Trump, Biden plans expose deep divisions in tax law philosophies

Whether you will pay more or less taxes hinges entirely on the November elections as President Biden and former President Donald Trump propose dueling plans to alter the nation’s tax code.

The two candidates have drastically different ideas for the expiration of the 2017 tax cut legislation signed by Mr. Trump. Much of the law is set to expire at the end of 2025. Unless the cuts are renewed, workers at nearly all income levels will pay higher taxes.

“We’ve never had a presidential race in the history of the United States where the publicly stated positions of the two candidates have been further apart,” Grover Norquist, president of Americans for Tax Reform, told The Washington Times.

Republicans on the House Ways and Means Committee said that if the individual tax cuts are not extended, an average family of four earning $75,000 annually will pay $1,500 more in taxes.

Mr. Trump said he would stop those increases by making all individual tax cuts permanent. On Sunday, he pitched an elimination of federal taxes on tips.

Those familiar with the discussions say Mr. Trump is also considering reducing the corporate tax rate to as low as 14% or 15%. The move would put the U.S. on par with European countries and aim to lure back corporate profits from overseas.

Mr. Biden’s tax plan moves in the opposite direction.

He proposes increasing taxes to raise revenue and shore up the nation’s expanding debt. He has sent mixed signals about the fate of the individual tax cuts slated to expire next year.

Mr. Biden told the International Brotherhood of Electrical Workers in April that Mr. Trump’s 2017 tax cuts overwhelmingly benefited the wealthy and he had no plans to extend them.

“By the way, there’s no exaggeration here. It’s going to expire. And if I’m reelected, it’s going to stay expired,” Mr. Biden said.

Mr. Biden’s 2025 tax proposal, outlined last month by National Economic Adviser Lael Brainard and detailed in March by the White House, includes a plan to extend the expiring individual tax cuts, but only for households earning less than $400,000 annually.

Individuals earning less than $400,000 would be shielded from a tax increase by claiming head-of-household status on their tax returns.

Mr. Biden’s plan would raise the top-tier tax rate from 37% to 39.6%, nearly double the capital gains tax to 39.6% and increase the dividends tax rate from 23.8% to 44.6%.

He would fund the extension of the individual tax cuts and raise additional money for other federal programs by increasing the corporate tax rate from 21% to 28%.

In 2017, Mr. Trump and congressional Republicans slashed the corporate rate from 35%, one of the highest worldwide, to 21%. The cut led to wage increases, more jobs and overall economic growth.

Critics say the benefits were far less than promised and the cut to the corporate tax rate alone adds $100 billion annually to the national debt, which now stands at $34 trillion. Resulting wage increases were lower than the Trump administration promised, according to a working paper issued by the National Bureau of Economic Research and authored by three university scholars and a Treasury Department analyst.

“While their profits soared, their investment in their workers and the economy did not,” White House officials said in a memo criticizing the corporate tax rate cut and outlining Mr. Biden’s proposal to increase it.

Mr. Biden’s plan, White House officials said, also would quadruple the tax on stock buybacks from 1% to 4% and introduce a 25% minimum income tax for those with wealth greater than $100 million, along with other business tax increases.

“As we approach the tax debate next year, the stakes could not be higher for the fairness of our tax system and our nation’s fiscal future,” Ms. Brainard told the Brookings Institution on May 10.

Mr. Biden proposes using some of the extra tax revenue to support Democratic priorities, including universal child care, paid sick leave and tax credits for first-time homebuyers.

His plan addresses the demands of left-leaning critics of the tax cuts, who say they were skewed to the wealthy, added to the debt and drained the Treasury of revenue for social welfare programs.

Critics of the law say the expiring tax cuts give Democrats an opportunity to make big changes to the tax code that will provide greater economic benefits for the middle class and lower-income earners.

“Given the 2017 law’s deep flaws — it’s skewed to the top, costly, and has failed to deliver on its economic promises — policymakers should seize the opportunity the 2025 expirations provide and make a course correction,” leaders at the liberal-leaning Center on Budget and Policy Priorities said this year.

Mr. Trump and his campaign have viciously attacked the Biden tax plan and seized on his pledge to let the individual tax cuts expire. Mr. Trump warned supporters at a May rally in Waukesha, Wisconsin, that if Mr. Biden is reelected, “he will drench the middle class in the largest tax increases in the history of our country.”

The Biden campaign team says Mr. Trump wants to cut taxes for the rich at the expense of critical programs.

“The American people can’t afford Social Security cuts, prescription drug hikes, and health care cost increases so that Donald Trump can give billionaires tax cuts,” a Biden campaign spokesman said.

The fate of each tax proposal rests with the presidential election and the outcomes of the House and Senate races. Congress must vote to change the tax law and extend the expiring 2017 individual tax cuts, and passing legislation would require extended and difficult negotiations.

A Republican-led Congress would make it easier for Mr. Trump to advance his plan if he is reelected, but any tax bill would be difficult to pass. Neither Mr. Trump nor Mr. Biden would be likely to get everything on their tax reform wish list, no matter which party controls the House and Senate.

The starting point in the negotiations will likely center on several tax provisions that both Mr. Trump and Mr. Biden support.

Ryan Ellis, president of the conservative-leaning Center for a Free Economy, noted the overlap in their plans to extend some individual tax cuts, the $2,000 child tax credit and the doubled standard deduction.

“That’s a solid amount of common ground,” Mr. Ellis said. “But the differences are much bigger.”