Connect with us

Finances

Biden, Trump face tax cliff amid federal budget deficit

Published

on

Spread the love

Advertisement

Joe Biden and Donald Trump 2024.

Brendan Smialowski | Jon Cherry | Getty Images

Advertisement

The next U.S. president will face trillions in expiring tax breaks. While President Joe Biden and former President Donald Trump have shared early proposals, the federal budget deficit could complicate plans, experts say.

Enacted under Trump, the Tax Cuts and Jobs Act, or TCJA, of 2017 lowered federal income tax brackets, raised the standard deduction, and doubled estate and gift tax exemption, among other individual provisions. Many TCJA tax breaks are temporary and slated to sunset after 2025 unless Congress passes legislation to extend them.

Advertisement

“It’s a massive tax cliff,” said Erica York, senior economist and research manager with the Tax Foundation’s Center for Federal Tax Policy.

The decision on how to handle expiring provisions “affects virtually all aspects of the tax code and affects the vast majority of American taxpayers,” she said.

Advertisement

More from Personal Finance:
Biden plans to hike taxes on ultra-wealthy to extend middle-class tax breaks
Your home sale could trigger capital gains taxes — how to calculate your bill
Inflation is slowing. Here’s why prices still aren’t going down

However, the federal budget deficit will be a “huge sticking point” amid tax negotiations, York said.

Advertisement

Fully extending the TCJA tax breaks could add an estimated $4.6 trillion to the deficit over the next decade, according to a Congressional Budget Office report released on May 8.

Of course, several economic and political factors through 2025 may impact legislators’ desire to pay for any tax cut extensions.

Advertisement

“You have a game of three-dimensional chess going on,” said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center. “What’s the economy going to be like? Who’s going to be in control of Washington? What’s the public mood going to be?”

“It’s impossible to predict,” he added.

Advertisement

Plans to tackle expiring Trump tax cuts

Biden’s top economic advisor Lael Brainard on Friday proposed higher taxes on the wealthy and corporations to pay for extended middle-class tax breaks from the TCJA.

“It’s clear we need to end the 2017 tax breaks for the ultra-wealthy and scale back costly permanent corporate tax breaks,” she said during a speech to The Hamilton Project at the Brookings Institution. The TCJA permanently reduced corporate taxes by dropping the top federal rate from 35% to 21%.

Advertisement

By contrast, Biden plans to extend expiring TCJA provisions for those making less than $400,000, according to Brainard.

However, with control of Congress in flux, it’s difficult to predict which, if any, legislative priorities will be enacted.  

Advertisement

Meanwhile, Trump called for sweeping tax cuts at a campaign rally in Wildwood, New Jersey, on Saturday.

“Instead of a Biden tax hike, I’ll give you a Trump middle-class, upper-class, lower-class, business-class big tax cut,” he told the crowd.

Advertisement

Other than support for tariffs on U.S. imports, Trump hasn’t shared specifics on how to fund additional tax cuts.

Don’t miss these exclusives from CNBC PRO

Taxes will have to go up eventually to tackle the deficit, says Wolfe Research's Tobin Marcus
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *