November 15, 2024 • 59 mins
Join us on November 15th at 12:00 pm EST for our upcoming webinar as our experts seek to answer this question and provide insight on many more.
Our experts will recap the election and provide insights on what to expect in 2025. We will also take some time to explore what US tax and trade policy shifts could mean for other countries, particularly in Europe.
Tax Foundation’s President & CEO Daniel Bunn will lead a discussion with Tax Foundation’s own Will McBride and Erica York, who will focus on what the election means for US federal tax policy, and Sean Bray, who will link US tax developments to the European policy landscape.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Daniel Bunn (00:00):
Hello, everyone.
Welcome to Tax Foundation'swebinar focused on the future of
U.
S.
tax policy in 2025.
My name is Daniel Bunn.
I'm president and CEO of TaxFoundation.
And I'm joined by some of mycolleagues today who have been
focused very much on how Theelection has gone over the
(00:20):
course of the last severalmonths with the wrapping up of
the campaign, the actualelection, and also paying
attention to what policypriorities we are seeing from
Capitol Hill.
Tax Foundation has been payingattention to U.
S.
federal tax policy since 1937and here where we are in 2024
and what we're looking at in2025.
Our position is going to beconsistent where we are going to
(00:43):
be analyzing the economics oftax policy, using our
macroeconomic model, looking atthe different alternatives in
the debate, trying to see wherethe revenue and the proposals
add up or not, uh, and wheretheir impacts are on growth.
Uh, and opportunity in theUnited States.
We're also going to be taking alittle time today to talk about
(01:04):
some transatlantic perspectiveson the U.
S.
Tax reform and other policies inthe debate right now, because
the U.
S.
is not alone in the world.
And there are a lot of things inthe policy debate that will
impact not only the U.
S.
economy, but economies globally.
around the world.
I think it'll be great to hearfrom my colleagues today.
(01:25):
We have Dr Will McBride, we haveErica York, and we have Sean
Bray, who are all very focusedon looking at the different
alternatives that are live inthe debate and prepping for what
will, in, It's going to be aninteresting debate in Congress
early next year.
And of course, we're not surewhere things will land.
(01:45):
But we do know at this pointthat the Republicans have
control of the White House, theHouse and the Senate.
There are different factions atplay with different policy
priorities.
And our goal is to pay attentionas much as possible to the
different proposals as they comeforward.
Um, and to be able to helplawmakers make decisions in line
(02:06):
with the evidence.
Um, as we get into the sessiontoday, I think it'll be, uh,
really important to, uh, setsome context for where we are
here in the fall of 2024 lookingahead.
Um, but some of that context isderived from what we've seen
over the last several years.
I'm going to turn things over tomy colleague, Erica York, to
(02:26):
give us a reason why we shouldbe thinking about tax reform and
why tax reform.
It's a huge part of the debategoing into 2025.
Erica, give us a little bit ofthe history of the tax cuts and
jobs act, what we're looking aton the expirations landscape and
curious about where things standwith what we call extenders in
the tax policy debate
Erica York (02:47):
Yeah, thanks, Daniel.
So the 2017 Tax Cuts and JobsAct made several substantial
changes to U.
S.
tax policy on the individualside, for estate taxes, for
international taxes, and forcorporate taxes.
A lot of those changes were madetemporarily, and so that's what
we're talking about.
What the big forcing mechanismis going to be for Congress next
year and doing tax policy, andthat's that the vast majority of
(03:11):
the individual tax cuts arescheduled to sunset after 2025.
So that means individualprovisions like the rates in
brackets.
The standard deduction, thechild tax credit, limitations on
itemized deductions like thehome mortgage interest deduction
and the state and local taxdeduction or SALT, um, the
changes to the AMT, to theestate tax exemption.
(03:31):
We've got a timeline here thatshows all of the moving pieces.
Thank you.
those sunset.
So that means in 2026, ifCongress were to do nothing on
tax policy, Americans would wakeup to tax hikes.
Um, we've estimated about 62percent of taxpayers would see
their taxes go up in 2026.
If the individual provisionsalone are allowed to expire.
(03:54):
So these are big changes thataffect.
Most taxpayers.
They also affect businesses.
Um, and that is why Congresswill have to do something
because otherwise everyone willwill see a tax increase.
Now there's a lot of uncertaintyabout how they'll handle those
provisions, and I think we'llget into that later.
(04:14):
But a couple of the other bigpieces that are potentially
going to be in a package have todo with TCGA provisions that
have already changed are Okay.
are changing on a differenttimeline than the individual
expirations.
And these are businessprovisions for research and
development for interestlimitations.
Um, those have already tightenedbecause of the way that the TCGA
(04:37):
was written into law.
And then deductions formachinery and equipment
investment are shrinking overtime.
TCGA temporarily for about fouryears.
Five years provided a full andimmediate deduction for those
types of business investments.
Um, but that's been shrinkingfrom 100% to 80%, down to 60%,
40%, 20%, and then it'll hit 0%as well.
(04:57):
Um, so that's on the table forCongress to deal with as they
also look at these individualand estate tax provisions.
Daniel Bunn (05:04):
and Erica, what is the overall price tag that we're
looking at for that, you know,that, that package, if, if
Congress were to just, you know,change all the dates, on the tax
cuts and jobs act to extend thisout maybe permanently in the
future.
What, what's the, what's theprice tag for that?
Erica York (05:24):
Yeah, over over the 10 year budget window.
It's a bit north of 4 trillion.
We put it at about 4.
2 trillion.
And it's important to note thatthat's just nine years of
extension because those thingsdon't go away until after 2025.
That cost doesn't start until2026.
So if we had to shift outanother year, um, when, when the
budget window moves to 2026through 2035, um, that cost
(05:49):
would go up by roughly another500 billion.
Daniel Bunn (05:53):
Thanks so much, Erica.
That, that's a super helpfulsummary of where the landscape
is on the tax cuts and jobs act.
And obviously that price tag isgoing to be a huge part of the
discussion next year.
I think it's also worthremembering that the tax cuts
and jobs act is not the onlycontextual piece.
Um, for lawmakers going into2025, um, but there was also the
(06:14):
American rescue plan.
Uh, there was the build backbetter that did not become law,
um, and the inflation reductionact, which has multiple layers
of tax policy in that.
Uh, let me turn now to Will todive into some of those details,
uh, to give some context onwhere, uh, things are with the
inflation reduction act and keypressure points for the policy
(06:34):
debate.
Will McBride (06:35):
Sure.
Um, so yeah, the InflationReduction Act, uh, uh, was the
biggest tax legislation passed,um, since, uh, the Tax Cuts and
Jobs Act.
So it was, um, kind of thederivative of the Build Back
Better process, uh, that startedreally big and then got, uh,
quite a bit smaller and, um, um,and, and actually just came down
(06:59):
to essentially five parts, Ithink, are laid out in the, uh,
the slide we have here.
Um, and, uh, So what survived,um, ultimately and became law,
um, the Inflation Reduction Actthat was passed in August of
2022, um, consisted of, of thesefive parts.
(07:20):
Um, and, uh, you know, I'll say,you know, the, the debate around
the Inflation Reduction Act and,and the cause of its name, of
course, was, uh, uh, aroundconcerns, uh, about the.
Inflation, rising inflation atthat time, uh, and it's a
(07:42):
connection to deficits.
Um, and so the idea was toconstruct a bill that was a
deficit reducing over 10 years.
And that's what they got in theofficial score that came from
the joint committee on taxationand the congressional budget
office.
They did find that it slightlyreduced the deficit by roughly a
(08:06):
hundred billion over 10 years.
Those, that's, that's counts asslight, um, in, um, in our, our
federal budget terms.
But, um, in the, you know,shortly thereafter, um, shortly
after it was enacted, the inplace reduction act.
Um, it became more and moreclear that that score was
(08:31):
questionable, particularlybecause of the cost of the, the
laws, uh, 22 green energy taxcredits.
And so the, the, um, the initialscore, um, on those credits was,
uh, around 270 billion over adecade.
Um, and, um, but, you know,subsequent scores by outside
(08:53):
groups, uh, Goldman Sachs, uh,Brookings Scholars, um, and a
subsequent score by the JointCommittee on Taxation, uh,
pointed towards a much highercost of those credits, closer to
a trillion dollars over adecade.
So then, you know, if all, uh,all else is, uh, the same in, in
(09:15):
this, uh, Inflation ReductionAct, and that would indicate the
bill as a whole, uh, actuallyincreases deficits.
And so that, that's kind of itsbig, um, uh, its big problem
going forward.
I think it makes it a, a bigtarget, um, in, uh, Congress
next year for repeal in, in partor entirely.
(09:37):
Uh, so it's definitely going tobe up for debate, um, and, um,
as it should be.
And in, in that process, um.
The, uh, you know, hopefully weget a better idea, a more, uh,
precise idea about its currentfiscal costs.
We, we have put in some effortto try to, um, provide our own
(09:59):
estimates, updated, um, but it'svery challenging.
I'll go through some of thefeatures of the, um, Inflation
Reduction Act that make it verychallenging to estimate, uh,
just the basic, uh, cost of thecredits in particular, but also
the other revenue raisers.
So, as I mentioned, one of thefive major parts of these
credits, 22 tax credits, they'reeither added or amended.
(10:24):
That itself, itself isexceptional.
Um, this is why, um, the law wasvery soon after it was enacted,
really sold less as a deficitreducing measure and more as
the, quote, largest climatelegislation in history.
That's how the administrationsold it, and that's probably
(10:44):
true.
And so what are these creditsdo?
They are aimed at boostinginvestment in the use of various
renewable energy and low carbontechnologies, including
batteries, electric vehicles,solar panels, hydrogen energy,
um, and carbon sequestration,just to name a few of these
(11:06):
technologies.
I'm not going to try to explainwhat those things are here.
Uh, but, uh, they are on thecutting edge.
You might say a bit hard.
To of course understand thefuture of these, um, these new
evolving technologies so thatthat itself makes it cha a
challenge to get a handle on thecost of these credits.
(11:28):
But the law also added all sortsof complicated conditions to
these credits, um, that, thatmade it, uh, extra difficult to,
uh, to, to, uh, estimate whatsort of, uh, uptake or use of
these credits there would be.
So in particular, there'sdomestic content requirements,
uh, big, big, uh, objectivewith, uh, many of these credits,
(11:51):
um, uh, as voiced by thesponsors of the bill, uh, was
to, um, you know, it wasessentially a protectionist, uh,
kind of effort to, to advantageU.
S.
producers of these technologies.
Uh, relative to foreignproducers of things like solar
panels, electric vehicles, etcetera.
(12:11):
So a lot of domestic contentrequirements written in, in
various ways into these, uh,these credits.
Also requirements for, for, um,certain types of labor used,
particularly unionized labor.
Requirements for, um,apprenticeships, um, uh, offered
as, uh, to achieve a higherlevels of credit.
(12:33):
Uh, there, uh, as well, higherlevels of credit or bonus
credits.
are available for certaingeographic areas in the country
that can demonstrate they facedisruptions from the
introduction of thesetechnologies.
That's typically, uh, you know,um, historically fossil fuel
producing areas like, uh, partsof West Virginia.
(12:55):
Uh, you've got, in addition tothat, you've got, uh, some, some
really, uh, quite novel featuresin these credits.
You've got, uh, transferability.
Allow meaning that the credits,uh, you know, if one taxpayer
pair can't use the credit, theydon't have the tax liability,
uh, or the income to use thecredits in a given year.
They can sell those credits onthe, on a market, uh, that's
(13:19):
established, uh, for exchange ofthe credits.
Um, and, um, that has, uh,that's, that, that continues to
evolve those, those markets.
Those are private markets thatare evolving in different ways.
different ways.
Um, then you've got, um, theability to, uh, elect direct pay
for these credits.
(13:39):
Okay.
So this means they, they arethen really essentially
spending, spending run throughthe IRS.
Um, and this as well, these,they can be claimed, um, by tax
exempts.
This includes state and localgovernment entities, schools,
for instance, uh, tribalgovernments.
Um, this is another thing thatreally opens up the, um, the,
(14:04):
uh, use, uses of these credits,um, in a way that's not very
typical, certainly for, uh, taxcredits.
It makes them much more like,like, like spending, but without
the normal controls on spendingprograms.
That is, there's no budgeting,uh, of the, no formal budgeting
(14:24):
or caps on, on this.
Uh, uh, most of these credits,there's a cap, I believe, on one
of the credits, but, uh, most ofthem are uncapped and they are
only limited by how muchtaxpayers can demonstrate that
they have, uh, uh, achieved inthe way of eligibility
requirements.
Um, so it's all these thingsthat have really led to the
(14:47):
exploding cost of this credit.
So the other, I'll move to theother features of the Inflation
Reduction Act that are also, youknow, share, uh, uh, some
similarities with these credits.
Um, and, and in particular, theyare novel, um, and they are
complicated.
Okay.
So we've got the, the majorrevenue raisers, uh, the, the
(15:10):
largest of which is thecorporate alternative minimum
tax that was introduced in theInflation Reduction Act.
This is a 15 percent minimum taxthat applies to the financial
statement income of large U.
S.
companies, uh, uh, on theirworldwide income.
And, uh, okay.
Easier said than done, as itturns out.
(15:30):
Basically, that has become areal challenge for the Treasury
Department and the IRS to figureout how that could possibly work
with existing tax rules.
And we're talking about largecompanies here with very
complicated, uh, operations thatare, uh, with, uh, you know,
several entities.
(15:51):
There's, you know, all sorts ofchallenges in, Uh, marrying two
different sets of standards,basically tax standards and then
the standards for financialstatements, um, that go out to
shareholders.
Those are, those have operatedforever under entirely different
standards and differentobjectives.
And this, this, uh, corporatealternative, uh, minimum tax, or
(16:13):
CAMT as it's called, uh, sayslet's, let's mix and match, uh,
these concepts and, um, See, seehow it works out.
Well, it hasn't actually workedout, uh, um, technically they
have not finalized theregulations yet more than two
years after the law has beenenacted.
The, the final regulations wereissued just very recently and,
(16:34):
uh, will not be finalized untilthe new year.
Uh, so this actually has not,um, it's not clear that, um,
basically IRS has givencompanies a reprieve on this
KMT.
and not required them to pay it,um, as of yet, um, and so, uh,
it's not clear how much, if any,revenue has been collected under
(16:58):
the CAM T.
Um, and so you, you might sayit's, has not, it's clearly not
been an effective minimum tax,uh, as of yet, but what it has
been is a, uh, a very largecompliance burden for the
taxpayers subject to it.
Uh, the buyback tax is the thirdcomponent.
(17:18):
Uh, this is a one percent, uh,tax on share repurchases, um,
uh, for publicly tradedcompanies in the U.
S., okay?
So this is, um, a morestraightforward tax, uh, it
doesn't have nearly thecomplexities and challenges, uh,
uh, that the CAM T does, um, butit's also, um, questionable and
(17:42):
will be up for debate next yearas it is, uh, attempting to, uh,
uh.
Uh, tax a normal, uh, means bywhich companies distribute their
profits to their share, theirshareholders.
Daniel Bunn (17:55):
So, Will, as you're describing all of these layers
to the Inflation Reduction Act,I'm thinking of what Erica
shared on the Tax Cuts and JobsAct.
So, really, it's just a massivelandscape for potential policy
levers that policymakers willplay with, x year and huge
fiscal price tags associatedwith those different policies
and a lot of uncertainty aswell.
Will McBride (18:15):
that's correct.
That's correct.
It's all, it's all certainlygoing to be part of the mix,
part of the, what looks to be areconciliation process early,
early next year.
Daniel Bunn (18:23):
All right.
So now that we have some contextestablished, I think it's worth
pivoting to what we saw in thepolitical campaigns, obviously,
with so much tax policy expiringnext year and with tax policy
generally being a useful part ofcampaign messaging and policy
platforms.
Um, maybe we can look at thedifferent buckets for campaign
(18:46):
policies and particularlyobviously because, uh, former
president Trump won theelection, maybe a little bit of
a focus on what his policy, uh,proposals look like.
Maybe let's start with theindividual taxes, Erica, what,
what do we see on individualincome taxes, uh, during the
campaign season?
Erica York (19:03):
Yeah.
So like at a, at a very basiclevel, president elect Trump
promised continuing all of theexpiring tax cuts.
So that gives us a startingprice tag of that 4.
2 trillion roughly.
And on top of that, he promisedtax cuts for a variety of
different types of workers andindustries and activities that
add.
(19:23):
Potentially trillions more.
So we heard him campaign onexempting tip income from taxes,
exempting overtime pay fromtaxes, exempting social security
benefits from taxes, uh,creating a deduction for auto
loan interest.
He talked about creating a taxcredit for family caregivers.
Now, a lot of these proposalsfleshed out in policy documents.
(19:48):
So we don't have ideas forguardrails or limitations.
Things of that nature.
Uh, we just kind of saw the highlevel idea.
Um, but I do think we're, we'relikely to see at least some of
these proposals, um, enter thedebate, uh, in Congress.
Um, for example, on the tipexemption, since Trump talked
about that in the summer, um, wenow have five bills in Congress
(20:10):
from both Democrats andRepublicans.
Uh, Exempting tips and in someform or fashion from income and
or payroll taxes.
Um, so I think that all of theseadditional promises that were
made on the campaign trail willcomplicate the debate and we'll
add fiscal pressure to what'salready going to be really
challenged, um, reallychallenging situation with the
(20:30):
price tag on the TCGA.
itself.
Daniel Bunn (20:34):
Yeah.
On the taxes on tips, I thinkobviously one of the reasons
there's bipartisan proposalshere.
Is that, uh, the Harris campaignalso proposed eliminating taxes
on tips and who knows wherewhere things end up on that
proposal.
But, you know, looking at thepace of those proposals coming
out from the Trump campaign,there was questions even we had
internally as whether therewould be an income tax at the
(20:56):
end of the campaign cycle.
Uh, let's pivot a little bit tothe business.
Go ahead,
Erica York (21:01):
I was gonna say just one more area to watch.
Um, the Trump campaign itselfdidn't say anything specific on
the child tax credit, but vicepresidential candidate J.
D.
Vance did float the idea of a5000 child tax credit.
Um, in an interview he had nowthat the campaign didn't pick
that up.
But I think that's another areato watch because the T.
C.
J.
(21:21):
Expansion of the child taxcredit is expiring.
There might be a desire to goeven further than what the TCGA
did.
And of course that comes with areally big price tag.
So that's another area wherethere could be debate even
amongst, you know, Republicanmembers, um, on how to approach
the expiration.
Daniel Bunn (21:37):
Yeah, that's a good point.
The TCGA expanded the child taxcredit to 2, 000 while also Um,
doing some other reforms,eliminating personal exemptions,
you know, doubling up thestandard deduction and those
sorts of things, but a 5, 000expansion would be pretty hefty
in terms of the fiscal pricetag.
Uh, Will, on the, on thebusiness side, what, what did we
(21:58):
see from the campaign season?
Will McBride (21:59):
Well, it was, um, relatively light.
Um, and so we, we had, uh, uh,the main thing was, uh, again,
the, the, uh, from the Trumpcampaign, the, certainly the
signals that they intend to, to,um, extend permanently, uh, the
Tax Cuts and Jobs Act, theexpiring provisions, that
(22:21):
includes some businessprovisions.
As I think we've mentioned,there's three, three ones there
to focus on.
There's 100, 100 percent bonusdepreciation for equipment.
Uh, there's R and D expensing.
Um, and then there's, uh, uh,the, a, a, a less stringent
limitation on interestdeductions for businesses.
(22:41):
Um, it's, uh, based on, uh,EBITDA.
And so this is what was appliedfrom 2018 to 2020.
And after that, a more stringentone, uh, has, uh, been, uh, um,
been in force.
And so I think likely that, um,there will be a push amongst,
(23:03):
um, Republicans in Congress to,uh, extend the more taxpayer
favorable, Uh, businessprovisions, um, in those, uh,
TCGA, um, items.
The other one, uh, to mention isthe corporate tax rate, um, that
Trump, um, uh, in, in variousways, um, talked about, but it
(23:24):
was all in one direction.
He talked about reducing thecorporate tax rate, um, either
to 20%, uh, that was mentioned afew times, uh, from the current
21%.
Uh, as well as, uh, down to 15percent, um, and in the case of
the 15 percent corporate taxrate, uh, more recently, he
(23:46):
talked about that as onlyapplying to, uh, corporations
that, uh, produce in the U.
S.
And so that could be, we don'thave a whole lot of specifics on
that at all, but, um, one thingthat could be pulled off the
shelf that might fit into thatspace is the old, uh, domestic
production activities deductionthat, uh, was part of the tax
(24:08):
code for several years leadingup to TCJ.
It was one of the pay fors inTCJ when it was repealed, but
that essentially gavemanufacturers in the U.
S.
a lower corporate tax rate, andso that might be the approach
used there.
Daniel Bunn (24:25):
Interesting.
Um, and on the other side, justto mention the, uh, the approach
from the Harris campaign, shewas looking at, what, a 28
percent corporate tax rate.
And obviously.
That's not the direction that'sgoing to be the approach that
the Republicans take, but justfor comparison's sake, Trump was
looking at reducing thatcorporate tax rate compared to,
(24:45):
um, what, uh, uh, vice presidentHarris was, uh, was proposing.
Um, another big area for, uh,policy in the, in the
presidential campaign cycle.
This was something that, um, uh,vice president Harris
specifically targeted in herattacks of, um, uh, the Trump
campaign.
Um, but the tariffs, uh, Erica,we've done a lot of work on
(25:08):
tariffs over the year.
Um, over the years, what, whatare you looking at with respect
to these potential proposalsfrom, uh, the, uh, from
president elect Trump?
Erica York (25:18):
Tariff man is back.
Um, Trump campaigned on auniversal baseline tariff that
policy itself was in the RNCplatform.
It was on his campaign websiteHe talked about rates of 10 to
20 percent there.
And then he also threatened andraised the idea of various other
specific tariffs 60 percenttariffs on imports from Mexico
(25:42):
of 25 percent to 100 percent andthen various company specific
tariffs There's really twocamps, um, on, on the approach
that, that Trump will take.
The first camp is that a lot ofthis was just campaign bluster.
This is mainly a negotiationtactic.
Trump doesn't really want toimpose these tariffs.
He just wants to sound tough andget tough on trade to get better
(26:03):
deals.
The other camp is Trump lovestariffs.
He thinks they're the mostbeautiful word in the
dictionary.
And, and, uh, His first term inoffice, he imposed, uh, tariffs
and, and really changed thetrajectory of U.
S.
trade policy, invitedretaliation from around the
world, and a return to office hewould just build on that.
I obviously fall in this lattercamp.
(26:25):
I think that the threat oftariffs is, is very real.
I think Trump is very seriousabout pursuing them.
Um, For, for their own sake,also for the potential revenue
that they could raise.
Um, I think he really views themas an important revenue raising
tool.
Um, we, of course, in ourmodeling show that they're not a
good revenue raising tool.
(26:46):
They, they do generate revenue,but they do that at a great cost
and they invite retaliation thatfurther harms the U.
S.
economy.
Um, so, so it makes it a, areally distortive way to, to
raise revenue.
Um, but I, I think the threat isvery real.
It's just a matter of seeing,you know, how quickly, um, he,
he pursues this.
And when he takes office,
Daniel Bunn (27:07):
Yeah.
And I think that's a good pointto pivot to kind of our general
assessment of the proposals.
Like I mentioned at thebeginning, we have a model that
we use, it's our tactics, taxesand growth model to evaluate
changes in federal tax policy,and we can evaluate changes in
tariff policy as well.
Okay.
Cool.
Um, Will, can you give us asummary of what we're looking at
(27:28):
on the positives and negativeson the economic impacts of
Trump's, uh, approach?
Will McBride (27:34):
Right, at a very high level, as Erika described,
there's two components.
One is very positive foreconomic growth, that is the tax
cuts.
That Trump has proposed, um, inmainly in the form of the
extending the tax, uh, the TCJ,uh, expiring provisions,
including the businessprovisions.
(27:55):
Uh, but there's a whole, uh,several other, uh, tax cuts
that, um, uh, Trump has proposedincluding, uh, lifting the, uh,
the, the cap, the current cap onthe state and local tax
deduction.
Um, and, uh, various exemptionsfor, um, overtime pay, uh, tips,
(28:16):
uh, et cetera, um, as well asthis lower corporate tax rate,
uh, I, I mentioned down topotentially 15%, uh, for some
companies, um, that, uh, thoseare all pro growth measures, not
all well structured, um, uh, orneutral, perfectly neutral, uh,
(28:37):
approaches to, uh, tax reform,but they are tax cuts that do
matter.
They affect, they reducemarginal tax rates on, um, labor
and capital.
And, uh, our model does indicatethat they boost economic growth
considerably.
I think we've got a, um, apicture on that, that we were,
uh, we can show here that, um,indicates that those tax cuts
(29:01):
that Trump has proposed, um, uh,we estimate would increase long,
long run GDP by 2.
4 percent.
That's, uh, quite a, quite alarge boost there.
Um, and, uh, probably, probablythe largest, uh, uh, uh, couple
of, a couple of large componentsthere.
One is the, um, as I mentioned,those business provisions, uh,
(29:24):
from, uh, the expiring TCJ, uh,items.
That's a major boost to GDP ifthose are extended, uh, and then
there's the, um, the individualprovisions, uh, primarily the
lower.
And uh, that's going um, taxrates, uh, that also boosts GDP.
Um, as well that, that, uh, cap,fully lifting the cap on the
(29:47):
state and local tax deduction,that actually by reducing top
marginal tax rates effectively,that has a strong effect on GDP
as well.
Um, but then we've got thisother half of Trump's proposals
that Erica went over, which isvery damaging in economic
growth, that is the tariffproposals and their They're kind
(30:09):
of all over the map, um, asErica discussed, it's hard to
pin down exactly what rate, um,to choose, um, but, you know, in
our, in our assessment, um, youknow, we, we, we, we looked at a
scenario in which there's a, uh,Trump combines all these tax
cuts with a set of tariffs thatinclude a 20 percent universal
(30:32):
tariff on all goods, imports,and then a, um, an additional,
uh, 50, uh, 50 percent tariff ontop of Our current, uh, tariffs
on China and that has a largenegative effect on the economy.
We estimate, um, that those,those tariffs, uh, would reduce
long run GDP by 1.
(30:52):
3%, okay?
And as with, as we know from thelong history of, uh, tariffs and
trade wars in this country andall over the world, they come
with retaliation.
That's what happened when Trump,uh, with Trump's first round of
Uh, tariff increases in 2018,there was a very, very quick
response from other countriesthat, uh, were affected and they
(31:15):
introduced their own tariffsthat reduced, that applied to U.
S.
exports to those countries, so,uh, reducing demand for those
exports and hurting the U.
S.
economy.
So we estimate those, uh, our,our modeling of a retai a
possible retaliation scenario tothose tariffs would reduce U.
S.
GDP further by 0.
4%.
So in total, about two thirds ofthe Uh, beneficial economic
(31:41):
growth that would result fromTrump's tax cuts would be offset
by these, uh, these tariffproposals.
Daniel Bunn (31:49):
that, that's pretty huge.
That's pretty huge.
Um, and I, I imagine that, um,as Congress considers these
things, they're, they're goingto want to think about those
economic, um, benefits and alsothose economic costs.
And I really hope that, um,there's an opportunity for folks
to kind of.
Let's take a step back and takestock of those negative, uh,
(32:09):
economic consequences.
I, I, I, you know, as, as thesethings, uh, progress will of
course be updating those numberswith more, uh, specific policy
proposals, um, but that, that'sa really helpful kind of summary
of where we're looking at thekind of Trump policy landscape
on.
Uh, taxes, tariffs, and ofcourse, retaliation, um, let's,
(32:31):
let's zoom out or, or Erica, didyou have anything you wanted to
add to that before we move on?
Erica York (32:36):
Yeah, I think another important element to
think about is the, thedistribution of tariffs.
They tend to create a larger taxburden on lower and middle
income households.
And of course, a lot of whatTrump talked about on the
campaign trail was.
Helping working class families.
But if you are, um, continuingtax cuts only to pay for them
with something that falls evenharder on that group of
(32:57):
taxpayers, then you, you couldactually be increasing taxes on
them.
And that's what we find in ourmodeling, that with this
combination of tax cuts andtariff hikes, um, the bottom 40%
of taxpayers actually see a taxincrease.
Daniel Bunn (33:11):
Yeah.
And that's not something mostpoliticians are super interested
in.
So we'll, we'll, we'll see wherethis, uh, this lands, but, um,
let's, let's zoom out a littlebit, uh, and, and get a taste
of, uh, where things.
Um, uh, might land on different,uh, in, in, in different
jurisdictions.
So, um, Sean Bray, who is, uh,leading our research effort with
(33:33):
tax foundation Europe, um, anoffice we opened up earlier this
year.
Sean, why don't you give us asense of things like how other
countries, particularly inEurope might be viewing.
The policy landscape in the U.
S.
And I mean, we'll mentionretaliation.
I'm curious whether you thinkthat's actually on the table or
if people are just going to findother ways.
(33:53):
I saw recently, uh, you know,uh, a leader in Europe say,
well, maybe we'll buy more Um,uh, L.
N.
G.
From the U.
S.
And not have to deal with thetariff.
So curious your thoughts on theon the policy landscape.
Sean Bray (34:05):
Yeah, thanks Daniel.
Um, I think there's, uh, there'sprobably good reason to take a
step back, uh, because as we'veseen since the first Trump
administration until today, um,a lot of these debates in the
international space, tax, tax,international tax space.
Could be characterized indifferent ways.
So my first main question, Ithink we could start by just
(34:28):
posing some questions thatpolicymakers should be
considering.
Um, the first is really what arethe priorities or objectives of
tax and trade policy in theUnited States, in the EU, um,
and then, of course, with thework at the OECD and the UN on
the international tax front.
Um, are they to set standards,uh, which has been, I think, uh,
(34:49):
that was a theme in the Obamaadministration.
Rather, should we fix the WTO?
Should we have a free tradeagreement between the EU and the
US TTIP, um, with the goal ofsetting international standards,
uh, as kind of a, uh,confronting China and their rise
in the international system?
Um, are the priorities andobjectives of tax and trade to
(35:10):
raise revenue?
Uh, I think from a taxfoundation perspective, we would
hope that tax policy is viewedthrough the lens of raising
revenue efficiently and lookingat that, uh, angle of things.
But of course, There are otherobjectives that one might
prioritize.
Um, another priority orobjective of tax and trade going
forward might just be decouplingand de risking.
(35:31):
Um, and so I think the firstmain question is, what are
policymakers in Europe and theUnited States thinking about the
objectives?
What are they trying to achievewith some of these policies?
The second question then, ofcourse, leads to, well, to what
extent will the U.
S.
and the E.
U.
work together or not worktogether on achieving those
objectives?
Um, so, can we align ourselvestransatlantically on the
(35:54):
objectives, and if we can, howwould we go forward?
Um, and if we can't, how do wego forward?
Um, I think that's the secondbig question.
Um, a kind of side note on theE.
U.
side is, who actually decides,uh, politically in, in these
regards?
It's not always clear betweenthe Commission and member
states, even within theCommission.
(36:14):
We've been seeing with some oftheir hearings, it's not quite
clear exactly who in theCommission would be making these
decisions about whether tocooperate or, uh, to fight
against some of the U.
S.
in terms of retaliation.
So, um, That's my second kind ofbig question.
And the third one I think, uh,policymakers specifically in
Europe should be thinking aboutis what is the EU's approach to
competition generally?
(36:35):
So, um, that's been a big topicwith the Letter Report and the
Draga Report of recent.
Um, there's kind of two camps.
One is, well, should we doubledown on industrial policy and
subsidies and, uh, go thatroute, government intervention?
Or should we be taking more ofa, an efficient approach,
looking at our tax rates, ourtax base, how can we be more
(36:57):
neutral and competitive throughour tax code in that sense?
Um, so the, this kind ofquestion is a broad question, I
think, for all Europeanpolicymakers at member state
level and at the EU level.
Um, but of course, For thiswebinar, the question is, well,
what impact does the U.
S.
election and potentially, youknow, our tax reform, our trade
policy, given that, what shouldEurope do?
(37:21):
Um, I think some, somehighlights to point out are,
one, uh, if Trump is seriousabout reducing our corporate tax
rate to 15%, that would make,uh, investment decisions towards
the United States from Europethat much more attractive.
Um, and that could be worrisomefor, for EU policymakers.
Um, another thing is the IRA andthe CHIPS, uh, the CHIPS Act.
(37:43):
Those are sort of our industrialpolicy here in the U.
S.
And it's not clear to me thatCongress will necessarily be on
board with gutting a lot ofthose subsidies or, uh, some of
those, uh, attractive, uh, moneyhandouts to, to companies who
may want to come over fromEurope to invest here.
So there's a real possibilitythat the United States
essentially has a verycompetitive corporate tax rate.
(38:05):
And on top of it, some kind ofindustrial policy that's, that's
targeting specific sectors tobring business over to the
United States.
Um, so that's truly the case.
Uh, it really does come down toyour piece, European
policymakers and their questionsof how did they become more
competitive?
How did they respond in thattype of a scenario?
Uh, and what policies shouldthey be looking at?
Daniel Bunn (38:26):
I think that's a really helpful kind of, uh, view
from, uh, from, you know, wherethings stand in the U.
S.
And the critical questions forthe EU.
I mean, honestly, that, youknow, European landscape, the
policy landscape has been at apivotal point for a number of
years without clear direction onmany of those questions.
(38:46):
raising Sean.
So in this coming in, that'svery di policy and even a shift
i trade front that's lasted Uh,it's going to be crit Uh, policy
makers in Europe kind of respondto these things.
There's opportunities for themto go, um, to really lean into
(39:09):
that competitiveness and growthangle.
But we'll see whether that's,uh, that's actually the case.
Um, I think one of one of thethings that is critical, let's
come back to the U.
S.
A little bit, um, is to talkabout the process for these
policy changes next year.
So I think people who understandthe U.
S.
System understand that.
Um, uh, legislation needs tocome out of Congress, um, before
(39:32):
it gets to the president's desk.
Um, but specific to, uh,different fiscal legislation,
there are special proceduresthat can be used, uh, to limit,
uh, kind of the policy landscapethat can be considered and to be
able to expedite policy,especially through the United
States Senate.
I was working in the Senate, um,in 2017 during, um, the Tax Cuts
(39:54):
and Jobs Act, and we used a lotof these.
Um, uh, these tools, this toolspecifically called
Reconciliation, but I, I'llpitch things over to Will to
talk through kind of a generalsummary of what this process
looks like and how it couldimpact what policy, uh, actually
comes out of Congress next year.
Will McBride (40:13):
Sure.
Thanks.
Um, so yeah, reconciliation islooking more, very likely at
this point as the way in whichthis, uh, tax legislation will
be passed.
Uh, I think as we discussedearlier, that's what happened in
2017.
That was the process Republicansuse.
We can look at that episode and,and, uh, as a guide as to what
(40:34):
might happen.
Uh, we can look at, um, how itwas used by Democrats, uh, in
2021 for the, um, AmericanRescue Plan Act, and then in
2022 for the Inflation ReductionAct.
Um, essentially reconciliationis a process, uh, that allows,
uh, for budget legislation to bepassed, uh, by a simple
majority.
(40:54):
Uh, in both the House and theSenate, so it, uh, really,
really that matters, uh, in theSenate.
It, it allows for, um, you know,an avoidance of the normal, uh,
threshold of a, a 60 votemajority in the Senate for, uh,
such budget legislation.
So it can include, uh, tax andspending.
(41:15):
Um, it can as well dress, uh,address the, the debt ceiling,
uh, that is coming up.
That's another.
That's another thing to, uh,confront in the new year,
actually, uh, the first, firstday of the new year, January
one, uh, the current, uh,extension on the debt ceiling
expires.
And so we will engage in a long,another long protracted debate
(41:39):
about what to do about thatwhile we're, uh, debating what
to include in a, in a, uh,reconciliation package.
So that matters because, andagain, the last time we did the
debt ceiling negotiation wasjust last year.
We've done it about 40, 40 someodd times in history.
We can look at what typicallyhappens there.
What happened last year was, uh,there was, um, uh, particularly
(42:03):
the Republicans, uh, in thehouse, um, uh, Uh, uh,
negotiated a, uh, a set ofconditions, uh, to lifting the
debt ceiling, um, that, uh, putcaps in place that, uh, capped,
uh, discretionary spending, uh,in particular, uh, uh, for two
years.
(42:23):
So that, that is a, that is oneamong many indicators that House
Republicans in particular withtheir current slim majority, uh,
as we understand it may be asimilar majority that they had.
Uh, in this, in, in the currentCongress, very slim, like, uh,
four, four vote majority, mostlikely.
(42:44):
Um, they will make debt anddeficits a primary concern and,
uh, you know, they're not goingto, like, forget what they did,
you know, last year and, and,and say to, to heck with the
debt.
They're going to, to really beconcerned about it, make it, um,
that means that in areconciliation process.
(43:05):
That is likely to happen in theearly in the new year.
Republicans have talked abouttrying to pass a reconciliation
bill in the first hundred daysof the new Congress.
Uh, it's going to be, I think,two, two issues that, uh, two,
two primary issues thatRepublicans will be trying to
balance much as in 2017.
they'll be trying to balance adesire to boost economic growth.
(43:29):
Um, uh, and with a desire to,uh, keep the deficit impact to a
minimum.
And what is that minimum?
Well, that's, uh, unknown.
In 2017, that number was one anda half trillion dollars over 10
years that came about.
Uh, Daniel, as you know, becauseof a Senate negotiation, the
house actually wanted to do a.
(43:51):
deficit neutral bill.
Um, and then when that, thateffort initially failed, uh, the
Senate, uh, picked the 1.
5 trillion number, uh, through anegotiation again over those
competing concerns abouteconomic growth and impact on
the debt.
What's happened since 2017?
Well, in 2017, the debt, uh,publicly held debt was about,
(44:12):
uh, three quarters the size ofthe U.
S.
economy.
It's now about, uh, 100 percentof the, uh, of GDP, and it's
heading higher every year, uh,forever in the CBO.
It's heading to unprecedentedlevels just, um, about three
years from now under the currentprojection, uh, and, and headed
(44:35):
to an unsustainable trajectory.
So I think that points to, uh, anumber, Um, a deficit number in
this bill that, um, I wouldthink would be less than one and
a half trillion, uh, given thatthe debt has gotten so much
worse and so much, and we'vegotten to a so much more
precarious, um, uh, situationwith the debt.
(44:57):
Um, Another indicator, we've gotinterest on the debt, the
federal debt that is about,running about a trillion dollars
a year now.
That exceeds spending on defensefor the first time ever.
Uh, it's going, uh, to a, a newrecord level of, uh, as a share
of GDP in the new year.
So I think all these thingspoint to a reconciliation bill
(45:20):
that will be, uh, actually, uh,closer to deficit neutral, uh, I
would think than a severaltrillion dollar.
deficit impact.
Um, and that's real challenge.
You know, that's, that's, youknow, 180 degree, uh, change
from what we heard on thecampaign trail, particularly
from Trump, who was, as we'vediscussed, um, you know, every
(45:44):
week literally was mentioning anew tax cuts, some of which cost
a trillion dollars or more.
Um, I think, you know, it'sgoing to be interesting to see
how that, that those set ofproposals survive in a
reconciliation process.
Daniel Bunn (46:00):
I totally agree.
The, the, the challenge is goingto be, um, you know, if all this
tax legislation is going toresult in, um, different, uh,
you know, deficit outcomes init, if, as you say, will that
there's going to be pressure onthat, like, where does the money
come from, you know, bigger, um,you know, offsets in the tax
(46:22):
code, you know, expansions ofthe tax base, um, or spending
cuts.
And we'll certainly have to waitand see how Congress Um, deals
with that.
Let me, let me go back to, toErica, um, uh, briefly, um,
before we get into somequestions we've received, uh,
from the audience, Erica.
Erica York (46:38):
Yeah.
Sean, one thing I wondered youropinion on, um, you know, in the
first trade war, we saw the EUrespond with retaliatory tariffs
on some US exports, but we arenow seeing reporting that like
they're, they're alreadyprepared to retaliate faster and
harder this time around.
What's your take on that?
And kind of how, how do youanticipate, you know, let's say
we are in a world where the USdoes impose this just baseline
(47:01):
tariff on basically everythingwe import from the EU?
What, what does the EU do inresponse?
Sean Bray (47:06):
Yeah, that's a really good question.
Um, I think it goes back to kindof my original question of to
what extent will we worktogether or not.
Um, and I think there were,there were a few lessons that
were learned in the first Trumpadministration from the EU side.
Um, for one, I think it's, uh,the EU has kind of built out a
lot of its toolbox topotentially respond to some of
(47:28):
these things.
So, to your question of, is it,uh, possible that they can
respond quicker, or is that justkind of a negotiating tactic?
I think it's certainly possiblethat they could respond much
quicker than they did theprevious time.
The other thing that I would,uh, but, but again, the question
is, who decides?
And politically speaking, is it,who, who makes that choice?
Economically speaking, is it onnet worth it?
(47:51):
Uh, so the question then, ofcourse, is yes, you can
retaliate, yes, you can do allthese things.
Economically speaking, how doesthat affect the EU?
How does it affect each memberstate?
And then, of course, it's backto the political question of
depending on who's winning andlosing from those situations,
uh, how does the politics endup?
So I think it's certainlypossible.
I think they have built atoolbox to be able to respond.
(48:12):
Um, it's just a question of whodecides and, uh, who's, who's
winning and losing from thatsituation.
I think it also brings togetheranother thing that we learned
during the first Trumpadministration was that, uh,
kind of the geoeconomicquestion, right?
So, there's a very narrow focuson tax, or on trade, or on
standards, or on defense, butultimately when you get into
(48:34):
these negotiations, uh,specifically with a
transatlantic aspect, All ofthese things can come together.
Um, and so for example, in thetax space, you know, we have
pillar one and pillar two andDSTs, uh, and UTPR, uh, from a
trade perspective, we have thetariffs of course, and we have
CBAM.
I'll put that in that category.
Um, from a standardsperspective, the EU, one of the
(48:56):
lessons they, I think learnedwas that, uh, after the TTIP
negotiation fell apart under theObama administration was that
actually to, to.
Allow Europeans to believe inthe process and to believe in a
potentially a free tradeagreement with the United States
in the future They would have tohave high and strong European
standards to start.
So a few examples are the AIAct, GDPR, the Green Deal
(49:18):
ultimately.
These were all setting intoEuropean law kind of their
standards and what they thoughtwould be the proper way to
converge with the United States.
Um, and of course on defense,uh, it's NATO spending and it's
how we handle Ukraine and otherissues in the Middle East.
So, what's different this timefrom an EU perspective from the
first time is that, for example,within CBAM, uh, they actually,
(49:40):
they actually have a, a toolwhere, uh, they can retaliate
within CBAM if other countriesare not pricing carbon the same
way that the EU is.
Um, they can place, uh,essentially an external border
tariff on incoming products, uh,that are not carbon priced, uh,
under the same as the EU.
Uh, when it comes to Pillar 2,um, you know, UTPR kind of
(50:01):
serves the same function, whereif other countries are not
playing by the Pillar 2 rules,the EU does have the option to,
uh, to use UTPR to, uh,essentially penalize countries
who are not, uh, signed up tothat.
Um, so there are, they've builtinto their policies, their tax
and trade policies, kind ofthese.
Uh, retaliatory mechanisms, um,in the, in the case that in the
(50:23):
future they needed to negotiatewith the United States or any
other country, um, and so withintheir policies, these things are
already built in.
So I think kind of the, the bigpicture is on tariffs.
There's a question of how thatmight work from the EU side and
how quickly or not that mighthappen.
Um, but within the policies thatalready exist, uh, in tax and
trade in the EU, um, and evenstandards, uh, that's already
(50:44):
kind of baked in.
So they could certainly.
Uh, exercise their right tothose, uh, to those mechanisms
if they choose so.
Daniel Bunn (50:51):
Yeah.
And on, on the, the pillar tothe global minimum tax stuff,
uh, Sean, the, the, um,Republicans in Congress have
been very clear in theiropposition to some of those
policy tools.
And it's going to be.
Uh, back and forth, I imaginepretty quickly, especially once,
uh, President elect Trump hashis treasury team in place, um,
(51:12):
we'll be able to see how some ofthat's going to pan out, but,
um, people are already very muchdug in on their positions and
it's not clear how, uh, how, howthings break loose.
Um, uh, we, we do have a coupleof questions from the audience.
Thank you for submitting these.
Um, I'm going to, uh, uh, pitchthis one over to Erica on the
(51:32):
question of social security aspart of the income tax base.
Can you run through some of thelogic, um, of current policy and
the approach that, uh, PresidentTrump, uh, President elect Trump
was mentioning during hiscampaign?
Erica York (51:45):
Yes, this is actually a policy that was put
into place by reforms that, thatPresident Reagan, um, oversaw
and helped, uh, fend off a, afunding shortfall in, in the
eighties for social security.
And essentially there's, there'sa formula, um, taxpayers can
kind of get tripped up with it,but it can subject, um, part of
social security benefits toincome tax.
Um, either 50 percent or 85percent depending on how that
(52:08):
formula shakes out.
Um, and that helps fund thesocial security trust fund.
The idea that Trump talked aboutwas completely exempting all of
those social security benefitsfrom the income tax, um, that.
would not happen if, ifreconciliation is the route
because, um, reconciliationdoesn't allow changes to the
(52:30):
funding of social security.
And so that policy would be offof the table for, for a
reconciliation bill.
Daniel Bunn (52:37):
That's, that's really helpful context,
especially as it relates toreconciliation.
Okay.
Um, Will, you talked a lotabout, uh, debt and deficits.
I'm, I'm curious, you know, Iknow you've done some research
in the last year or so ondifferent ways to address the
long term, um, debt, but justmaybe quickly summarize some of
those policy levers that if youwere, you know, treasury
(52:57):
secretary for a day or chairmanof the Ways and Means Committee,
like where, where would you lookfor revenue that would be
substantial but not, uh, reallyimpact, uh, long term growth?
Will McBride (53:08):
Right.
Uh, so I, I think that'll be,um, part of the debate.
Uh, they'll, they, these twoconcerns, as I mentioned, the
debt concern and then, you know,uh, concerns about how to
reinvigorate economic growthover the longterm.
It will naturally lead to, um,a, a real hard look at, you
know, Ways to raise revenueefficiently, basically.
(53:30):
So what are those?
Those, those are not mysterious.
Actually, those are well, wellknown.
They've been known for decades.
It's essentially comes down totaxing consumption.
Um, is a, you know, that's avery broad tax base, uh,
something like 70 percent of ourGDP, um, We don't have currently
a broad based consumption tax atthe federal level.
Um, we're the only developedcountry in the world that does
(53:54):
not have one.
We instead rely heavily onincome taxes, um, uh, to fund
the federal government.
That's, that's, uh, incrediblyrare actually, um, and so you
might say it's, we're imbalancedrelative to other countries and
it's actually, this feeds intothe whole debate about trade
and, um, you know, how, uh,goods are produced, uh, outside
(54:18):
the U.
S.
and then consumed in the U.
S.
Um, and so I think the, the, thedebate, which periodically pops
up, um, about moving to aconsumption.
Base tax system, uh, we'll comeback and it'd be a, it'll be a
good development because, uh,the last time we really heard
about that was maybe 20 yearsago when there's a vigorous
(54:41):
debate, um, uh, if you mightrecall, about flat taxes.
Um.
The old Hall or Bush flat taxapproach that was developed in
the eighties and debated for,uh, you know, 10 or 20 years
after that, um, uh, you know, asopposed to other approaches to
getting towards a consumptiontax system that is, you know,
(55:02):
ultimately, again, going toproduce revenues, substantial
revenues, um, more efficiently,uh, with less damage to the
economy than we currently dowith the income tax.
Daniel Bunn (55:13):
Yeah, I think that would be a key opportunity for
legislators that are looking forways to offset some of these
long term fiscal costs withrevenue that isn't going to
harm, um, or have much less harmon the future trajectory of the
U.
S.
economy.
One more question, um, uh,before we start to wrap things
(55:35):
up here, um, Erica, youmentioned towards the beginning
about what happens if the TaxCuts and Jobs Act expires.
I, I think it'd be a way.
Worthwhile to wrap things uparound this kind of a crystal
point, because again, you know,this is kind of the, the
motivation for action next year,regardless of what that action
actually entails.
But what's the tax hike looklike maybe, um, you know, for
(55:57):
folks in the lower half of theincome, uh, spectrum, um, or the
way that you're thinking aboutthe, the, um, uh, the way the
tax cuts and jobs act was puttogether, um, and how that might
look if, uh, if the tax cuts andjobs act were allowed to expire.
Erica York (56:13):
So if the TCGA expires, um, like I said, we've
estimated about 62 percent oftaxpayers would see their taxes
go up.
We've actually got a cool toolon our website, a tax calculator
that lets you input someinformation and see an
illustration of how your own taxburden can change.
Um, the dollar amounts are ofcourse going to vary by
taxpayer, by their ownsituations, by what types of
(56:34):
income they are in, whether theyhave dependents or not.
Um, but we've estimated thatthe, the Average tax increase
across all congressionaldistricts for all of the
expiring individual and businessprovisions is about 2, 600.
Lower income taxpayers will seea smaller amount, higher income
taxpayers a higher amount, butthat gives you a general
(56:54):
ballpark.
And it's not just tax increases.
It's also that the tax systemwill become more complicated.
So the TCGA simplified things byexpanding the standard
deduction, by really limitingthe bite of the alternative
minimum tax.
If those reforms go away,millions more people will have
to also file the alternativeminimum tax forms.
(57:14):
We'll go back to taking itemizeddeductions, which is a more
complicated filing process.
And so it's higher taxes and amore complicated filing system.
Which I don't think anybodywants, and I don't think
Congress will allow to happen infull, um, but that's what's on
the line.
Daniel Bunn (57:30):
it's, it's, it's a huge tax cliff.
Um, uh, Sean, Will, Erica, anylast words before I start to
wrap things up here?
Sean Bray (57:38):
I think one thing just to, to point out, well, two
things just to point out.
One is I think, uh, kind of toErica's point earlier about
whether Trump is just usingtariff, the threat of tariffs to
negotiate or whether it's areal, a real threat.
Um, I think in either case, uh,I think it's, I think it's maybe
both.
I think honestly he's trying touse it to get a better deal and
(58:00):
will actually carry it out insome, in some respects.
Thanks.
Um, so I think that's somethingobviously to pay attention to,
but the flip side of that is,um, I think it, it will come
down to a negotiation and Ithink other countries, uh, for
example, with the pillars, um,it was actually under the Trump
administration that the, thepillars were being negotiated at
the OECD, um, so I wouldn'tnecessarily just write off any
(58:20):
kind of transatlanticcooperation, uh, even if it
might sound like there's a lotof doom and gloom out there on,
on the future of the EU and U.
S.
kind of tax and trade relations.
Um, I think there are deals tobe made and there are ways in
which the U.
S.
and Europe can work together ontax and trade.
Um, and potentially presidentelect Trump might be interested
in negotiating that.
So, um, I wouldn't say that it'sall doom and gloom and
(58:43):
hopefully, uh, technocrats likeus can, can come in and try to
help, uh, where we can and pointout where, where there might be
opportunities to work together.
Daniel Bunn (58:51):
to make a joke that's been made hundreds and
hundreds of times over over thelast eight years.
It's maybe not doom and gloom,but more a little bit on the art
of the deal.
Um, uh, and with that, uh, thankyou so much for joining today.
Please follow our work.
You can subscribe to ournewsletter at taxfoundation.
org.
Also, uh, you will be postingadditional content, uh, here on
(59:13):
our YouTube, and we'll be havingevents, uh, over the course of
the coming months.
We have a lot of numbers tocrunch and certainly we'll be
paying attention to this fastpaced policy debate as it
develops.
Uh, and uh, thank you so muchfor attending today and we look
forward to talking to you againsoon.
Hello, everyone.
Welcome to Tax Foundation'swebinar focused on the future of
U.
S.
tax policy in 2025.
My name is Daniel Bunn.
I'm president and CEO of TaxFoundation.
And I'm joined by some of mycolleagues today who have been
focused very much on how Theelection has gone over the
(00:20):
course of the last severalmonths with the wrapping up of
the campaign, the actualelection, and also paying
attention to what policypriorities we are seeing from
Capitol Hill.
Tax Foundation has been payingattention to U.
S.
federal tax policy since 1937and here where we are in 2024
and what we're looking at in2025.
Our position is going to beconsistent where we are going to
(00:43):
be analyzing the economics oftax policy, using our
macroeconomic model, looking atthe different alternatives in
the debate, trying to see wherethe revenue and the proposals
add up or not, uh, and wheretheir impacts are on growth.
Uh, and opportunity in theUnited States.
We're also going to be taking alittle time today to talk about
(01:04):
some transatlantic perspectiveson the U.
S.
Tax reform and other policies inthe debate right now, because
the U.
S.
is not alone in the world.
And there are a lot of things inthe policy debate that will
impact not only the U.
S.
economy, but economies globally.
around the world.
I think it'll be great to hearfrom my colleagues today.
(01:25):
We have Dr Will McBride, we haveErica York, and we have Sean
Bray, who are all very focusedon looking at the different
alternatives that are live inthe debate and prepping for what
will, in, It's going to be aninteresting debate in Congress
early next year.
And of course, we're not surewhere things will land.
(01:45):
But we do know at this pointthat the Republicans have
control of the White House, theHouse and the Senate.
There are different factions atplay with different policy
priorities.
And our goal is to pay attentionas much as possible to the
different proposals as they comeforward.
Um, and to be able to helplawmakers make decisions in line
(02:06):
with the evidence.
Um, as we get into the sessiontoday, I think it'll be, uh,
really important to, uh, setsome context for where we are
here in the fall of 2024 lookingahead.
Um, but some of that context isderived from what we've seen
over the last several years.
I'm going to turn things over tomy colleague, Erica York, to
(02:26):
give us a reason why we shouldbe thinking about tax reform and
why tax reform.
It's a huge part of the debategoing into 2025.
Erica, give us a little bit ofthe history of the tax cuts and
jobs act, what we're looking aton the expirations landscape and
curious about where things standwith what we call extenders in
the tax policy debate
Erica York (02:47):
Yeah, thanks, Daniel.
So the 2017 Tax Cuts and JobsAct made several substantial
changes to U.
S.
tax policy on the individualside, for estate taxes, for
international taxes, and forcorporate taxes.
A lot of those changes were madetemporarily, and so that's what
we're talking about.
What the big forcing mechanismis going to be for Congress next
year and doing tax policy, andthat's that the vast majority of
(03:11):
the individual tax cuts arescheduled to sunset after 2025.
So that means individualprovisions like the rates in
brackets.
The standard deduction, thechild tax credit, limitations on
itemized deductions like thehome mortgage interest deduction
and the state and local taxdeduction or SALT, um, the
changes to the AMT, to theestate tax exemption.
(03:31):
We've got a timeline here thatshows all of the moving pieces.
Thank you.
those sunset.
So that means in 2026, ifCongress were to do nothing on
tax policy, Americans would wakeup to tax hikes.
Um, we've estimated about 62percent of taxpayers would see
their taxes go up in 2026.
If the individual provisionsalone are allowed to expire.
(03:54):
So these are big changes thataffect.
Most taxpayers.
They also affect businesses.
Um, and that is why Congresswill have to do something
because otherwise everyone willwill see a tax increase.
Now there's a lot of uncertaintyabout how they'll handle those
provisions, and I think we'llget into that later.
(04:14):
But a couple of the other bigpieces that are potentially
going to be in a package have todo with TCGA provisions that
have already changed are Okay.
are changing on a differenttimeline than the individual
expirations.
And these are businessprovisions for research and
development for interestlimitations.
Um, those have already tightenedbecause of the way that the TCGA
(04:37):
was written into law.
And then deductions formachinery and equipment
investment are shrinking overtime.
TCGA temporarily for about fouryears.
Five years provided a full andimmediate deduction for those
types of business investments.
Um, but that's been shrinkingfrom 100% to 80%, down to 60%,
40%, 20%, and then it'll hit 0%as well.
(04:57):
Um, so that's on the table forCongress to deal with as they
also look at these individualand estate tax provisions.
Daniel Bunn (05:04):
and Erica, what is the overall price tag that we're
looking at for that, you know,that, that package, if, if
Congress were to just, you know,change all the dates, on the tax
cuts and jobs act to extend thisout maybe permanently in the
future.
What, what's the, what's theprice tag for that?
Erica York (05:24):
Yeah, over over the 10 year budget window.
It's a bit north of 4 trillion.
We put it at about 4.
2 trillion.
And it's important to note thatthat's just nine years of
extension because those thingsdon't go away until after 2025.
That cost doesn't start until2026.
So if we had to shift outanother year, um, when, when the
budget window moves to 2026through 2035, um, that cost
(05:49):
would go up by roughly another500 billion.
Daniel Bunn (05:53):
Thanks so much, Erica.
That, that's a super helpfulsummary of where the landscape
is on the tax cuts and jobs act.
And obviously that price tag isgoing to be a huge part of the
discussion next year.
I think it's also worthremembering that the tax cuts
and jobs act is not the onlycontextual piece.
Um, for lawmakers going into2025, um, but there was also the
(06:14):
American rescue plan.
Uh, there was the build backbetter that did not become law,
um, and the inflation reductionact, which has multiple layers
of tax policy in that.
Uh, let me turn now to Will todive into some of those details,
uh, to give some context onwhere, uh, things are with the
inflation reduction act and keypressure points for the policy
(06:34):
debate.
Will McBride (06:35):
Sure.
Um, so yeah, the InflationReduction Act, uh, uh, was the
biggest tax legislation passed,um, since, uh, the Tax Cuts and
Jobs Act.
So it was, um, kind of thederivative of the Build Back
Better process, uh, that startedreally big and then got, uh,
quite a bit smaller and, um, um,and, and actually just came down
(06:59):
to essentially five parts, Ithink, are laid out in the, uh,
the slide we have here.
Um, and, uh, So what survived,um, ultimately and became law,
um, the Inflation Reduction Actthat was passed in August of
2022, um, consisted of, of thesefive parts.
(07:20):
Um, and, uh, you know, I'll say,you know, the, the debate around
the Inflation Reduction Act and,and the cause of its name, of
course, was, uh, uh, aroundconcerns, uh, about the.
Inflation, rising inflation atthat time, uh, and it's a
(07:42):
connection to deficits.
Um, and so the idea was toconstruct a bill that was a
deficit reducing over 10 years.
And that's what they got in theofficial score that came from
the joint committee on taxationand the congressional budget
office.
They did find that it slightlyreduced the deficit by roughly a
(08:06):
hundred billion over 10 years.
Those, that's, that's counts asslight, um, in, um, in our, our
federal budget terms.
But, um, in the, you know,shortly thereafter, um, shortly
after it was enacted, the inplace reduction act.
Um, it became more and moreclear that that score was
(08:31):
questionable, particularlybecause of the cost of the, the
laws, uh, 22 green energy taxcredits.
And so the, the, um, the initialscore, um, on those credits was,
uh, around 270 billion over adecade.
Um, and, um, but, you know,subsequent scores by outside
(08:53):
groups, uh, Goldman Sachs, uh,Brookings Scholars, um, and a
subsequent score by the JointCommittee on Taxation, uh,
pointed towards a much highercost of those credits, closer to
a trillion dollars over adecade.
So then, you know, if all, uh,all else is, uh, the same in, in
(09:15):
this, uh, Inflation ReductionAct, and that would indicate the
bill as a whole, uh, actuallyincreases deficits.
And so that, that's kind of itsbig, um, uh, its big problem
going forward.
I think it makes it a, a bigtarget, um, in, uh, Congress
next year for repeal in, in partor entirely.
(09:37):
Uh, so it's definitely going tobe up for debate, um, and, um,
as it should be.
And in, in that process, um.
The, uh, you know, hopefully weget a better idea, a more, uh,
precise idea about its currentfiscal costs.
We, we have put in some effortto try to, um, provide our own
(09:59):
estimates, updated, um, but it'svery challenging.
I'll go through some of thefeatures of the, um, Inflation
Reduction Act that make it verychallenging to estimate, uh,
just the basic, uh, cost of thecredits in particular, but also
the other revenue raisers.
So, as I mentioned, one of thefive major parts of these
credits, 22 tax credits, they'reeither added or amended.
(10:24):
That itself, itself isexceptional.
Um, this is why, um, the law wasvery soon after it was enacted,
really sold less as a deficitreducing measure and more as
the, quote, largest climatelegislation in history.
That's how the administrationsold it, and that's probably
(10:44):
true.
And so what are these creditsdo?
They are aimed at boostinginvestment in the use of various
renewable energy and low carbontechnologies, including
batteries, electric vehicles,solar panels, hydrogen energy,
um, and carbon sequestration,just to name a few of these
(11:06):
technologies.
I'm not going to try to explainwhat those things are here.
Uh, but, uh, they are on thecutting edge.
You might say a bit hard.
To of course understand thefuture of these, um, these new
evolving technologies so thatthat itself makes it cha a
challenge to get a handle on thecost of these credits.
(11:28):
But the law also added all sortsof complicated conditions to
these credits, um, that, thatmade it, uh, extra difficult to,
uh, to, to, uh, estimate whatsort of, uh, uptake or use of
these credits there would be.
So in particular, there'sdomestic content requirements,
uh, big, big, uh, objectivewith, uh, many of these credits,
(11:51):
um, uh, as voiced by thesponsors of the bill, uh, was
to, um, you know, it wasessentially a protectionist, uh,
kind of effort to, to advantageU.
S.
producers of these technologies.
Uh, relative to foreignproducers of things like solar
panels, electric vehicles, etcetera.
(12:11):
So a lot of domestic contentrequirements written in, in
various ways into these, uh,these credits.
Also requirements for, for, um,certain types of labor used,
particularly unionized labor.
Requirements for, um,apprenticeships, um, uh, offered
as, uh, to achieve a higherlevels of credit.
(12:33):
Uh, there, uh, as well, higherlevels of credit or bonus
credits.
are available for certaingeographic areas in the country
that can demonstrate they facedisruptions from the
introduction of thesetechnologies.
That's typically, uh, you know,um, historically fossil fuel
producing areas like, uh, partsof West Virginia.
(12:55):
Uh, you've got, in addition tothat, you've got, uh, some, some
really, uh, quite novel featuresin these credits.
You've got, uh, transferability.
Allow meaning that the credits,uh, you know, if one taxpayer
pair can't use the credit, theydon't have the tax liability,
uh, or the income to use thecredits in a given year.
They can sell those credits onthe, on a market, uh, that's
(13:19):
established, uh, for exchange ofthe credits.
Um, and, um, that has, uh,that's, that, that continues to
evolve those, those markets.
Those are private markets thatare evolving in different ways.
different ways.
Um, then you've got, um, theability to, uh, elect direct pay
for these credits.
(13:39):
Okay.
So this means they, they arethen really essentially
spending, spending run throughthe IRS.
Um, and this as well, these,they can be claimed, um, by tax
exempts.
This includes state and localgovernment entities, schools,
for instance, uh, tribalgovernments.
Um, this is another thing thatreally opens up the, um, the,
(14:04):
uh, use, uses of these credits,um, in a way that's not very
typical, certainly for, uh, taxcredits.
It makes them much more like,like, like spending, but without
the normal controls on spendingprograms.
That is, there's no budgeting,uh, of the, no formal budgeting
(14:24):
or caps on, on this.
Uh, uh, most of these credits,there's a cap, I believe, on one
of the credits, but, uh, most ofthem are uncapped and they are
only limited by how muchtaxpayers can demonstrate that
they have, uh, uh, achieved inthe way of eligibility
requirements.
Um, so it's all these thingsthat have really led to the
(14:47):
exploding cost of this credit.
So the other, I'll move to theother features of the Inflation
Reduction Act that are also, youknow, share, uh, uh, some
similarities with these credits.
Um, and, and in particular, theyare novel, um, and they are
complicated.
Okay.
So we've got the, the majorrevenue raisers, uh, the, the
(15:10):
largest of which is thecorporate alternative minimum
tax that was introduced in theInflation Reduction Act.
This is a 15 percent minimum taxthat applies to the financial
statement income of large U.
S.
companies, uh, uh, on theirworldwide income.
And, uh, okay.
Easier said than done, as itturns out.
(15:30):
Basically, that has become areal challenge for the Treasury
Department and the IRS to figureout how that could possibly work
with existing tax rules.
And we're talking about largecompanies here with very
complicated, uh, operations thatare, uh, with, uh, you know,
several entities.
(15:51):
There's, you know, all sorts ofchallenges in, Uh, marrying two
different sets of standards,basically tax standards and then
the standards for financialstatements, um, that go out to
shareholders.
Those are, those have operatedforever under entirely different
standards and differentobjectives.
And this, this, uh, corporatealternative, uh, minimum tax, or
(16:13):
CAMT as it's called, uh, sayslet's, let's mix and match, uh,
these concepts and, um, See, seehow it works out.
Well, it hasn't actually workedout, uh, um, technically they
have not finalized theregulations yet more than two
years after the law has beenenacted.
The, the final regulations wereissued just very recently and,
(16:34):
uh, will not be finalized untilthe new year.
Uh, so this actually has not,um, it's not clear that, um,
basically IRS has givencompanies a reprieve on this
KMT.
and not required them to pay it,um, as of yet, um, and so, uh,
it's not clear how much, if any,revenue has been collected under
(16:58):
the CAM T.
Um, and so you, you might sayit's, has not, it's clearly not
been an effective minimum tax,uh, as of yet, but what it has
been is a, uh, a very largecompliance burden for the
taxpayers subject to it.
Uh, the buyback tax is the thirdcomponent.
(17:18):
Uh, this is a one percent, uh,tax on share repurchases, um,
uh, for publicly tradedcompanies in the U.
S., okay?
So this is, um, a morestraightforward tax, uh, it
doesn't have nearly thecomplexities and challenges, uh,
uh, that the CAM T does, um, butit's also, um, questionable and
(17:42):
will be up for debate next yearas it is, uh, attempting to, uh,
uh.
Uh, tax a normal, uh, means bywhich companies distribute their
profits to their share, theirshareholders.
Daniel Bunn (17:55):
So, Will, as you're describing all of these layers
to the Inflation Reduction Act,I'm thinking of what Erica
shared on the Tax Cuts and JobsAct.
So, really, it's just a massivelandscape for potential policy
levers that policymakers willplay with, x year and huge
fiscal price tags associatedwith those different policies
and a lot of uncertainty aswell.
Will McBride (18:15):
that's correct.
That's correct.
It's all, it's all certainlygoing to be part of the mix,
part of the, what looks to be areconciliation process early,
early next year.
Daniel Bunn (18:23):
All right.
So now that we have some contextestablished, I think it's worth
pivoting to what we saw in thepolitical campaigns, obviously,
with so much tax policy expiringnext year and with tax policy
generally being a useful part ofcampaign messaging and policy
platforms.
Um, maybe we can look at thedifferent buckets for campaign
(18:46):
policies and particularlyobviously because, uh, former
president Trump won theelection, maybe a little bit of
a focus on what his policy, uh,proposals look like.
Maybe let's start with theindividual taxes, Erica, what,
what do we see on individualincome taxes, uh, during the
campaign season?
Erica York (19:03):
Yeah.
So like at a, at a very basiclevel, president elect Trump
promised continuing all of theexpiring tax cuts.
So that gives us a startingprice tag of that 4.
2 trillion roughly.
And on top of that, he promisedtax cuts for a variety of
different types of workers andindustries and activities that
add.
(19:23):
Potentially trillions more.
So we heard him campaign onexempting tip income from taxes,
exempting overtime pay fromtaxes, exempting social security
benefits from taxes, uh,creating a deduction for auto
loan interest.
He talked about creating a taxcredit for family caregivers.
Now, a lot of these proposalsfleshed out in policy documents.
(19:48):
So we don't have ideas forguardrails or limitations.
Things of that nature.
Uh, we just kind of saw the highlevel idea.
Um, but I do think we're, we'relikely to see at least some of
these proposals, um, enter thedebate, uh, in Congress.
Um, for example, on the tipexemption, since Trump talked
about that in the summer, um, wenow have five bills in Congress
(20:10):
from both Democrats andRepublicans.
Uh, Exempting tips and in someform or fashion from income and
or payroll taxes.
Um, so I think that all of theseadditional promises that were
made on the campaign trail willcomplicate the debate and we'll
add fiscal pressure to what'salready going to be really
challenged, um, reallychallenging situation with the
(20:30):
price tag on the TCGA.
itself.
Daniel Bunn (20:34):
Yeah.
On the taxes on tips, I thinkobviously one of the reasons
there's bipartisan proposalshere.
Is that, uh, the Harris campaignalso proposed eliminating taxes
on tips and who knows wherewhere things end up on that
proposal.
But, you know, looking at thepace of those proposals coming
out from the Trump campaign,there was questions even we had
internally as whether therewould be an income tax at the
(20:56):
end of the campaign cycle.
Uh, let's pivot a little bit tothe business.
Go ahead,
Erica York (21:01):
I was gonna say just one more area to watch.
Um, the Trump campaign itselfdidn't say anything specific on
the child tax credit, but vicepresidential candidate J.
D.
Vance did float the idea of a5000 child tax credit.
Um, in an interview he had nowthat the campaign didn't pick
that up.
But I think that's another areato watch because the T.
C.
J.
(21:21):
Expansion of the child taxcredit is expiring.
There might be a desire to goeven further than what the TCGA
did.
And of course that comes with areally big price tag.
So that's another area wherethere could be debate even
amongst, you know, Republicanmembers, um, on how to approach
the expiration.
Daniel Bunn (21:37):
Yeah, that's a good point.
The TCGA expanded the child taxcredit to 2, 000 while also Um,
doing some other reforms,eliminating personal exemptions,
you know, doubling up thestandard deduction and those
sorts of things, but a 5, 000expansion would be pretty hefty
in terms of the fiscal pricetag.
Uh, Will, on the, on thebusiness side, what, what did we
(21:58):
see from the campaign season?
Will McBride (21:59):
Well, it was, um, relatively light.
Um, and so we, we had, uh, uh,the main thing was, uh, again,
the, the, uh, from the Trumpcampaign, the, certainly the
signals that they intend to, to,um, extend permanently, uh, the
Tax Cuts and Jobs Act, theexpiring provisions, that
(22:21):
includes some businessprovisions.
As I think we've mentioned,there's three, three ones there
to focus on.
There's 100, 100 percent bonusdepreciation for equipment.
Uh, there's R and D expensing.
Um, and then there's, uh, uh,the, a, a, a less stringent
limitation on interestdeductions for businesses.
(22:41):
Um, it's, uh, based on, uh,EBITDA.
And so this is what was appliedfrom 2018 to 2020.
And after that, a more stringentone, uh, has, uh, been, uh, um,
been in force.
And so I think likely that, um,there will be a push amongst,
(23:03):
um, Republicans in Congress to,uh, extend the more taxpayer
favorable, Uh, businessprovisions, um, in those, uh,
TCGA, um, items.
The other one, uh, to mention isthe corporate tax rate, um, that
Trump, um, uh, in, in variousways, um, talked about, but it
(23:24):
was all in one direction.
He talked about reducing thecorporate tax rate, um, either
to 20%, uh, that was mentioned afew times, uh, from the current
21%.
Uh, as well as, uh, down to 15percent, um, and in the case of
the 15 percent corporate taxrate, uh, more recently, he
(23:46):
talked about that as onlyapplying to, uh, corporations
that, uh, produce in the U.
S.
And so that could be, we don'thave a whole lot of specifics on
that at all, but, um, one thingthat could be pulled off the
shelf that might fit into thatspace is the old, uh, domestic
production activities deductionthat, uh, was part of the tax
(24:08):
code for several years leadingup to TCJ.
It was one of the pay fors inTCJ when it was repealed, but
that essentially gavemanufacturers in the U.
S.
a lower corporate tax rate, andso that might be the approach
used there.
Daniel Bunn (24:25):
Interesting.
Um, and on the other side, justto mention the, uh, the approach
from the Harris campaign, shewas looking at, what, a 28
percent corporate tax rate.
And obviously.
That's not the direction that'sgoing to be the approach that
the Republicans take, but justfor comparison's sake, Trump was
looking at reducing thatcorporate tax rate compared to,
(24:45):
um, what, uh, uh, vice presidentHarris was, uh, was proposing.
Um, another big area for, uh,policy in the, in the
presidential campaign cycle.
This was something that, um, uh,vice president Harris
specifically targeted in herattacks of, um, uh, the Trump
campaign.
Um, but the tariffs, uh, Erica,we've done a lot of work on
(25:08):
tariffs over the year.
Um, over the years, what, whatare you looking at with respect
to these potential proposalsfrom, uh, the, uh, from
president elect Trump?
Erica York (25:18):
Tariff man is back.
Um, Trump campaigned on auniversal baseline tariff that
policy itself was in the RNCplatform.
It was on his campaign websiteHe talked about rates of 10 to
20 percent there.
And then he also threatened andraised the idea of various other
specific tariffs 60 percenttariffs on imports from Mexico
(25:42):
of 25 percent to 100 percent andthen various company specific
tariffs There's really twocamps, um, on, on the approach
that, that Trump will take.
The first camp is that a lot ofthis was just campaign bluster.
This is mainly a negotiationtactic.
Trump doesn't really want toimpose these tariffs.
He just wants to sound tough andget tough on trade to get better
(26:03):
deals.
The other camp is Trump lovestariffs.
He thinks they're the mostbeautiful word in the
dictionary.
And, and, uh, His first term inoffice, he imposed, uh, tariffs
and, and really changed thetrajectory of U.
S.
trade policy, invitedretaliation from around the
world, and a return to office hewould just build on that.
I obviously fall in this lattercamp.
(26:25):
I think that the threat oftariffs is, is very real.
I think Trump is very seriousabout pursuing them.
Um, For, for their own sake,also for the potential revenue
that they could raise.
Um, I think he really views themas an important revenue raising
tool.
Um, we, of course, in ourmodeling show that they're not a
good revenue raising tool.
(26:46):
They, they do generate revenue,but they do that at a great cost
and they invite retaliation thatfurther harms the U.
S.
economy.
Um, so, so it makes it a, areally distortive way to, to
raise revenue.
Um, but I, I think the threat isvery real.
It's just a matter of seeing,you know, how quickly, um, he,
he pursues this.
And when he takes office,
Daniel Bunn (27:07):
Yeah.
And I think that's a good pointto pivot to kind of our general
assessment of the proposals.
Like I mentioned at thebeginning, we have a model that
we use, it's our tactics, taxesand growth model to evaluate
changes in federal tax policy,and we can evaluate changes in
tariff policy as well.
Okay.
Cool.
Um, Will, can you give us asummary of what we're looking at
(27:28):
on the positives and negativeson the economic impacts of
Trump's, uh, approach?
Will McBride (27:34):
Right, at a very high level, as Erika described,
there's two components.
One is very positive foreconomic growth, that is the tax
cuts.
That Trump has proposed, um, inmainly in the form of the
extending the tax, uh, the TCJ,uh, expiring provisions,
including the businessprovisions.
(27:55):
Uh, but there's a whole, uh,several other, uh, tax cuts
that, um, uh, Trump has proposedincluding, uh, lifting the, uh,
the, the cap, the current cap onthe state and local tax
deduction.
Um, and, uh, various exemptionsfor, um, overtime pay, uh, tips,
(28:16):
uh, et cetera, um, as well asthis lower corporate tax rate,
uh, I, I mentioned down topotentially 15%, uh, for some
companies, um, that, uh, thoseare all pro growth measures, not
all well structured, um, uh, orneutral, perfectly neutral, uh,
(28:37):
approaches to, uh, tax reform,but they are tax cuts that do
matter.
They affect, they reducemarginal tax rates on, um, labor
and capital.
And, uh, our model does indicatethat they boost economic growth
considerably.
I think we've got a, um, apicture on that, that we were,
uh, we can show here that, um,indicates that those tax cuts
(29:01):
that Trump has proposed, um, uh,we estimate would increase long,
long run GDP by 2.
4 percent.
That's, uh, quite a, quite alarge boost there.
Um, and, uh, probably, probablythe largest, uh, uh, uh, couple
of, a couple of large componentsthere.
One is the, um, as I mentioned,those business provisions, uh,
(29:24):
from, uh, the expiring TCJ, uh,items.
That's a major boost to GDP ifthose are extended, uh, and then
there's the, um, the individualprovisions, uh, primarily the
lower.
And uh, that's going um, taxrates, uh, that also boosts GDP.
Um, as well that, that, uh, cap,fully lifting the cap on the
(29:47):
state and local tax deduction,that actually by reducing top
marginal tax rates effectively,that has a strong effect on GDP
as well.
Um, but then we've got thisother half of Trump's proposals
that Erica went over, which isvery damaging in economic
growth, that is the tariffproposals and their They're kind
(30:09):
of all over the map, um, asErica discussed, it's hard to
pin down exactly what rate, um,to choose, um, but, you know, in
our, in our assessment, um, youknow, we, we, we, we looked at a
scenario in which there's a, uh,Trump combines all these tax
cuts with a set of tariffs thatinclude a 20 percent universal
(30:32):
tariff on all goods, imports,and then a, um, an additional,
uh, 50, uh, 50 percent tariff ontop of Our current, uh, tariffs
on China and that has a largenegative effect on the economy.
We estimate, um, that those,those tariffs, uh, would reduce
long run GDP by 1.
(30:52):
3%, okay?
And as with, as we know from thelong history of, uh, tariffs and
trade wars in this country andall over the world, they come
with retaliation.
That's what happened when Trump,uh, with Trump's first round of
Uh, tariff increases in 2018,there was a very, very quick
response from other countriesthat, uh, were affected and they
(31:15):
introduced their own tariffsthat reduced, that applied to U.
S.
exports to those countries, so,uh, reducing demand for those
exports and hurting the U.
S.
economy.
So we estimate those, uh, our,our modeling of a retai a
possible retaliation scenario tothose tariffs would reduce U.
S.
GDP further by 0.
4%.
So in total, about two thirds ofthe Uh, beneficial economic
(31:41):
growth that would result fromTrump's tax cuts would be offset
by these, uh, these tariffproposals.
Daniel Bunn (31:49):
that, that's pretty huge.
That's pretty huge.
Um, and I, I imagine that, um,as Congress considers these
things, they're, they're goingto want to think about those
economic, um, benefits and alsothose economic costs.
And I really hope that, um,there's an opportunity for folks
to kind of.
Let's take a step back and takestock of those negative, uh,
(32:09):
economic consequences.
I, I, I, you know, as, as thesethings, uh, progress will of
course be updating those numberswith more, uh, specific policy
proposals, um, but that, that'sa really helpful kind of summary
of where we're looking at thekind of Trump policy landscape
on.
Uh, taxes, tariffs, and ofcourse, retaliation, um, let's,
(32:31):
let's zoom out or, or Erica, didyou have anything you wanted to
add to that before we move on?
Erica York (32:36):
Yeah, I think another important element to
think about is the, thedistribution of tariffs.
They tend to create a larger taxburden on lower and middle
income households.
And of course, a lot of whatTrump talked about on the
campaign trail was.
Helping working class families.
But if you are, um, continuingtax cuts only to pay for them
with something that falls evenharder on that group of
(32:57):
taxpayers, then you, you couldactually be increasing taxes on
them.
And that's what we find in ourmodeling, that with this
combination of tax cuts andtariff hikes, um, the bottom 40%
of taxpayers actually see a taxincrease.
Daniel Bunn (33:11):
Yeah.
And that's not something mostpoliticians are super interested
in.
So we'll, we'll, we'll see wherethis, uh, this lands, but, um,
let's, let's zoom out a littlebit, uh, and, and get a taste
of, uh, where things.
Um, uh, might land on different,uh, in, in, in different
jurisdictions.
So, um, Sean Bray, who is, uh,leading our research effort with
(33:33):
tax foundation Europe, um, anoffice we opened up earlier this
year.
Sean, why don't you give us asense of things like how other
countries, particularly inEurope might be viewing.
The policy landscape in the U.
S.
And I mean, we'll mentionretaliation.
I'm curious whether you thinkthat's actually on the table or
if people are just going to findother ways.
(33:53):
I saw recently, uh, you know,uh, a leader in Europe say,
well, maybe we'll buy more Um,uh, L.
N.
G.
From the U.
S.
And not have to deal with thetariff.
So curious your thoughts on theon the policy landscape.
Sean Bray (34:05):
Yeah, thanks Daniel.
Um, I think there's, uh, there'sprobably good reason to take a
step back, uh, because as we'veseen since the first Trump
administration until today, um,a lot of these debates in the
international space, tax, tax,international tax space.
Could be characterized indifferent ways.
So my first main question, Ithink we could start by just
(34:28):
posing some questions thatpolicymakers should be
considering.
Um, the first is really what arethe priorities or objectives of
tax and trade policy in theUnited States, in the EU, um,
and then, of course, with thework at the OECD and the UN on
the international tax front.
Um, are they to set standards,uh, which has been, I think, uh,
(34:49):
that was a theme in the Obamaadministration.
Rather, should we fix the WTO?
Should we have a free tradeagreement between the EU and the
US TTIP, um, with the goal ofsetting international standards,
uh, as kind of a, uh,confronting China and their rise
in the international system?
Um, are the priorities andobjectives of tax and trade to
(35:10):
raise revenue?
Uh, I think from a taxfoundation perspective, we would
hope that tax policy is viewedthrough the lens of raising
revenue efficiently and lookingat that, uh, angle of things.
But of course, There are otherobjectives that one might
prioritize.
Um, another priority orobjective of tax and trade going
forward might just be decouplingand de risking.
(35:31):
Um, and so I think the firstmain question is, what are
policymakers in Europe and theUnited States thinking about the
objectives?
What are they trying to achievewith some of these policies?
The second question then, ofcourse, leads to, well, to what
extent will the U.
S.
and the E.
U.
work together or not worktogether on achieving those
objectives?
Um, so, can we align ourselvestransatlantically on the
(35:54):
objectives, and if we can, howwould we go forward?
Um, and if we can't, how do wego forward?
Um, I think that's the secondbig question.
Um, a kind of side note on theE.
U.
side is, who actually decides,uh, politically in, in these
regards?
It's not always clear betweenthe Commission and member
states, even within theCommission.
(36:14):
We've been seeing with some oftheir hearings, it's not quite
clear exactly who in theCommission would be making these
decisions about whether tocooperate or, uh, to fight
against some of the U.
S.
in terms of retaliation.
So, um, That's my second kind ofbig question.
And the third one I think, uh,policymakers specifically in
Europe should be thinking aboutis what is the EU's approach to
competition generally?
(36:35):
So, um, that's been a big topicwith the Letter Report and the
Draga Report of recent.
Um, there's kind of two camps.
One is, well, should we doubledown on industrial policy and
subsidies and, uh, go thatroute, government intervention?
Or should we be taking more ofa, an efficient approach,
looking at our tax rates, ourtax base, how can we be more
(36:57):
neutral and competitive throughour tax code in that sense?
Um, so the, this kind ofquestion is a broad question, I
think, for all Europeanpolicymakers at member state
level and at the EU level.
Um, but of course, For thiswebinar, the question is, well,
what impact does the U.
S.
election and potentially, youknow, our tax reform, our trade
policy, given that, what shouldEurope do?
(37:21):
Um, I think some, somehighlights to point out are,
one, uh, if Trump is seriousabout reducing our corporate tax
rate to 15%, that would make,uh, investment decisions towards
the United States from Europethat much more attractive.
Um, and that could be worrisomefor, for EU policymakers.
Um, another thing is the IRA andthe CHIPS, uh, the CHIPS Act.
(37:43):
Those are sort of our industrialpolicy here in the U.
S.
And it's not clear to me thatCongress will necessarily be on
board with gutting a lot ofthose subsidies or, uh, some of
those, uh, attractive, uh, moneyhandouts to, to companies who
may want to come over fromEurope to invest here.
So there's a real possibilitythat the United States
essentially has a verycompetitive corporate tax rate.
(38:05):
And on top of it, some kind ofindustrial policy that's, that's
targeting specific sectors tobring business over to the
United States.
Um, so that's truly the case.
Uh, it really does come down toyour piece, European
policymakers and their questionsof how did they become more
competitive?
How did they respond in thattype of a scenario?
Uh, and what policies shouldthey be looking at?
Daniel Bunn (38:26):
I think that's a really helpful kind of, uh, view
from, uh, from, you know, wherethings stand in the U.
S.
And the critical questions forthe EU.
I mean, honestly, that, youknow, European landscape, the
policy landscape has been at apivotal point for a number of
years without clear direction onmany of those questions.
(38:46):
raising Sean.
So in this coming in, that'svery di policy and even a shift
i trade front that's lasted Uh,it's going to be crit Uh, policy
makers in Europe kind of respondto these things.
There's opportunities for themto go, um, to really lean into
(39:09):
that competitiveness and growthangle.
But we'll see whether that's,uh, that's actually the case.
Um, I think one of one of thethings that is critical, let's
come back to the U.
S.
A little bit, um, is to talkabout the process for these
policy changes next year.
So I think people who understandthe U.
S.
System understand that.
Um, uh, legislation needs tocome out of Congress, um, before
(39:32):
it gets to the president's desk.
Um, but specific to, uh,different fiscal legislation,
there are special proceduresthat can be used, uh, to limit,
uh, kind of the policy landscapethat can be considered and to be
able to expedite policy,especially through the United
States Senate.
I was working in the Senate, um,in 2017 during, um, the Tax Cuts
(39:54):
and Jobs Act, and we used a lotof these.
Um, uh, these tools, this toolspecifically called
Reconciliation, but I, I'llpitch things over to Will to
talk through kind of a generalsummary of what this process
looks like and how it couldimpact what policy, uh, actually
comes out of Congress next year.
Will McBride (40:13):
Sure.
Thanks.
Um, so yeah, reconciliation islooking more, very likely at
this point as the way in whichthis, uh, tax legislation will
be passed.
Uh, I think as we discussedearlier, that's what happened in
2017.
That was the process Republicansuse.
We can look at that episode and,and, uh, as a guide as to what
(40:34):
might happen.
Uh, we can look at, um, how itwas used by Democrats, uh, in
2021 for the, um, AmericanRescue Plan Act, and then in
2022 for the Inflation ReductionAct.
Um, essentially reconciliationis a process, uh, that allows,
uh, for budget legislation to bepassed, uh, by a simple
majority.
(40:54):
Uh, in both the House and theSenate, so it, uh, really,
really that matters, uh, in theSenate.
It, it allows for, um, you know,an avoidance of the normal, uh,
threshold of a, a 60 votemajority in the Senate for, uh,
such budget legislation.
So it can include, uh, tax andspending.
(41:15):
Um, it can as well dress, uh,address the, the debt ceiling,
uh, that is coming up.
That's another.
That's another thing to, uh,confront in the new year,
actually, uh, the first, firstday of the new year, January
one, uh, the current, uh,extension on the debt ceiling
expires.
And so we will engage in a long,another long protracted debate
(41:39):
about what to do about thatwhile we're, uh, debating what
to include in a, in a, uh,reconciliation package.
So that matters because, andagain, the last time we did the
debt ceiling negotiation wasjust last year.
We've done it about 40, 40 someodd times in history.
We can look at what typicallyhappens there.
What happened last year was, uh,there was, um, uh, particularly
(42:03):
the Republicans, uh, in thehouse, um, uh, Uh, uh,
negotiated a, uh, a set ofconditions, uh, to lifting the
debt ceiling, um, that, uh, putcaps in place that, uh, capped,
uh, discretionary spending, uh,in particular, uh, uh, for two
years.
(42:23):
So that, that is a, that is oneamong many indicators that House
Republicans in particular withtheir current slim majority, uh,
as we understand it may be asimilar majority that they had.
Uh, in this, in, in the currentCongress, very slim, like, uh,
four, four vote majority, mostlikely.
(42:44):
Um, they will make debt anddeficits a primary concern and,
uh, you know, they're not goingto, like, forget what they did,
you know, last year and, and,and say to, to heck with the
debt.
They're going to, to really beconcerned about it, make it, um,
that means that in areconciliation process.
(43:05):
That is likely to happen in theearly in the new year.
Republicans have talked abouttrying to pass a reconciliation
bill in the first hundred daysof the new Congress.
Uh, it's going to be, I think,two, two issues that, uh, two,
two primary issues thatRepublicans will be trying to
balance much as in 2017.
they'll be trying to balance adesire to boost economic growth.
(43:29):
Um, uh, and with a desire to,uh, keep the deficit impact to a
minimum.
And what is that minimum?
Well, that's, uh, unknown.
In 2017, that number was one anda half trillion dollars over 10
years that came about.
Uh, Daniel, as you know, becauseof a Senate negotiation, the
house actually wanted to do a.
(43:51):
deficit neutral bill.
Um, and then when that, thateffort initially failed, uh, the
Senate, uh, picked the 1.
5 trillion number, uh, through anegotiation again over those
competing concerns abouteconomic growth and impact on
the debt.
What's happened since 2017?
Well, in 2017, the debt, uh,publicly held debt was about,
(44:12):
uh, three quarters the size ofthe U.
S.
economy.
It's now about, uh, 100 percentof the, uh, of GDP, and it's
heading higher every year, uh,forever in the CBO.
It's heading to unprecedentedlevels just, um, about three
years from now under the currentprojection, uh, and, and headed
(44:35):
to an unsustainable trajectory.
So I think that points to, uh, anumber, Um, a deficit number in
this bill that, um, I wouldthink would be less than one and
a half trillion, uh, given thatthe debt has gotten so much
worse and so much, and we'vegotten to a so much more
precarious, um, uh, situationwith the debt.
(44:57):
Um, Another indicator, we've gotinterest on the debt, the
federal debt that is about,running about a trillion dollars
a year now.
That exceeds spending on defensefor the first time ever.
Uh, it's going, uh, to a, a newrecord level of, uh, as a share
of GDP in the new year.
So I think all these thingspoint to a reconciliation bill
(45:20):
that will be, uh, actually, uh,closer to deficit neutral, uh, I
would think than a severaltrillion dollar.
deficit impact.
Um, and that's real challenge.
You know, that's, that's, youknow, 180 degree, uh, change
from what we heard on thecampaign trail, particularly
from Trump, who was, as we'vediscussed, um, you know, every
(45:44):
week literally was mentioning anew tax cuts, some of which cost
a trillion dollars or more.
Um, I think, you know, it'sgoing to be interesting to see
how that, that those set ofproposals survive in a
reconciliation process.
Daniel Bunn (46:00):
I totally agree.
The, the, the challenge is goingto be, um, you know, if all this
tax legislation is going toresult in, um, different, uh,
you know, deficit outcomes init, if, as you say, will that
there's going to be pressure onthat, like, where does the money
come from, you know, bigger, um,you know, offsets in the tax
(46:22):
code, you know, expansions ofthe tax base, um, or spending
cuts.
And we'll certainly have to waitand see how Congress Um, deals
with that.
Let me, let me go back to, toErica, um, uh, briefly, um,
before we get into somequestions we've received, uh,
from the audience, Erica.
Erica York (46:38):
Yeah.
Sean, one thing I wondered youropinion on, um, you know, in the
first trade war, we saw the EUrespond with retaliatory tariffs
on some US exports, but we arenow seeing reporting that like
they're, they're alreadyprepared to retaliate faster and
harder this time around.
What's your take on that?
And kind of how, how do youanticipate, you know, let's say
we are in a world where the USdoes impose this just baseline
(47:01):
tariff on basically everythingwe import from the EU?
What, what does the EU do inresponse?
Sean Bray (47:06):
Yeah, that's a really good question.
Um, I think it goes back to kindof my original question of to
what extent will we worktogether or not.
Um, and I think there were,there were a few lessons that
were learned in the first Trumpadministration from the EU side.
Um, for one, I think it's, uh,the EU has kind of built out a
lot of its toolbox topotentially respond to some of
(47:28):
these things.
So, to your question of, is it,uh, possible that they can
respond quicker, or is that justkind of a negotiating tactic?
I think it's certainly possiblethat they could respond much
quicker than they did theprevious time.
The other thing that I would,uh, but, but again, the question
is, who decides?
And politically speaking, is it,who, who makes that choice?
Economically speaking, is it onnet worth it?
(47:51):
Uh, so the question then, ofcourse, is yes, you can
retaliate, yes, you can do allthese things.
Economically speaking, how doesthat affect the EU?
How does it affect each memberstate?
And then, of course, it's backto the political question of
depending on who's winning andlosing from those situations,
uh, how does the politics endup?
So I think it's certainlypossible.
I think they have built atoolbox to be able to respond.
(48:12):
Um, it's just a question of whodecides and, uh, who's, who's
winning and losing from thatsituation.
I think it also brings togetheranother thing that we learned
during the first Trumpadministration was that, uh,
kind of the geoeconomicquestion, right?
So, there's a very narrow focuson tax, or on trade, or on
standards, or on defense, butultimately when you get into
(48:34):
these negotiations, uh,specifically with a
transatlantic aspect, All ofthese things can come together.
Um, and so for example, in thetax space, you know, we have
pillar one and pillar two andDSTs, uh, and UTPR, uh, from a
trade perspective, we have thetariffs of course, and we have
CBAM.
I'll put that in that category.
Um, from a standardsperspective, the EU, one of the
(48:56):
lessons they, I think learnedwas that, uh, after the TTIP
negotiation fell apart under theObama administration was that
actually to, to.
Allow Europeans to believe inthe process and to believe in a
potentially a free tradeagreement with the United States
in the future They would have tohave high and strong European
standards to start.
So a few examples are the AIAct, GDPR, the Green Deal
(49:18):
ultimately.
These were all setting intoEuropean law kind of their
standards and what they thoughtwould be the proper way to
converge with the United States.
Um, and of course on defense,uh, it's NATO spending and it's
how we handle Ukraine and otherissues in the Middle East.
So, what's different this timefrom an EU perspective from the
first time is that, for example,within CBAM, uh, they actually,
(49:40):
they actually have a, a toolwhere, uh, they can retaliate
within CBAM if other countriesare not pricing carbon the same
way that the EU is.
Um, they can place, uh,essentially an external border
tariff on incoming products, uh,that are not carbon priced, uh,
under the same as the EU.
Uh, when it comes to Pillar 2,um, you know, UTPR kind of
(50:01):
serves the same function, whereif other countries are not
playing by the Pillar 2 rules,the EU does have the option to,
uh, to use UTPR to, uh,essentially penalize countries
who are not, uh, signed up tothat.
Um, so there are, they've builtinto their policies, their tax
and trade policies, kind ofthese.
Uh, retaliatory mechanisms, um,in the, in the case that in the
(50:23):
future they needed to negotiatewith the United States or any
other country, um, and so withintheir policies, these things are
already built in.
So I think kind of the, the bigpicture is on tariffs.
There's a question of how thatmight work from the EU side and
how quickly or not that mighthappen.
Um, but within the policies thatalready exist, uh, in tax and
trade in the EU, um, and evenstandards, uh, that's already
(50:44):
kind of baked in.
So they could certainly.
Uh, exercise their right tothose, uh, to those mechanisms
if they choose so.
Daniel Bunn (50:51):
Yeah.
And on, on the, the pillar tothe global minimum tax stuff,
uh, Sean, the, the, um,Republicans in Congress have
been very clear in theiropposition to some of those
policy tools.
And it's going to be.
Uh, back and forth, I imaginepretty quickly, especially once,
uh, President elect Trump hashis treasury team in place, um,
(51:12):
we'll be able to see how some ofthat's going to pan out, but,
um, people are already very muchdug in on their positions and
it's not clear how, uh, how, howthings break loose.
Um, uh, we, we do have a coupleof questions from the audience.
Thank you for submitting these.
Um, I'm going to, uh, uh, pitchthis one over to Erica on the
(51:32):
question of social security aspart of the income tax base.
Can you run through some of thelogic, um, of current policy and
the approach that, uh, PresidentTrump, uh, President elect Trump
was mentioning during hiscampaign?
Erica York (51:45):
Yes, this is actually a policy that was put
into place by reforms that, thatPresident Reagan, um, oversaw
and helped, uh, fend off a, afunding shortfall in, in the
eighties for social security.
And essentially there's, there'sa formula, um, taxpayers can
kind of get tripped up with it,but it can subject, um, part of
social security benefits toincome tax.
Um, either 50 percent or 85percent depending on how that
(52:08):
formula shakes out.
Um, and that helps fund thesocial security trust fund.
The idea that Trump talked aboutwas completely exempting all of
those social security benefitsfrom the income tax, um, that.
would not happen if, ifreconciliation is the route
because, um, reconciliationdoesn't allow changes to the
(52:30):
funding of social security.
And so that policy would be offof the table for, for a
reconciliation bill.
Daniel Bunn (52:37):
That's, that's really helpful context,
especially as it relates toreconciliation.
Okay.
Um, Will, you talked a lotabout, uh, debt and deficits.
I'm, I'm curious, you know, Iknow you've done some research
in the last year or so ondifferent ways to address the
long term, um, debt, but justmaybe quickly summarize some of
those policy levers that if youwere, you know, treasury
(52:57):
secretary for a day or chairmanof the Ways and Means Committee,
like where, where would you lookfor revenue that would be
substantial but not, uh, reallyimpact, uh, long term growth?
Will McBride (53:08):
Right.
Uh, so I, I think that'll be,um, part of the debate.
Uh, they'll, they, these twoconcerns, as I mentioned, the
debt concern and then, you know,uh, concerns about how to
reinvigorate economic growthover the longterm.
It will naturally lead to, um,a, a real hard look at, you
know, Ways to raise revenueefficiently, basically.
(53:30):
So what are those?
Those, those are not mysterious.
Actually, those are well, wellknown.
They've been known for decades.
It's essentially comes down totaxing consumption.
Um, is a, you know, that's avery broad tax base, uh,
something like 70 percent of ourGDP, um, We don't have currently
a broad based consumption tax atthe federal level.
Um, we're the only developedcountry in the world that does
(53:54):
not have one.
We instead rely heavily onincome taxes, um, uh, to fund
the federal government.
That's, that's, uh, incrediblyrare actually, um, and so you
might say it's, we're imbalancedrelative to other countries and
it's actually, this feeds intothe whole debate about trade
and, um, you know, how, uh,goods are produced, uh, outside
(54:18):
the U.
S.
and then consumed in the U.
S.
Um, and so I think the, the, thedebate, which periodically pops
up, um, about moving to aconsumption.
Base tax system, uh, we'll comeback and it'd be a, it'll be a
good development because, uh,the last time we really heard
about that was maybe 20 yearsago when there's a vigorous
(54:41):
debate, um, uh, if you mightrecall, about flat taxes.
Um.
The old Hall or Bush flat taxapproach that was developed in
the eighties and debated for,uh, you know, 10 or 20 years
after that, um, uh, you know, asopposed to other approaches to
getting towards a consumptiontax system that is, you know,
(55:02):
ultimately, again, going toproduce revenues, substantial
revenues, um, more efficiently,uh, with less damage to the
economy than we currently dowith the income tax.
Daniel Bunn (55:13):
Yeah, I think that would be a key opportunity for
legislators that are looking forways to offset some of these
long term fiscal costs withrevenue that isn't going to
harm, um, or have much less harmon the future trajectory of the
U.
S.
economy.
One more question, um, uh,before we start to wrap things
(55:35):
up here, um, Erica, youmentioned towards the beginning
about what happens if the TaxCuts and Jobs Act expires.
I, I think it'd be a way.
Worthwhile to wrap things uparound this kind of a crystal
point, because again, you know,this is kind of the, the
motivation for action next year,regardless of what that action
actually entails.
But what's the tax hike looklike maybe, um, you know, for
(55:57):
folks in the lower half of theincome, uh, spectrum, um, or the
way that you're thinking aboutthe, the, um, uh, the way the
tax cuts and jobs act was puttogether, um, and how that might
look if, uh, if the tax cuts andjobs act were allowed to expire.
Erica York (56:13):
So if the TCGA expires, um, like I said, we've
estimated about 62 percent oftaxpayers would see their taxes
go up.
We've actually got a cool toolon our website, a tax calculator
that lets you input someinformation and see an
illustration of how your own taxburden can change.
Um, the dollar amounts are ofcourse going to vary by
taxpayer, by their ownsituations, by what types of
(56:34):
income they are in, whether theyhave dependents or not.
Um, but we've estimated thatthe, the Average tax increase
across all congressionaldistricts for all of the
expiring individual and businessprovisions is about 2, 600.
Lower income taxpayers will seea smaller amount, higher income
taxpayers a higher amount, butthat gives you a general
(56:54):
ballpark.
And it's not just tax increases.
It's also that the tax systemwill become more complicated.
So the TCGA simplified things byexpanding the standard
deduction, by really limitingthe bite of the alternative
minimum tax.
If those reforms go away,millions more people will have
to also file the alternativeminimum tax forms.
(57:14):
We'll go back to taking itemizeddeductions, which is a more
complicated filing process.
And so it's higher taxes and amore complicated filing system.
Which I don't think anybodywants, and I don't think
Congress will allow to happen infull, um, but that's what's on
the line.
Daniel Bunn (57:30):
it's, it's, it's a huge tax cliff.
Um, uh, Sean, Will, Erica, anylast words before I start to
wrap things up here?
Sean Bray (57:38):
I think one thing just to, to point out, well, two
things just to point out.
One is I think, uh, kind of toErica's point earlier about
whether Trump is just usingtariff, the threat of tariffs to
negotiate or whether it's areal, a real threat.
Um, I think in either case, uh,I think it's, I think it's maybe
both.
I think honestly he's trying touse it to get a better deal and
(58:00):
will actually carry it out insome, in some respects.
Thanks.
Um, so I think that's somethingobviously to pay attention to,
but the flip side of that is,um, I think it, it will come
down to a negotiation and Ithink other countries, uh, for
example, with the pillars, um,it was actually under the Trump
administration that the, thepillars were being negotiated at
the OECD, um, so I wouldn'tnecessarily just write off any
(58:20):
kind of transatlanticcooperation, uh, even if it
might sound like there's a lotof doom and gloom out there on,
on the future of the EU and U.
S.
kind of tax and trade relations.
Um, I think there are deals tobe made and there are ways in
which the U.
S.
and Europe can work together ontax and trade.
Um, and potentially presidentelect Trump might be interested
in negotiating that.
So, um, I wouldn't say that it'sall doom and gloom and
(58:43):
hopefully, uh, technocrats likeus can, can come in and try to
help, uh, where we can and pointout where, where there might be
opportunities to work together.
Daniel Bunn (58:51):
to make a joke that's been made hundreds and
hundreds of times over over thelast eight years.
It's maybe not doom and gloom,but more a little bit on the art
of the deal.
Um, uh, and with that, uh, thankyou so much for joining today.
Please follow our work.
You can subscribe to ournewsletter at taxfoundation.
org.
Also, uh, you will be postingadditional content, uh, here on
(59:13):
our YouTube, and we'll be havingevents, uh, over the course of
the coming months.
We have a lot of numbers tocrunch and certainly we'll be
paying attention to this fastpaced policy debate as it
develops.
Uh, and uh, thank you so muchfor attending today and we look
forward to talking to you againsoon.
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