Trump, Harris lay out tax plans with trillions of dollars on the line

The next president, be it Kamala Harris or Donald Trump, will face a big, early test on a core pocketbook issue: taxes.

A large chunk of Trump’s namesake 2017 tax cuts are set to expire at the end of 2025, including the basic rates paid by individuals and families, and both Trump and Harris are making the issue a big part of their sales pitch to voters.

Trillions of dollars are potentially at stake, and the fight will test whether Democrats can play offense on a field that has long favored Republicans.

Trump has floated the prospect of even more tax cuts on top of extending all of the temporary provisions that he signed into law in 2017, touting the elimination of taxes on tips and Social Security income and teasing another cut in the corporate rate.

Meanwhile, Harris seamlessly has taken over President Joe Biden’s tax-the-rich platform, and co-opted Trump’s idea to stop taxing tips. She’s also proposed major expansions of the Child Tax Credit.

“I will fight to give money back to working- and middle-class Americans,” Harris said in a speech in North Carolina on Aug. 16, laying out her economic platform. “Compare my plan with what Donald Trump plans to do. He plans to give billionaires tax cuts year after year, and he plans to cut corporate taxes by over a trillion dollars.”

For his part, Trump has proclaimed his 2017 law amounted to the biggest tax cut in history (though tax experts have said that isn’t the case ) and says his plan to cut taxes will generate “tremendous growth,” which will in turn help pay off the national debt.

Lawmakers have had to deal with the looming expiration of tax cuts before, most recently in 2012, when cuts enacted under former President George W. Bush were due to sunset, along with other financial triggers. Next year’s cliff is limited to taxes, but it will still be complex, high-stakes and have plenty of moving parts.

At the heart of the expiring provisions are income taxes that Republicans cut virtually across the board in 2017 for individuals and families. Other provisions facing extinction include a bigger standard deduction, a doubled Child Tax Credit and estate tax cuts for taxpayers who pass on money and property to their heirs.

While Trump wants to leave all of those cuts intact, Harris has embraced raising taxes on those making above $400,000, arguing that wealthy Americans aren’t shouldering their fair share and that the 2017 cuts overwhelmingly benefited them. She also has indicated she backs increasing taxes on capital gains, such as stock earnings, for high-earners and tightening rules for estate taxes.

Even though the 2017 cut in the corporate tax rate, to 21 percent from 35 percent, isn’t set to expire, it is nonetheless a big part of the debate. Harris, like Biden, wants to raise the rate to 28 percent, while Trump has floated another cut, to perhaps as low as 15 percent.

Traditionally, taxes haven’t been a winning issue for Democrats. Republicans claimed the mantle of the party of tax cuts in the 1980s and put their opponents on the defensive.

But Democrats have been emboldened by polling that shows the Trump tax cuts were never really that popular and believe they have a winning argument in targeting high earners and corporations for higher taxes, which polls well.

“This is an issue where the broad, broad swath of the country is in agreement that more tax cuts to the rich and powerful is not where we want to go,” said Rep. Pat Ryan (D-N.Y.).

Party leaders applaud Harris’ decision to make taxes a focus of her first major policy discussion, even as they acknowledge that implementing them will be more difficult in practice, especially if Democrats don’t emerge from the elections with complete control of Congress and the White House.

“I think what Kamala Harris is doing is trying to set her mission apart from that, to let people know that the tax breaks, the childcare tax credits, those are the things that should go to everyday working people,” said North Carolina Gov. Roy Cooper in an interview with POLITICO at the Democratic National Convention.

“I think that is the right message to send. Obviously, when you are working something like that through Congress, that is an uphill challenge.”

The trickle-down ethos that tax cuts juice the economy, create jobs and ultimately pay for themselves continues to have a strong hold on the GOP. Republicans say a corporate tax increase, for instance, will lead to job losses, lower pay and a bigger shift in production to other countries with lower costs.

Trump’s campaign has depicted Harris’ tax plans as part of a Marxist vision for the nation, taking particular aim at her proposals to stop “corporate price-gouging.” Republican tax writers have also hammered Democrats on their desire to expand refundable tax credits, which are sent directly to many families as checks and resemble welfare to many in the GOP.

“Harris’ plan represents income distribution and class warfare. That’s really what it comes down to,” said Steve Moore, a Trump economic adviser and economist at The Heritage Foundation.

“It’s, we create all these new loopholes, all these new credits, all these new deductions and then we’re going to raise the rates.”

The presidency is only one part of the equation in the coming tax showdown, though. The other is Congress.

If Republicans run the board and take the White House and Capitol Hill, they’re likely to push through their tax plan without needing any Democratic votes, through a process known as budget reconciliation, which they used to pass the 2017 cuts. Democrats would probably do the same if the situation is reversed.

Even then, divisions are in store.

Some Republicans, worried about the cost of extending all of the expiring tax cuts — $4.6 trillion over 10 years, according to Congress’ scorekeepers — have indicated they would be open to a corporate tax hike.

“There is a large group of the Republican conferences in the House and the Senate that are sensitive to the deficit impact, which is much more now relative to what it was in 2017,” said Paul Winfree, the former Deputy Assistant to the President for Domestic Policy in the Trump administration and now the CEO of the right-of-center Economic Policy Innovation Center.

Leaders in both parties will face pressure from some members to raise or eliminate a cap on the federal tax deduction for state and local taxes imposed by the 2017 law. Doing so would be costly and overwhelmingly benefit high earners.

If control of the government remains divided, then it will be time for some hard bargaining to avoid a sudden tax increase on millions of Americans at the end of 2025.

How difficult that could be was recently demonstrated by the breakdown of legislation that would have given something to both sides — an expansion of the Child Tax Credit along with the revival a trio of business tax breaks that have expired. The legislation was negotiated by the top tax writers in Congress — Senate Finance Chair Ron Wyden (D-Ore.) and House Ways and Means Chair Jason Smith (R-Mo.) — and passed the House overwhelmingly.

But Republicans have blocked it in the Senate, partly because many think the political landscape will be more favorable to them next year.

“I remain optimistic an agreement can be reached [on the cuts expiring in 2025] but it will probably take until deep into December, if not early January 2026, to get there,” said Rohit Kumar, former chief economic adviser to Senate Minority Leader Mitch McConnell (R-Ky.) and now co-leader of PwC’s National Tax Office.

“While divided government presents the most challenging environment in which to reach an agreement on the 2025 fiscal cliff, the scale of the automatic tax hike on every working American means the consequences of failure would be orders of magnitude more significant than the failure to pass the Smith-Wyden agreement.”

Sarah Ferris and Nicholas Wu contributed to this report.