Trump Seems Intent on Undermining His Tax-Policy Record

National Review Online

Monday, October 14, 2024

 

Rather than building on Republicans’ solid record on tax policy from his presidency and earlier, Donald Trump seems hell-bent on undermining it.

 

The Tax Cuts and Jobs Act, which he signed in 2017, greatly improved the tax code. One of the most significant ways it did so was by doubling the standard deduction. About 90 percent of taxpayers now take the standard deduction, saving them time and money by forgoing itemization while still reducing their tax burden.

 

The law also capped the state-and-local-tax (SALT) deduction at $10,000, which raised revenue to compensate for some of the revenue lost from the economic-growth-enhancing tax cuts. The SALT deduction is effectively a federal subsidy for high-tax (read: Democratic-run) states, and eliminating it entirely would encourage even more competition between states to reduce their tax burdens than we have already seen since 2017.

 

Instead, Trump wants to remove the SALT cap and introduce a variety of other complications into the tax code that he had helped streamline, in ways that would have little to no effect on the economy overall and create new hassles and distortions, all for the purpose of pandering on the campaign trail.

 

Trump has said he wants to eliminate taxes on tip income and overtime pay. He frames this as helping workers in lower-wage jobs, but after considering the deductions and credits that already exist, taxpayers in almost the entire bottom half of the income distribution pay no income tax on net, and many actually make money through refundable tax credits.

 

Though it wouldn’t help most low-income workers, it would introduce new complexity into the tax code that others would figure out how to game, making it nearly impossible to figure out what the actual results of the policy would be.

 

By promising to exempt Social Security income from taxation and make interest on car payments tax-deductible, Trump is promising to undo tax reforms from Ronald Reagan. Taxing Social Security income for retirees, part of a law Reagan signed in 1983, is one of the only reasons the program hasn’t gone belly-up already. Removing tax deductibility for most forms of interest payments (except, notably, for mortgages) was a key part of the Tax Reform Act of 1986.

 

A better way to build on past Republican successes would be by promising to make the tax code symmetrical by not taxing interest income. Additionally, tax-protected universal savings accounts would be a good way to shield Americans from double taxation for the crime of saving for the future.

 

But those options are less suitable for pandering, which is the point of Trump’s tax comments. He announced the car-loan idea in Detroit, the SALT idea in high-tax metro New York, and the tips idea in Nevada, all based on stylized facts about industries and workers in those respective places.

 

These promises are ultimately a cover for Trump’s central economic promise, which he proudly talks about at almost every rally: a massive tax increase in the form of tariffs on all imports. That would likely hurt low-income households more than any of his proposed tax breaks would help them.

 

Kamala Harris wants to undo Trump’s tax legacy, too, by jacking up corporate taxes, slamming small businesses through tax hikes on “the rich,” and adding new taxes that would discourage investment in the U.S. Trump should take his own side in the fight and stop promising to make the tax code more complicated and burdensome than it already is.