(Bloomberg) -- One of the key architects of President Donald Trump’s 2017 tax law said Democrats are sure to change the U.S. tax code if they manage to win the White House and majorities in both chambers of Congress in the November election.
“I do think we will see tax legislation in a Democratic wave,” Shahira Knight, a former economic policy and legislative adviser in the Trump White House, said Friday at Tax Council Policy Institute event in Washington. “If you look in modern history when a new president has taken over we’ve had a major tax bill in the first year.”
Democratic presidential contenders are already preparing for that possibility. Every major candidate has released plans that include trillions of dollars of tax increases on wealthy individuals and corporations. Senators Bernie Sanders and Elizabeth Warren have called for the biggest tax hikes, as well as progressive levies -- such as taxes on accumulated wealth and on stock and bond trades -- that would raise money to reshape the economy.
Those plans would unravel much of the $1.5 trillion tax law passed by Republicans in 2017, which slashed corporate rates, reshaped the international tax system and lowered rates for individuals. Knight and colleagues began designing the tax changes shortly after Trump took office to capitalize on unified Republican control of Washington.
Democrats, for their part, are hoping they’ll have their turn after the November elections to undo the Republican legislation and add some new taxes of their own in an attempt to reduce income inequality and raise money to expand health coverage and combat climate change.
“Some proposals that the Democratic candidates are talking about have a lot of acceptance and then others have some acceptance but are not as widely embraced,” Knight, now a principal at Deloitte, said.
Warren and Sanders are backing wealth taxes and financial-trade taxes that some more centrist Democrats view as too extreme. Other candidates, including Senator Amy Klobuchar, former New York City Mayor Mike Bloomberg and former South Bend, Indiana Mayor Pete Buttigieg, say they would increase income taxes, capital gains levies and corporate rates in the existing tax code.
(Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)
Changing capital gains taxes, particularly for high earners, is likely to be an area of agreement if any Democrat were to win the White House, said Arshi Siddiqui, a former aide to House Speaker Nancy Pelosi.
“I’d put more money on the Democratic vision being more about the question of how you tax work and how you tax capital,” said Siddiqui, now a partner at Akin Gump.
While Democrats have a good chance of holding on to House control, their odds are longer for over turning the Republican majority in the Senate.
Republicans are also preparing for the chance that they win back control of the House, in addition to holding on to the White House and Senate. White House economic adviser Larry Kudlow on Friday again suggested that Trump is preparing a middle-class tax cut that will be released by September.
“We’d love to have a 10% middle-class tax cut, and we would love to strengthen and make permanent some of other tax cuts,” Kudlow said on Fox Business.
This is the second time that Trump has promised a middle-class tax cut ahead of an election. In the weeks before the 2018 midterm election, Trump said he was planning a tax cut but never released the details. Republicans are hoping to use this promise as they campaign this year, but it’s unlikely to become law unless the GOP has unified control in Washington.
To contact the reporter on this story: Laura Davison in Washington at firstname.lastname@example.org
To contact the editors responsible for this story: Joe Sobczyk at email@example.com, Anna Edgerton
©2020 Bloomberg L.P.