By Caitlin Reilly
CQ-Roll Call
(TNS)
WASHINGTON — Taxes have figured prominently in both presidential campaigns, but the hefty national debt and trillions of dollars in tax breaks due to expire next year are likely to complicate the road from proposal to law, even under possible one-party rule.
The cost of just extending all or some of the expiring provisions from the 2017 tax law could put Congress in a tricky position, former members, staff and administration officials said.
“On the campaign trail both candidates are writing very expensive policy checks that will be difficult for Congress and taxpayers to cash. The challenge will be for Congress to find a way to accommodate what are the most important priorities for the White House,” said Kevin Brady, a senior consultant at Akin Gump Strauss Hauer & Feld LLP.
Brady chaired the House Ways and Means Committee that helped write the $1.5 trillion tax package former President Donald Trump signed into law in 2017.
Former members, including Brady, were split on how prominently new proposed tax breaks coming out of both campaigns would figure in next year’s race to avert the tax cliff. All in, Trump’s tax and other budget proposals would cost about $7.8 trillion over a decade, while Vice President Kamala Harris’ would cost nearly $4 trillion, according to the Committee for a Responsible Federal Budget.
“You need to take them seriously, because the candidates are usually making them seriously,” Brady said. “It’s going to be a challenging discussion, especially since these are huge numbers.”
Others were more skeptical, given the magnitude of such a tax package were it to come together and over $28 trillion in debt.
“Obviously, we’re in the middle of the campaign, so the promises are running thick and deep. And yet, practically, I think there is going to be a conversation in the next Congress about deficits and debt and how we’re going to be paying for this stuff,” said Ron Kind, senior counsel at Arnold & Porter and a former Ways and Means Democrat. “I think the next Congress is going to have their hands full just dealing with expiring provisions.”
‘Tremendously expensive’
Former members and staff had mixed predictions for the viability of the candidates’ tax proposals. Some said they were likely to be seriously considered next year, albeit substantially narrowed, while others said the cost of extending the 2017 provisions coupled with the rising debt made additional cuts dubious.
In addition to extending most of the expiring provisions, Trump has pitched new tax breaks, including exemptions for tips, overtime wages and Social Security payments, deductions for interest payments on car loans and state and local taxes, and lowering the corporate rate to 15 percent for domestic manufacturers.
Meanwhile, Harris has pledged to keep taxes the same level or lower for those making up to $400,000, which would mean a still-pricey, if slimmer, 2017 law extension. She’s also pledged to increase the child tax credit, and create new credits for first-time homebuyers and deductions for startup companies.
Extending and modifying the expiring 2017 provisions would cost about $5.4 trillion over the next decade under Trump’s proposals, if the $10,000 cap on state and local taxes is allowed to expire and full upfront deductions for business equipment and research and development expenses are restored, according to the Committee for a Responsible Federal Budget.
Extending the tax cuts just for households making under $400,000 would still cost about $3 trillion over the same period, according to the group.
“Just the extension, or permanent extension of the individual rates will be tremendously expensive and could take the life out of other priorities,” Kind said. He added that Harris’ child tax credit expansion and support for low-income housing and startups may be on the table in some form, but her $25,000 credit for new homebuyers is less likely.
Former aides and members were split on how seriously Trump’s new proposed tax cuts would be viewed by Congress, even in a Republican sweep.
Peter Roskam, another former Ways and Means Republican, said the debt is likely to weigh heavily on Republicans if they control the House, Senate and White House next year. But ultimately they were likely to bow to the president’s wishes, he said.
The proposed cuts from the Trump campaign are likely to be “under serious consideration,” and it would fall to Ways and Means and Senate Finance to narrow the campaign promises to limit the costs, said Roskam, now a partner at law firm BakerHostetler.
“I don’t see Republicans on Capitol Hill just saying, ‘Ah, that was just campaign rhetoric. We’re going to write a bill and he’s going to sign it,’” Roskam said.
Marc Gerson, a former Ways and Means GOP staffer, disagreed, saying he didn’t see new tax cuts holding much sway over the focus of next year, which would be addressing the expiring provisions.
“I think they pick one of the new president’s proposals and fit it in some either temporary or scaled-back fashion, as a tip of the hat,” Gerson, now with law firm Miller & Chevalier, said. “But I don’t see them adopting the full tax relief proposals of either candidate because they’ve so much to do just to handle 2017.”
David Skillman, a former aide to Ways and Means member Earl Blumenauer, D- Ore., said fairness and ease of implementation are likely to figure more prominently as Congress digs into Trump’s campaign tax breaks, especially on proposals that favor some workers or industries over others.
“It doesn’t play well on the campaign trail, but for purposes of the legislative process, administrability still matters. Efficiency and equity really matter,” said Skillman, now a managing director at law firm Arnold & Porter.
Revenue raisers
In contrast, former members and staff are taking proposals to raise revenue coming out of each campaign seriously, with a notable exception.
Harris has proposed a handful of policies that would raise taxes on corporations and wealthy households, including on capital gains and inherited assets. Her tax-related offsets would increase revenue by about $4 trillion over 10 years—still not nearly enough to cover the costs of all Harris’ tax and spending proposals, according to the CRFB.
Ex-members and staff agreed that under Harris the corporate rate would likely increase, as would estate taxes. The 2017 tax breaks for high-earning households likely would be allowed to expire, with possibly an increase to the top capital gains tax rate.
But they were skeptical Harris’ plan to tax unrealized gains for those worth more than $100 million would make it into law. Some of Harris’ biggest supporters, including billionaire Mark Cuban, have publicly said the proposal wouldn’t become law.
“As far as unrealized gains, we took a long look at that in the past too, and it gets complicated very fast,” Kind said.
Jose Murillo, a partner with Ernst & Young LLP, said time and the year-end deadline are working against Harris’ pledge to tax unrealized gains.
“There’s a long way between proposal to actual statutory drafting,” said Murillo, who worked at Treasury under presidents of both parties. “I’m not sure … there’s enough time to actually draft it, vet it, figure out what it means, score it, what are the mechanics, and get it across the finish line.”
Meanwhile, Trump’s biggest revenue raiser would be his plan to impose across-the-board tariffs on imports. While the plan for 10 to 20 percent tariffs on most goods and 60 percent tariffs on imports from China might not garner a lot of support on the Hill, that might not matter. The White House may have substantial authority to impose tariffs unilaterally.
Trump’s plan would bring in about $2.7 trillion over the next decade, costs that would be borne by businesses importing goods and the consumers they pass those costs on to. Some of Trump’s economic advisers are more bullish than others about broad-based tariffs, however, and in his first term, Trump’s administration didn’t follow through with some of his more onerous campaign ideas.
“Somehow he’s characterizing this as not costing the American public anything, which doesn’t make sense. And so I think as the concepts get vetted, they’re going to come under more scrutiny,” Roskam said. “But as president, he’s got a lot of authority and can be fairly aggressive. So he may just decide I’m going to do this, and then Congress essentially has to follow.”
_______
©2024 CQ-Roll Call Inc., All Rights Reserved. Visit cqrollcall.com. Distributed by Tribune Content Agency LLC.
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
Tags: Income Tax, Legislation, Taxes
