OH SO RETRO: Former President Donald Trump apparently likes his tax ideas the way he prefers his movie references — straight out of the past.
Trump has stressed out even his allies with a string of targeted tax relief ideas, most of which just happen to help prized groups of voters. But what’s less understood, as Pro Tax’s Brian Faler reports this morning, is that lots of the former president’s tax-cut proposals would specifically reverse changes that policymakers made decades ago, in some cases.
This isn’t just Trump thinking about rolling back the $10,000 limits on state and local deductions, which he himself signed into law in 2017. The former president would unwind his signature tax cuts in other ways, too, like by floating a special preference for domestic manufacturers. No, it goes further back. Consciously or not, Trump also would like to hook the tax code back to one of his heydays — the 1980s.
Trump’s idea to make the interest on car loans deductible would restore a write-off that was available before the famous 1986 tax overhaul. (He has not, as of yet, proposed to bring back a deduction for the interest on credit card debt, something else taxpayers could do before 1986.) Plus, the former president wants to remove income taxes on Social Security benefits, which was part of the early-1980s grand compromise on the program that Ronald Reagan signed into law.
And that’s not even getting into the way, way back, with Trump recently extolling how America’s late 19th-century fiscal system was dominated by tariffs. MORE ON EVERYTHING in a bit, but thanks for joining us again for Weekly Tax. And you know what: Color us surprised that no one’s ever walked 40 dogs at the same time.
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WHY IT MATTERS: It’s not clear how much Trump will go to bat, or demand action from his fellow Republicans, on all those various tax proposals if he’s elected president once more. But if he does, that could easily complicate one of Republicans’ key goals — preserving as much of the temporary parts of the Trump tax cuts as they can next year.
A host of individual provisions from the Tax Cuts and Jobs Act are scheduled to expire at the end of 2025, and key GOP policymakers have talked up moving as quickly on them as they can if they sweep November’s elections.
That wouldn’t necessarily be easy, particularly with the U.S.’s mushrooming debt situation. But what’s particularly frustrating for many right-of-center tax experts is that the very president who signed TCJA into law is broadcasting how he wants to undercut what they see as the measure’s most significant improvements to the tax system. Digging a little deeper:
Trump has openly said that his plan to ax taxes on Social Security benefits could spur the same kind of grand bargain on the program that Reagan and then-Speaker Tip O’Neill worked on in the early 1980s. If nothing else, a new analysis suggests that his policies could quicken the need for those kinds of talks.
The Committee for a Responsible Federal Budget’s report found that Trump’s plans would increase Social Security’s shortfalls by $2.3 trillion by fiscal 2035. Excusing tips and overtime from taxes could also cause further stress on the program, if the exemption also included payroll taxes, as could Trump’s planned tariffs. So long story short: Social Security is scheduled to be nine years away from insolvency whenever Harris or Trump takes office in January. Trump’s preferred policy platform would cut that down to six year.
(Worth noting: Ending taxes on Social Security benefits could be a particular challenge for Trump next year, because of restrictions that Senate budget rules place on making changes to the program in reconciliation.) And there’s another one: Trump suggested yet another special tax relief idea on Friday — this time, potentially to exempt the income of service members, police officers and firefighters from taxes.
To be fair to the former president, he specifically was asked whether he would consider such an idea during an online interview. But Trump’s willingness to consider “no tax on first responders” opens the door to one of his more expansive targeted tax ideas yet, with Bloomberg noting it could benefit more than 20 million people.
It’s also the latest proposal that would cause more of a term that’s perhaps never gotten more attention in tax circles — horizontal inequity, or people with similar incomes paying different amounts in taxes. Speaking of which … : The Tax Law Center at New York University has a new paper
on the issues with “no tax on tips,” an idea that’s also been embraced by Vice President Kamala Harris and was Trump’s first proposal this campaign that sparked questions from experts about poking holes in the tax base. The group stressed that it might not work even if policymakers tried to put in careful guardrails — a lawyer that advises a big restaurant chain, for instance, could find a way to sidestep a requirement that a tip exemption only help those in the food and beverage industry.
Plus, the Tax Law Center’s Mike Kaercher and Chye-Ching Huang argued that record-keeping could be a challenge for workers who legitimately are heavily reliant on tips. “If lawmakers choose to make new holes in the tax base, it is better that they try to minimize abuse through careful policy design and implementation. But those tools have limits, and the best option is often to simply not introduce a new hole in the tax base at all,” they wrote.
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