The Republican Party's major victories in the presidential election and Congress have turned what may have been a struggle to continue Trump's tax cuts into a multi pronged movement to cut taxes in new and larger ways.
According to the Zhitong Finance APP, the Republican Party is about to gain a majority in both houses of Congress, which means Trump can enact tax bills without making concessions to the Democratic Party. Republicans will only be limited by how much deficit spending their own lawmakers and global financial markets can tolerate.
This is a trillion dollar issue, "said Rohit Kumar, co head of PwC's National Tax Office and former tax policy advisor to Senate Republican leader Mitch McConnell
Gordon Gray, former assistant to the Republican Senate Budget Committee and current executive director of Pinpoint Policy Institute, said that as Congress is now more likely to extend the expiring provisions of the 2017 bill, which includes a 20% reduction on corporate income and an increase in inheritance tax exemptions, owners of minority holding companies and high net worth families will benefit from it.
Many Democrats have proposed an agenda during the campaign to tax the wealthy and advocate for paying for other tax cuts through these provisions, as well as canceling legal tax cuts for businesses and individuals with annual incomes exceeding $400000.
Grover Norquist, an influential figure in the Republican tax policy debate and chairman of the conservative organization Americans for Tax Reform, stated that the Republican Party's success in the election not only supported the 2017 tax cut plan, but also paved the way for further ideas such as reducing corporate tax rates and exempting federal income tax.
During his presidential campaign, Trump enthusiastically pushed for the reduction of corporate tax rates and the waiver of tip income, and promised countless other tax breaks.
The first thing Republicans need to negotiate is the size of the tax cut plan and to what extent they are willing to increase the federal deficit. In the fiscal year ending September 30th, the federal deficit has reached $1.83 trillion. According to the estimate of the non partisan fiscal watchdog organization, the Responsible Federal Budget Committee, simply extending the expiring tax cuts would increase the deficit by $4.6 trillion over the next 10 years, while all of Trump's campaign plans would increase the deficit by as much as $7.75 trillion.
Stephen Moore, a senior researcher at the Heritage Foundation and an informal advisor to Trump, said that tax cuts will stimulate economic growth, and Republicans can also cancel Biden approved spending to help offset the cost of tax cuts. However, he added that the bill may increase the deficit to some extent.
Sage Eastman, a Republican strategist and former assistant to the House Ways and Means Committee, said that this has sparked conflicts within the Republican Party between deficit hawks and lawmakers who believe that the revenue losses from tax cuts do not need to be offset. The House Ways and Means Committee has jurisdiction over tax legislation.
Idaho Republican Senator Mike Crapo, who will soon serve as the chairman of the Senate Finance Committee, said that "pro growth" tax policies do not need to be paid for. Kyle Pomerleau, a senior researcher at the American Enterprise Institute, said that the 2017 tax cuts did have some positive economic impacts, but were much milder than predicted by the Trump administration and some Republicans.
Martha Gimbel, Executive Director of the Yale University Budget Lab and former White House economist in the Biden administration, said, "It is important to observe whether the market is starting to panic, whether they are considering enough deficit spending, or whether they will decide to study carefully
Trump has vowed to impose tariffs of 10% to 20% on all imported goods and 60% on Chinese products, offsetting the tax cuts. But lawmakers will have to decide whether to include these tariffs in the tax bill to officially calculate revenue - a difficult vote for Republicans, especially those who want free trade. They may also simply assume that the tariffs imposed by the president will continue to generate revenue, although Trump may reach a trade agreement in the future that eliminates tariffs.
Dave Camp, senior policy advisor at PwC and former Republican chairman of the House Ways and Means Committee, said, "There's always a way to make things go smoothly
The Peterson Institute for International Economics estimates that these tariffs can only generate approximately $225 billion in revenue annually. Kimberly Clausing, a tax law professor at the University of California, Los Angeles who previously served as a Treasury official in the Biden administration, said that the Republican Party may overestimate the revenue generated by tariffs and ignore the negative economic impact of tariffs.
Kumar pointed out that Republicans have expressed their desire to enact a tax bill within the first 100 days of Trump's second term, although negotiating details may take longer.
Scott Mulhauser, a Democratic strategist and senior figure involved in legislative policy struggles, said that the Republican Party's narrow advantage in the House of Representatives gives a small group of Republican lawmakers the ability to demand specific tax breaks, while the Democratic Party's strategy will be to focus on weak Republican lawmakers in swing districts, pushing them to support or oppose individual provisions.
Skeptics say they doubt all the tax cuts proposed by Trump during the campaign - the number of these cuts is increasing due to the cost and difficulty of creating the entire list, and even some of his advisers are unsure which proposals he is most committed to.
Trump has promised to restore the full value of state and local tax breaks (SALT), a popular relief in high tax states including New York, New Jersey, and California. The tax law signed by Trump stipulates that regardless of marital status, deductions cannot exceed $10000.
Although it is possible to make some adjustments to SALT, such as raising the upper limit or doubling the deduction amount for married couples to jointly declare, it is impossible to completely remove this restriction as it would result in tax losses: according to the Responsible Federal Budget Committee, this would lead to a loss of $1.2 trillion over 10 years.