In just a few days, the nation will witness a pivotal moment as President Joe Biden and former President Donald Trump engage in the first debate of the 2024 presidential election in Atlanta. Amidst this political showdown, one critical issue that demands attention is the future of the US tax code. The upcoming presidential term will require the White House to confront the impending expiration of key individual and business tax provisions established by the Tax Cuts and Jobs Act (TCJA). Furthermore, the incoming president will inherit a daunting landscape of staggering debt, persistent deficits, and a prolonged trade conflict with China.
Examining the significant implications of these tax policy issues, both candidates must offer transparent and thoughtful responses to provide clarity on their strategies for addressing the nation’s pressing tax challenges.
The Individual Expirations
The impending expirations stem from the temporary alterations introduced by the TCJA, which fundamentally transformed the tax landscape for individuals across varying income groups. Some noteworthy provisions slated for expiration the following year include:
1. Lower tax rates and brackets: The TCJA notably reduced tax rates and broadened brackets to mitigate marriage penalties, fostering after-tax income growth for individuals.
2. Expanded family benefits: Revamping child tax credits, personal and dependent exemptions, and the standard deduction were pivotal changes that enhanced benefits for lower- and middle-income households with children while simplifying the tax filing process.
3. Limits on itemized deductions: To offset the tax cuts, the TCJA imposed restrictions on itemized deductions for home mortgage interest and state and local taxes paid, among other adjustments.
4. Other changes: Alterations to the alternate minimum tax, introduction of new deductions for pass-through businesses, and doubling the estate tax exemption were also significant developments under the TCJA.
For Trump, extending the TCJA entirely and exploring higher taxes on American imports could be a potential course of action. Meanwhile, Biden’s approach may include extending the TCJA for those earning under $400,000, accompanied by tax increases on US businesses and high-income earners. Despite these suggestions, neither candidate has furnished a comprehensive plan to address the imminent expirations.
The Business Expirations
In addition to the forthcoming adjustments in individual income taxes, businesses face a degree of uncertainty due to scheduled changes, including:
1. Research and development: Revisions in the TCJA mandated a gradual deduction process for research and development (R&D) expenses, potentially discouraging R&D investments over time.
2. Machinery and equipment: Companies benefited from immediate deductions for qualifying investments, a provision that is currently phased out, leading to prolonged schedules for deducting machinery and equipment costs.
3. Net interest limitation: Restrictions on interest expense deductions tied to earnings before interest and taxes (EBIT) pose challenges for businesses in managing expenses.
4. International provisions: Shifts towards a territorial tax system and anti-base erosion measures under the TCJA are significant components undergoing further constraints post-2025.
Trump’s camp leans towards maintaining the 2017 TCJA policies, while Biden’s proposed tax reforms encompass raised corporate income tax rates and revised international tax stipulations. These deliberations emphasize the complexities faced by businesses amidst evolving tax environments.
The Trade War
The preceding administration’s confrontation with China instigated a trade war through tariff impositions on various goods, triggering significant repercussions on global trade and economies. Maintaining a tough stance, Biden’s administration has sustained most tariffs, with indications pointing towards sustained protectionist policies.
The Growing Federal Debt
Fitch Ratings’ recent downgrade of US debt underscores the mounting concerns over the federal budget’s unsustainable trajectory, characterized by escalating spending outpacing revenue projections. This pessimistic forecast necessitates decisive tax and spending reforms by the incoming president.
The Path Forward
Against this backdrop of fiscal challenges and tax policy intricacies, both candidates must articulate their plans for navigating the complex tax landscape, restoring economic stability, and fostering growth. As voters anticipate the forthcoming debate, the clarity and depth of their tax policy visions will be paramount in shaping the future economic landscape.
Amidst the gravity of these tax policy and fiscal dilemmas, prudent decision-making and strategic planning will be instrumental in fortifying the nation’s economic resilience and prosperity.
