in the top rate thatHarris is proposing on capital
gains would be a rate of 33%.
The other change that we heardHarris announced in the past
week or so is a new proposal toincrease a deduction that
startup firms used to deducttheir startup expenses.
(02:02):
think things like legal fees ormarket surveys that people pay
for before they actuallyactively engage in a business.
Right now, they can deduct about5, 000.
That's reduced dollar for dollaras those expenses exceed 5, 000.
And if they do exceed that, theyhave to deduct them over 15
(02:22):
years.
So starting spreading that outover time.
Harris's proposal would, um,increase that deduction to 50,
000.
So allowing more immediatededuction, um, to be taken up
front, which moves in the rightdirection.
My colleague Garrett Watson hasestimated that this would cost
somewhere in the ballpark of 20billion over 10 years though.
So this is a really small taxcut in the context of 4 to 5
(02:46):
trillion of tax hikes that areprimarily targeted at businesses
and high income individuals.
So while it's a good policy,it's relatively small in the
context of everything else thatHarris is considering.
Kyle Hulehan (02:57):
So we're going to move from, from some smaller
suggestions, some of the smallerinnovations that, uh, you know,
Harris has to, to the big plansthat Donald Trump has.
Uh, what are the main featuresof Donald Trump's tax plan that
we should know about?
Erica York (03:11):
Similar to what we said about Harris a couple weeks
ago, Trump doesn't have one youknow, campaign tax policy plan,
but he's got several differentideas that he has tossed out.
One of those is permanence forthe tax cuts and jobs act
provisions that are otherwiseexpiring after the end of 2025.
So that's tax cuts forindividuals.
(03:32):
for estates and for businesses.
There are some businessprovisions phasing out as well.
So Trump would make all of thatpermanent.
That's about 4 trillion of taxcuts.
He has also talked about furtherreductions to the corporate tax
rate.
It now sits at 21%.
He has talked about lowering itto 20 percent or to 15 percent
(03:53):
or in the last week, he talkedabout a 15 percent rate.
only for companies that producedomestically, which would
presumably exclude companiesthat successfully compete
overseas with foreign, um,companies.
A lot would still need to bedetermined with the design of
something like that.
He's also promised further taxcuts to specific groups of
(04:13):
people by exempting tips fromtaxes and by exempting social
security benefits from taxes.
We've also heard Senator J.
D.
Vance float in an interview,something that sounded like a
universal 5, 000 child taxcredit, but the campaign and
Trump himself have not saidanything further about that.
(04:34):
So I think that was more of likea one off policy idea rather
than something that the campaignis actually fully behind.
And then of course we have thetariffs.
Kyle Hulehan (04:43):
Yeah, so we've talked about tariffs a lot.
We know what's going on ontariffs.
We did a whole episode ontariffs.
And if you want to go check thatout, it is right there in our
feed.
You will see it right there justa few episodes back.
But let's let's chat about theTrump tariff initiatives.
What should we keep in mind withthat?
Erica York (04:58):
So Trump has proposed a 10 percent tax on all
imports and an additional 60percent tax on imports from
China.
He's also talked about takingthat 10 percent rate to 20
percent and potentially imposinga host of other tariffs on
various imports that we get fromdifferent countries.
Now, the way that he talks abouttariffs is makes it sound like
(05:18):
he would be imposing a tax onChina or a tax on the EU
requiring those governments topay money to the U.
S.
Treasury.
He also greatly overstates howmuch revenue could be raised by
tariffs.
At one point he floatedreplacing the entire individual
income tax with tariffs, whichis mathematically impossible.
(05:38):
He also talks about tariffs asif they would have no effects on
people or businesses in theUnited States.
And so I think it's good totake.
each of those in turn and figureout what really goes on when the
US imposes tariffs.
So tariffs will harm businessesand workers and consumers across
both countries or economiesinvolved.
(05:58):
And if we back up for a secondand think about why, that's
because when we trade with otherbusinesses and other countries,
that creates a net benefit forboth countries by specializing
Things that we have acomparative advantage in, we get
gains from trade.
If you put a tax on trade andreduce trade, you get a mirror
(06:19):
effect.
Instead of getting gains fromtrade, you lose those gains.
And so it creates a net cost forboth economies involved.
To clarify some of the pointsthat, that Trump usually
mentions about tariffs.
First, they are not a tax that'simposed on China or on the EU.
They are a tax on the person orthe firm importing the good into
(06:39):
the United States.
Of course, that's the legalincidence, the economic burden
of tariffs.
Could be shared by others in theeconomy.
So you could make a theoreticalcase that the foreign company
exporting goods to the UnitedStates could bear some of the
tariff burden if in light of thetariff and how that changes
supply and demand, they would beforced to lower their prices in
(06:59):
that way, they could bear someof the burden.
But if we look at the 2018, 2019tariffs that Trump imposed, we
don't find that effect at all.
Instead, we find that the fullburden of the tariff passed
through to U.
S.
import prices.
So it was the people and thefirms in the U.
S.
buying goods from foreignbusinesses who had to bear the
economic cost of the tariff.
(07:21):
Now, when Someone importinggoods in the U.
S.
Bears that cost of the tariff.
They, too, could shift theburden further again, depending
on factors like supply anddemand and how responsive people
are.
A business could pass some ofthat higher cost along to its
consumers.
So final retail consumers likeyou and I, when we go to the
store, would pay a higher priceor the business might have to
(07:43):
Oh, uh, so it, uh, um, lowersincome and reduces revenue.
eat that higher cost.
So it reduces their revenue andultimately affects their
workers.
And another way that consumerscan bear the burden of tariffs
is if they have to switch to ahigher price domestic
alternative.
So say in light of the tariffbeing applied to the good it's
no longer attractive to buy thatimported good.
but instead I switch tosomething that otherwise I
(08:03):
wouldn't have purchased, ormaybe I'm priced out of the
market entirely, those are alsoconsumer costs associated with
tariffs.
So, bottom line, tariffs are nota free lunch.
They are not a magic tool thatwe can use to make other
governments pay revenue to us.
They make us poorer and theymake us less productive.
And that inflicts pain upon ourtrading partners too.
(08:26):
I think the big risk to be awareof is that in his pursuit of
tariffs, Trump could offsetpotentially the entire benefit
of the tax cuts that he'soutlined.
Kyle Hulehan (08:36):
Yeah, unfortunately, the older and
older I get, the more I realizedthere is no magic tool.
There's a trade off toeverything.
there's pros and cons toeverything.
Nothing is quite perfect.
Perfect.
And I imagine some of the thingsyou just talked about as we kind
of switch gears here, uh, willbe mentioned in the upcoming
debate.
The debate is tomorrow.
We're recording the day beforethis.
(08:56):
So what do you think or what doyou expect that will come up in
the topics and discussionsduring the debate?
Erica York (09:01):
So maybe I'm in a cynical mood today, but I expect
we'll hear a lot of things abouttax and tariff policy that
aren't true.
I'm sure we'll hear that the2017 tax cuts were only tax cuts
for the wealthy.
That's not true.
The 2017 tax law cut income taxrates.
across the income spectrum,we've found that if that entire
(09:22):
law is allowed to expire, 62percent of taxpayers would see
their taxes go up.
So it affects a broad swath ofAmerican taxpayers.
I also expect we'll hear Trumptalk about China paying tariffs.
The one truth we might hear isthat Harris is rightfully points
out the economic effects ofTrump's proposed tariffs and
calling them a tax on U.
(09:43):
S.
Consumers, a tax increase onmiddle class households.
So there might be a bit of truthbringing out through the debate
if that gets brought up.
But big picture, I don't thinkeither candidate is going to
seriously outline how they'regoing to deal with the real
trade offs of tax policy withdebt and deficits, with the need
to incentivize investment in theUnited States, incentivize
(10:05):
saving, incentivize growth.
I'm sure we'll hear more of thesame platitudes that don't add
up to fiscally responsible orpro growth tax plans.
Kyle Hulehan (10:14):
Yeah, I think once again, we're going to be left
wanting a little bit more fromour candidates, um, to switch
over now.
We're going to get to yourquestions.
The questions that you guyssubmitted to us and we're going
to have the expert here, Erica,answer these.
You don't want me answeringthese.
Um, so the first question isfrom Quinton.
Candidates for years have saidthey want to fix the national
(10:34):
debt.
Our debt crisis is gettingworse, yet I've never seen it
make a difference in my dailylife.
Is it time to stop having thedebt be a part of our political
debates?
What do you think of this?
Erica York (10:44):
I think it's actually time for the debt to
become more a focus in ourpolitical debates and for
policymakers to make good on thebig talking points that they
offer.
Now, the reason I think that isbecause both major trust funds,
the trust fund for SocialSecurity and for Medicare, are
facing insolvency within recentyears.
roughly a decade.
(11:05):
When that happens, if Congressdoes nothing else, then benefits
will automatically be cutbecause the trust funds just
won't have the money there tokeep paying the promised
benefits.
Now, for years, we've heardpoliticians talk about this, but
unfortunately, Congress has onlyallowed the fiscal situation to
deteriorate even further.
If we keep up on the track thatwe're on right now, Federal debt
(11:26):
will rise above our nation's alltime high and all time high that
was set in the aftermath ofWorld War II by 2027.
Interest on the debt now alreadyexceeds our defense spending
this year.
So I think we're at a pointwhere lawmakers need to match
their talk with action.
That involves some really toughtrade offs and some discussions
(11:47):
about how do we reform spendingprograms?
How do we reform the tax code?
And at some point, The fiscalsituation will be a forcing
mechanism requiring action onthat.
The longer we wait, the worsethat adjustment will be, so
sooner rather than later isbetter, but I think it still
needs to be part of the nationalconversation.
Kyle Hulehan (12:07):
And our final question here comes from Joyce.
Me and my husband are teachers.
Do we really need to care aboutthe fight over capital gains,
whatever the heck those taxesare?
Erica York (12:17):
So raising the rate on long term capital gains and
on dividends, that tax increasewould only directly apply to
people who have more than 1million in income.
So I understand thinking that itdoesn't matter because it
doesn't directly affect what I'mgoing to fill out on my form
1040, but I think the Biggerpicture conversation about how
(12:38):
do we raise revenue and whatincentives do we want to create
within our tax system isabsolutely something that we
should all have a conversationabout.
Of course, all taxes that we canimpose involve trade offs.
They all create A negativeeffect on the economy, but in
particular taxes on investmentand taxes on saving exacerbate a
(12:59):
bias that we already have intoday's tax code that places a
higher burden on income that isput away to save to invest to
consume later than on incomethat is consumed right away.
And when we have a tax systemthat's biased against saving and
investment, that means Americanincomes are lower than they
otherwise would be.
would be because we don't haveenough domestic saving to
(13:22):
fulfill all of the investmentopportunities that exist in the
American economy.
More returns to thoseinvestments flow to foreigners.
And as we increase the tax rateson saving and on investment,
that becomes more true.
And so all that to say, I think.
It does matter because it doesaffect the incentives that
determine the level ofinvestment and the level of
(13:44):
saving in the U.
S.
economy, and that affects all ofus, even if it doesn't change
one of the lines on our Form1040.
Kyle Hulehan (13:49):
Erica, thank you for being on the show today.
Erica York (13:52):
Thanks, Cal.
Kyle Hulehan (13:52):
Before we sign off, I just want to let you
know, if you have any burningquestions on taxes and the
election, as we discuss all ofthis in the coming weeks, you
can find us at deduction pod onTwitter, and you can send us
questions there, or you canemail us your questions at
podcast at tax foundation.
org.
Thank you for listening.
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