Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: In twenty seventeen, President Donald Trump passed historic tax cuts.
Speaker 2: They had two main parts, corporate and individual. The corporate side,
Speaker 2: which let big businesses pay less to the irs, that
Speaker 2: was all permanent, but the personal tax cuts those have
Speaker 2: a taking time around them.
Speaker 1: If Congress does not act, all of the personal side
Speaker 1: tax cuts expire in the next year and a half.
Speaker 2: That's Bloomberg Politics editor and tax policy expert Laura Davison
Speaker 2: as we barrel towards November's election. Which party takes the
Speaker 2: White House in Congress will have a big impact on
Speaker 2: your taxes.
Speaker 1: The political issue here is that then you will have
Speaker 1: big corporations paying a drastically lower rate than smaller businesses,
Speaker 1: as well as individual households will also face a relatively
Speaker 1: small but still a tax hike as well. So that's
Speaker 1: going to be the political pressure on both sides going
Speaker 1: into twenty twenty five.
Speaker 2: Today on the show, we dig into the twenty seventeen
Speaker 2: tax cut that's about to be up for debate again.
Speaker 2: I speak with Laura and with Bill Hoaglan from the
Speaker 2: Bipartisan Policy Center about the nuts and bolts of this
Speaker 2: law and what a second Biden or Trump administration would
Speaker 2: mean for taxpayer's wallets and the broader economy. From Bloomberg's
Speaker 2: Washington Bureau. This is the Big Take DC podcast. I'm
Speaker 2: your host Sleiah Mosen. Back in twenty seventeen, Donald Trump
Speaker 2: announced a pretty big new tax proposal.
Speaker 3: At the heart of our plan is a tax cut
Speaker 3: for everyday working Americans.
Speaker 2: The Tax Cuts and Jobs Act.
Speaker 3: Our tax plan will ensure that companies stay in America,
Speaker 3: grow in America, and hire in America.
Speaker 2: Laura Davison and I are recovering the Trump administration at
Speaker 2: the time. She's an expert when it comes to wonky
Speaker 2: tax policies, so I asked her to walk me through
Speaker 2: Trump's big tax bill.
Speaker 1: The twenty seventeen tax cuts were basically a goal that
Speaker 1: Republicans in Congress have had for years, and finally when
Speaker 1: Trump got elected, they had a Republican trifecta. They had
Speaker 1: majorities in the House, Senate, Trump and the White House
Speaker 1: and said, Okay, this is our moment to push through
Speaker 1: a big tax cut, sort of in the style of
Speaker 1: what Reagan did in the eighties.
Speaker 4: We presented a complete program of reduction in tax rates.
Speaker 2: Here's President Ronald Reagan in the summer of nineteen eighty one.
Speaker 4: Again, our purpose was to provide incentive for the individual,
Speaker 4: incentives for business, to encourage production and hiring of the unemployed,
Speaker 4: and to free up money for investment.
Speaker 2: Reagan cut personal taxes, the amount you pay on your
Speaker 2: income each April, across the board, by twenty five percent.
Speaker 2: He fundamentally changed the tax code, especially as it related
Speaker 2: to the highest income earners.
Speaker 1: Essentially thirty years later, the tax code hadn't been substantially
Speaker 1: updated since then. Like, okay, we want to overhaul a
Speaker 1: lot of how taxes are paid. And so the two
Speaker 1: big goals they had were to reform corporate taxation and
Speaker 1: then to make a tax cut politically popular to get
Speaker 1: people behind it. They were like, look, we need to
Speaker 1: do some things that really resonate with voters.
Speaker 2: Let's break that down First. Trump and fellow Republicans wanted
Speaker 2: to tackle corporate taxes. Trump's plan brought that rate down
Speaker 2: from thirty five percent to twenty one.
Speaker 1: They also wanted to change the way that US multinational companies,
Speaker 1: companies that operate globally pay their taxes. Like what companies
Speaker 1: we're talking about, Procter and Gamble, Coca Cola, you know,
Speaker 1: all of the tech companies, Apple, Google, Facebook, They have
Speaker 1: money that they're earning all over the world.
Speaker 2: That meant their tax payments were complicated, and they took
Speaker 2: advantage of that.
Speaker 1: They were playing a lot of games. You know, they
Speaker 1: were able to like book money in countries that had
Speaker 1: a lot lower tax rate and not pay US income taxes.
Speaker 2: The Trump administration wanted to incentivize these huge multinational companies
Speaker 2: to keep their business in America, to not gain the
Speaker 2: system by keeping their business in other countries with lower
Speaker 2: tax rates.
Speaker 1: They basically said, for every big company that has money offshore,
Speaker 1: we want to charge a one time tax and then
Speaker 1: that money can continue to grow and you can use
Speaker 1: that in your offshore subsidiaries tax free going forward. But
Speaker 1: they also said, when you earn income in the US,
Speaker 1: you pay US income rates, and then when you earn
Speaker 1: money offshore, you pay a lower rate. Essentially, the idea
Speaker 1: was to bring the IP back to the US, bring
Speaker 1: the headquarters back to the US, and still have the
Speaker 1: US be the main hub there. So a lower tax
Speaker 1: rate in the US was a key goal for that.
Speaker 2: But that lower tax rate only applied to large corporations,
Speaker 2: the pfizers and apples of the country. Other American businesses
Speaker 2: like your local bookstore or mom and pop grosser. They
Speaker 2: wouldn't benefit because most small businesses don't file their taxes
Speaker 2: as corporations. They file business taxes on their owner's personal
Speaker 2: tax returns. Before Trump's twenty seventeen bill, that didn't matter
Speaker 2: so much because the top corporate tax rate was thirty
Speaker 2: five percent and the top individual rate was thirty nine percent.
Speaker 1: So they were really close.
Speaker 2: Now, corporations would be paying only twenty one percent, but
Speaker 2: individuals and small businesses could still pay up to thirty
Speaker 2: nine percent. That's a huge gap. So lawmakers added another
Speaker 2: key provision to the tax bill, letting small business owners
Speaker 2: deduct twenty percent from their personal tax payments.
Speaker 1: So small businesses basically got one fifth that their their
Speaker 1: earnings tax free.
Speaker 2: Let's recap. Multinational corporations got a major tax break, and
Speaker 2: it incentivized offshore companies to keep their business based in
Speaker 2: the US, and small businesses could write off a fifth
Speaker 2: of their earnings. But there's another side of the twenty
Speaker 2: seventeen tax bill. The part meant to get most Americans
Speaker 2: behind it, cutting the amount individuals have to pay when
Speaker 2: they file their taxes each year. The bill expanded tax
Speaker 2: credits for families with more kids.
Speaker 1: Another thing that ended up being quite politically difficult was
Speaker 1: what they did to the State and local tax deduction,
Speaker 1: which is called SALT and this was a tax break
Speaker 1: that says that basically, anything you pay to a local
Speaker 1: jurisdiction or a state, you can deduct that from your
Speaker 1: federal tax bill as well, so you're not paying taxes
Speaker 1: twice on the same income.
Speaker 2: When the bill came up for vote, Congress pretty much
Speaker 2: voted along party lines. Not a single Democrat supported it,
Speaker 2: but with Republicans in control of Congress and the White House,
Speaker 2: it passed in December of twenty seventeen. Trump touted the
Speaker 2: win at a rally in Florida.
Speaker 3: I can think of no better Christmas present for the
Speaker 3: American people than giving you a massive tax cut. That's
Speaker 3: what's happening.
Speaker 2: But tax cuts are not free.
Speaker 1: So the bill cost about one point five trillion dollars,
Speaker 1: which is a pretty massive sum. But they were able
Speaker 1: to include in this legislation a lot of what they
Speaker 1: call pay for is things that offset the cost.
Speaker 2: Plus. Advocates argue these tax cuts would boost the economy.
Speaker 1: The idea here is that that would stimulate economic growth
Speaker 1: when you provide a simpler and lower tax rate for businesses,
Speaker 1: that then they would invest more in workers, invest more
Speaker 1: in equipment. There were certain tax provisions that encourage businesses
Speaker 1: to buy more computers, trucks, factory materials, things like that
Speaker 1: to increase productivity.
Speaker 2: You can hear Trump making a very similar argument to
Speaker 2: the one Reagan pioneered in the eighties at an event
Speaker 2: for the Conservative Heritage Foundation in October of twenty seventeen.
Speaker 3: My Council of Economic Advisors estimates that this change, along
Speaker 3: with a lower business tax rate, would likely give the
Speaker 3: typical American household around a four thousand dollars pay raise,
Speaker 3: and that's money that'll be spent in ourica.
Speaker 1: We saw some of that, but we didn't see the
Speaker 1: level that the Trump administration and the Trump Treasury at
Speaker 1: the time projected would happen. They threw out some numbers
Speaker 1: there would be, you know, billions and billions, or as
Speaker 1: much as a trillion dollar of offshore cash coming back
Speaker 1: into the US. That didn't happen. They projected that their be
Speaker 1: an average of four thousand dollars tax cut per household.
Speaker 1: That also didn't happen. That they would see their earnings
Speaker 1: go up by four thousand dollars. That was also not accurate.
Speaker 2: It's hard to assess just how these tax cuts measured
Speaker 2: up to their projections because they went into effect in
Speaker 2: twenty eighteen. Two years later COVID hit and appended the
Speaker 2: entire economy.
Speaker 1: So the scorecard on how well this performed is really murky,
Speaker 1: though by kind of every major scorekeeper who's looked at this,
Speaker 1: the Congressional Budget Office, the Joint Committee on Taxation, several
Speaker 1: outside things tanks. The tax cuts did not pay for
Speaker 1: themselves in an increased economic output. That is pretty clear
Speaker 1: across the board.
Speaker 2: And extending these tax cuts would only further add to
Speaker 2: the country's spiraling debts. Coming up, we get into that
Speaker 2: and what Trump and Biden want to do about the
Speaker 2: individual tax cuts that are up for debate next year.
Speaker 2: To understand what's at stake from Americans and the tax
Speaker 2: read debate ahead, I sat down with Bill Hogland. He's
Speaker 2: senior vice president at the Bipartisan Policy Center. He came
Speaker 2: to the think tank after over thirty years on Capitol Hill,
Speaker 2: including time as an advisor to former Republican Senate Majority
Speaker 2: Leader Bill Frist, He says he's seen great examples of
Speaker 2: bipartisan compromise over the years, and he thinks this tax
Speaker 2: bill could just be that kind of opportunity.
Speaker 5: I think there is bipartisan support for many elements of
Speaker 5: the tax cut, particularly as it relates to the individual
Speaker 5: tax cuts.
Speaker 2: But he told me there's also bipartisan concern about the
Speaker 2: country's rising debt and deficit.
Speaker 5: And therefore the politics of this are that you're not
Speaker 5: going to be able to easily extend these tax cuts,
Speaker 5: which some people would say another ten years would be
Speaker 5: a seven trillion dollar hit to the deficit unless you
Speaker 5: offset that. You don't offset those kinds of tax cuts
Speaker 5: unless you're looking at some major spending reductions. So unless
Speaker 5: it's a clean sweepe for Republicans House, Senate and the
Speaker 5: White House, this is not going to be as smooth sailing.
Speaker 2: Not that either party has proven their committed to real
Speaker 2: action on the nation's debt pile. In the past sixteen
Speaker 2: years under Presidents Obama, Trump, and Biden, the federal debt
Speaker 2: has more than tripled to thirty four trillion, But they
Speaker 2: are concerned with these expiring tax laws. So break it
Speaker 2: down for me. If Trump is elected, what has he
Speaker 2: said about what he would do on tax policy, and
Speaker 2: what do we know about what his campaign is thinking.
Speaker 1: Trump is easier to describe, partly because he hasn't said
Speaker 1: all that much specifically.
Speaker 2: Bloomberg's Laura Davison.
Speaker 1: Again, he talks about taxes a lot when he's on
Speaker 1: the campaign trail.
Speaker 3: You're going to have the biggest tax cut.
Speaker 1: At a rally in New Jersey, which is notably a
Speaker 1: very high tax place. A couple of weeks ago, he
Speaker 1: said that he was going to pass a middle class,
Speaker 1: upper class, lower class and business class tax cuts.
Speaker 3: Do you're suffering under some of the highest property taxes
Speaker 3: and sales taxes in the nation.
Speaker 1: But he hasn't gotten down to the policy specifics of
Speaker 1: what this looks like. He's been meeting with a lot
Speaker 1: of folks who have advised him previously on taxes, and
Speaker 1: they've been pitching him on some ideas on going further
Speaker 1: than just renewing the tax cuts, you know, having bigger
Speaker 1: cuts than what he did in twenty seventeen. But his
Speaker 1: campaign hasn't endorsed any of these ideas. I should be
Speaker 1: very clear that they're still thinking yes tax cuts, but
Speaker 1: publicly they have not gotten into the details about what
Speaker 1: this looks like.
Speaker 2: I asked Laura what part of Washington is most important
Speaker 2: for Republicans to clinch if they want to see those
Speaker 2: tax cuts extended.
Speaker 1: The White House is probably the most determinative factor, because
Speaker 1: I'll say that most people are expecting control of Washington
Speaker 1: to be divided, and whether that means Biden or Trump
Speaker 1: on the white House. People are sort of anticipating that
Speaker 1: the House will go to the Democrats and Republicans will
Speaker 1: have the Senate. And the big wild card on how
Speaker 1: this debate goes is whether it's Biden or it's Trump.
Speaker 1: Biden is almost totally on the other end of the spectrum.
Speaker 1: He has a multi hundred page plan on what he
Speaker 1: would do for tax cuts. Part of this is the
Speaker 1: advantage of being the incumbent is that you have the
Speaker 1: Congressional Budget Office, and omb when he put out his
Speaker 1: budget proposal earlier this year, he has a full tax plan.
Speaker 1: It broadly looks like two things have won. Raising taxes
Speaker 1: on corporation, both raising the corporate rate from that twenty
Speaker 1: one level to twenty eight percent, as well as making
Speaker 1: sure that companies operating offshore are paying a higher tax rate.
Speaker 1: And then on the individual side, Biden has said he
Speaker 1: wants to keep all of the tax cuts, including the
Speaker 1: Trump tax cuts, in place for people making under four
Speaker 1: hundred thousand dollars, but then having people above that amount
Speaker 1: pay more.
Speaker 2: Because when it came down to the individual side of
Speaker 2: the twenty seventeen tax law, it was the highest orders
Speaker 2: who benefited the most.
Speaker 1: And that's a lot because of this pass through deduction
Speaker 1: that I talked about. So people who owned small businesses
Speaker 1: both got the individual rate cuts, but also got a
Speaker 1: much bigger tax cut on their business income.
Speaker 2: At a campaign event in Scranton, Pennsylvania, and April, Biden
Speaker 2: hammered home the difference between his and Trump's approaches to
Speaker 2: the issue of high earners, comparing what he called his
Speaker 2: Scranton values to Trump's Mara Lago values.
Speaker 6: For more than forty years, our Republican friends have promised
Speaker 6: the best way to grow the eccounters from the top down.
Speaker 6: But here's what they don't tell you. It's never worked.
Speaker 6: The benefits don't trickle down. The very wealthy paid lesson taxes,
Speaker 6: and we have to borrow more and invest liss.
Speaker 2: Biden is proposing measures like increasing the tax rate on
Speaker 2: the money you make off of investments called capital gains,
Speaker 2: getting rid of that passed through deduction, and creating a
Speaker 2: so called billionaire's tax.
Speaker 1: This concept of taxing the really really wealthy is wildly
Speaker 1: popular with both sides of the aisle.
Speaker 2: In fact, a recent Bloomberg News Morning Consult poll found
Speaker 2: that seventy seven percent of Swing state voters supported a
Speaker 2: billionaire's tax to make up for Social Security shortfif.
Speaker 1: Seventy seven percent of people in the US don't agree
Speaker 1: on anything.
Speaker 2: In spite of this, our most recent poll found that
Speaker 2: Morris Wing state voters trust Trump on taxes over Biden.
Speaker 2: Whoever wins the White House in November, what they decide
Speaker 2: to do about the expiring tax cuts has huge implications
Speaker 2: for the US economy.
Speaker 1: Renewing the Trump tax cuts is incredibly expensive. It costs
Speaker 1: about one point five trillion in the first place for
Speaker 1: both the corporate side the individual side. All of that.
Speaker 1: To renew just the individual side for the next decade
Speaker 1: cost four point six trillion. Basically, you know, an increase
Speaker 1: of you know, somewhere from two to three x just
Speaker 1: to increase a portion of them, and so that's going
Speaker 1: to be a huge fight in Congress of you know,
Speaker 1: between Republicans and Democrats. Do they add to the deficit?
Speaker 1: Do they pay for them?
Speaker 2: I asked Bill Hoagman from the Bipartisan Policy Center about this.
Speaker 2: He said that in some ways, the way we talk
Speaker 2: and think about tax cuts as they relate to the
Speaker 2: national debt, it's short sighted. We're all concerned about the
Speaker 2: taxes we pay today, but if we keep letting the
Speaker 2: debt creep up, we could be paying the price tomorrow.
Speaker 5: What is this debt that we became a It's a
Speaker 5: tax on you, your generation, future generations. It is a form
Speaker 5: of attacks. It will be paid in the future. One
Speaker 5: way of looking at this is we don't need to
Speaker 5: further add to the already a very high level of
Speaker 5: debt that we're already incurred.
Speaker 2: Thanks for listening to The Big Take DC podcast from
Speaker 2: Bloomberg News. I'm sali Emosen. This episode was produced by
Speaker 2: Julia Press. It was mixed by Veronica Rodriguez and fact
Speaker 2: checked by Audreyana Tapia. It was edited by Aaron Edwards
Speaker 2: and Wendy Benjaminson, who provides editorial direction with Elizabeth Ponso.
Speaker 2: The clips you heard of Reagan are courtesy of the
Speaker 2: Ronald Reagan Presidential Library. Naomi Shaven and Kim Gettleson are
Speaker 2: senior producers. Nicole Beemster Bower is our executive producer. Stage
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