One of the enduring divisions between Democrats and Republicans in the United States is over how to use the tax code to achieve ideological goals. So it is no surprise that the major party nominees —- Democratic Vice President Kamala Harris and former Republican President Donald Trump — are offering sharply different visions of how they would use tax policy. In his third campaign for the presidency, Trump is promising further tax reductions but also pairing them with aggressive tariffs on imported goods, which function as a kind of tax on the importing company that is ultimately passed on to consumers.
More tax cuts are coming
One of Trump’s signature legislative achievements as president was the 2017 Tax Cuts and Jobs Act (TCJA). Among other things, the TCJA permanently lowered the corporate tax rate to 21% from 35% for most companies. While the changes prolonged the U.S. economic expansion that ended abruptly with the COVID-19 pandemic in the spring of 2020, they also worsened America’s structural budget deficit. Nevertheless, the Trump campaign has discussed another round of corporate tax-cutting, to a rate of 15% for domestic manufacturers, although neither this proposal nor any proposed policies related to individual or corporate tax rates are to be found in the campaign’s official Agenda 47 policy pages.
In addition to corporate taxes, the Trump campaign wants to make further changes to the tax code for individuals and families. The TCJA “reduced statutory tax rates at almost all levels of taxable income,” said a report by The Urban-Brookings Tax Policy Center, meaning that most Americans paid lower taxes after the law was implemented. Many of those provisions, however, expire at the end of 2025, and the Trump campaign wants Congress to make them permanent. That includes the TCJA’s significant expansion of the standard tax deduction for individual and joint filers as well as the TCJA’s alterations to the Estate Tax.
Additional deductions and how to offset them
The Trump campaign has reversed course on one TCJA change, which was to cap the State and Local Tax deduction (SALT) for homeowners at $10,000. The Trump campaign now promises to restore that deduction to where it was before the TCJA was passed. “I will turn it around, get SALT back, lower your Taxes, and so much more,” said Trump in a September 17 post on Truth Social. Democrats, who have been trying to have the exemption restored for many years, seem to agree with the former president here.
Finally, Trump has proposed two new individual tax exemptions, one for income from tips for restaurant workers and others who draw a significant percentage of their income from gratuities, and another for overtime pay. While the proposals are meant to boost income for hourly wage-earners, critics argue that it would introduce another form of inequity in the tax code. “Overworked salaried employees wouldn’t see a tax cut on their long workweeks,” said Emily Peck in Axios.
The Trump campaign has promised to offset the revenue losses from these proposals with new tariffs on imported goods. The exact shape of those tariffs has been a moving target during the campaign. After weeks of promising a 10% blanket tariff on all imported goods, Trump recently raised the bar by floating the prospect of a 50% worldwide tariff during an interview in Chicago with John Micklethwait, the editor-in-chief of Bloomberg News. Trump argued that it would be an incentive for companies to relocate to the United States to avoid the new levy. “It must be hard for you to spend 25 years talking about tariffs being negative and then have somebody explain to you that you’re totally wrong,” said Trump when Micklethwait criticized the plan.
Most economists, though, are skeptical that Trump’s proposed tariffs would help the economy. Even the lower-range tariff proposals could “cost a typical household in the middle of the income distribution at least $1,700 in increased taxes each year,” said Kimberley Clausing and Mary Lovely in a Peterson Institute for International Economics report.