The 2017 Tax Cuts and Jobs Act brought a major overhaul to U.S. tax code. The corporate tax rate was slashed to 21% from 35%, individual income tax rates were cut, and the standard deduction was increased.
Now, analysis in 2018 found that the cuts would boost the economy, but the effect would fizzle out quickly. And the price tag would be huge. The bill is expected to add nearly $2 trillion to the deficit by 2028.
Many of the household tax reforms included in the bill expire in 2025, meaning that whoever wins the election will have the opportunity to either fight to extend the legislation or let it lapse.
Trump has shown interest in making his tax rules permanent. Biden would likely preserve some of the tax cuts, namely those benefitting households making less than $400,000 a year.
The cuts have the largest benefits for the wealthy and for small business owners, but there are also provisions that benefit middle-income Americans like the increased standard deduction and Child Tax Credit.
An important effect of extending the 2017 tax cuts is that it’s estimated to cost an extra $3.8 trillion over the next decade. Without significantly cutting services, the federal debt would balloon to 211% of GDP by 2054, compared to about 100% of GDP right now.
Trump has actually pledged to make even more tax cuts – if that happens, obviously the deficit would grow even faster and the debt would be even larger.
Biden’s proposed alternatives include several programs to lower taxes for those making under $400,000 a year while also raising taxes on corporations and wealthier Americans. Efforts to target corporations include raising the corporate tax rate to 28%, increasing enforcement of tax avoidance by multinationals, and quadrupling the stock buyback tax.
His plan would also affect the highest-earning Americans, including a 25% minimum income tax on billionaires. All together, Biden’s policies would raise about $5 trillion in revenue by 2034.
While there is some overlap between the two candidate’s goals, the long-term effects on the federal debt and deficits couldn’t be more different.
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