Compared with the policies put forward by the Harris-Walz campaign, Trump’s economic agenda has fewer moving parts. It aims mostly to secure the 2017 reforms from Trump’s first term. In addition Trump has proposed two vote-getting proposals, tax exemptions for tips and also for Social Security payouts. And there are the tariff proposals. Otherwise, a Trump-Vance administration would look a lot like Trump-Pence 2.0, at least as far as economic policy is concerned.
Harkening back to the 2017 reform is more than just a claim for past success. It has practical implications of the highest order. Without action in the next Congress, that law will lapse in 2025 and impose something approaching a 20% tax increase on the American public. Every individual tax bracket would carry a higher rate, the standard deduction for those largely lower-income Americans who do not itemize would be cut in half, the alternative tax threshold would fall, corporate tax rates would rise dramatically, and businesses would lose generous deductions for research and development (R&D) as well as tangible property investments. Trump-Vance would make permanent the seven tax brackets as they stand presently and seek to make permanent all these other aspects of today’s tax code.
A Trump administration would also exaggerate the direction of the past reforms implicit in the present code. It would further reduce the corporate tax rate from 21% presently to 15%, making the United States one of the lowest corporate tax venues in the world. It would, as already mentioned, make tip income and Social Security payments tax free. At one rally, in New York State’s Nassau County, Trump promised to lift the current $10,000 cap on how much state and local tax an individual can write off their taxable income for federal purposes. This would undo one aspect of the 2017 reform package, but neither Trump nor Vance has mentioned it again, nor does it appear in any of the campaign material.
The Trump-Vance team also promises to impose a broad 20% tariff on all imports and up to a 60% tariff on Chinese products entering the country. These figures sound large, and they are, but it is not as if high tariffs do not already exist. The Biden administration has kept in place all the tariffs imposed by Trump’s White House in 2018 and 2019 and has added to them. Imports of steel and aluminum already face tariffs of 25% and semiconductor imports face a 50% tariff. Today, electric vehicles and parts from China face a 100% tariff, and this is only a partial list.
In assessing the budget effects of these proposals, it should be clear that the revenue from tariffs could not offset the revenue loss to the proposed tax cuts. But because some—in fact the bulk—of proposed Trump tax cuts reflects the preservation of the code as it is today, there is need for perspective when measuring any budgetary impacts, a perspective that is largely absent in much media discussion.
Much of this problem stems from an analysis conducted by The University of Pennsylvania’s prestigious Penn-Wharton economic model, some of which even made an appearance at the most recent presidential debate. Taking all the Trump-Vance cuts together, the Penn model concluded that they would create an additional $4.1 trillion in budget deficits over the next ten years. Because the model makes its comparisons to current law, most of the budgetary impact of the Trump-Vance proposals—83% of it in fact—would come from the promise to block the tax hikes of about 20% that would occur with the sunset of the 2017 reforms. There is no criticism of the Penn model implied here. It has it rules for treating current law and it followed them. But the model’s conclusions nonetheless require an explicit recognition of this this built-in tax hike. Other Trump tax promises would add to projected deficits but by a much smaller amount closer to some $700 billion over ten years.
As would be the case with the Harris-Walz proposals should that team win the White House, Congress would likely alter the proposals of a Trump administration beyond recognition. That would be the case even if the Republicans took majorities in both the Senate and the House of Representatives. With that critically important caveat, these picture offers at least a tentative basis for planning.