Editor’s note: Rethinking65 recently spoke with Erica York, senior economist and research director with the Tax Foundation’s Center for Federal Tax Policy, to get a better understanding of where these presidential hopefuls stand and the bigger tax picture.
Patricia McDaniel: Can you summarize the two presidential candidates’ tax policies?
Erica York: Biden’s tax policy is characterized by higher taxes on U.S. businesses and high-income households, and more tax preferences and credits for narrow groups of households and activities.
Trump’s tax policy is characterized by lower taxes for U.S. businesses and households, but higher taxes on imports through new tariffs, which would fall hardest on lower income households.
(Note: For more details and a timeline of updates for all candidates’ tax policies, visit the tracker on the Tax Foundation website.
McDaniel: It seems that a return to higher business taxes is seen as a positive in that it can help reduce an expanding federal government deficit. What are the negatives?
York: Policymakers have several ways to rein in the deficit, including higher taxes, but higher taxes on corporate income and business investment is one of the most harmful ways to increase taxes. Dollar for dollar, raising revenue with higher business taxes is more economically costly than nearly any other tax increase. The economic harm, including reduced investment and lower wages, could outweigh the higher revenue, making the debt even more unsustainable.
McDaniel: How do the Biden/Trump proposals for tax policy help or hurt the economy?
York: We’ve estimated that the higher taxes included in President Biden’s latest budget proposal would shrink the U.S. economy and employment. We do not have a similar estimate for candidate Trump, because we do not have a formal plan to model, but if it included permanence for the 2017 tax law and the higher tariffs proposed on the campaign trail, it could be close to offsetting, or even negative, depending on the magnitude of the tariffs.
McDaniel: What are recent tallies of the U.S. deficit – and what are projections?
York: The total deficit in fiscal year 2023 was nearly $1.7 trillion, and the Congressional Budget Office projects that over the next decade, deficits will continue to grow, exceeding $2 trillion a year beginning in 2031. Over the 10-year period from 2025 to 2034, deficits are projected to total just over $20 trillion.
McDaniel: What do you think of Trump’s proposal to apply 60% tariffs to Chinese imports, as cited by the Tax Foundation? And can you explain current tariffs?
York: During his first term in office, Trump imposed new tariffs on about $380 billion worth of goods that Americans import from foreign businesses. Nearly all those tariffs have remained in place under President Biden. Research from academic economists as well as the U.S. government has confirmed that American consumers, both retail consumers and businesses that buy goods from abroad, have borne nearly the entire tax cost of those tariffs. The tariffs reduced output and employment by raising the cost of doing business in the U.S., and they reduced American incomes both by increasing tax burdens and by distorting markets.
Trump’s proposal to quadruple down on tariffs is misguided and will further harm American taxpayers and businesses. Higher tariffs won’t boost American businesses overall, and will make Americans poorer.
McDaniel: How can income tax policy help address inflation for Americans?
Erica York: Most areas of the individual income tax code are adjusted annually for inflation, so that taxpayers don’t see their tax burdens rise just because inflation is higher. Some areas of the tax system, however, are not adequately adjusted, and lawmakers should consider updating those areas so that taxpayers are not burdened with taxes on inflation. For example, the tax brackets for the Net Investment Income Tax have never been inflation adjusted. The NIIT levies a 3.8% tax on investment income for single filers with over $200,000 in income, or joint filers earning over $250,000.
Patricia McDaniel is a New Jersey-based journalist. She can be reached at pmcd5353@gmail.com.
