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Trump’s 2017 tax cuts were 30 years in the making. Some expire next year, and a nasty battle is brewing over whether to renew them.

On today’s Big Take podcast, Bloomberg politics editor Laura Davison and Bipartisan Policy Center senior vice president Bill Hoagland join DC host Saleha Mohsin to break down the 2017 tax cuts, what they’ve meant for taxpayers and the US economy, and how a Biden or Trump win could affect their future.

Read more: Ultra-Rich Should Pay to Save Social Security, Swing-State Voter Poll Shows

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Here is a lightly edited transcript of the conversation:

Saleha Mohsin: In 2017, President Donald Trump passed historic tax cuts. They had two main parts: corporate and individual. The corporate side, which let big businesses pay less to the IRS—that was all permanent. But the personal tax cuts? Those have a ticking timer on them.

Laura Davison: If Congress does not act, all of the personal side tax cuts expire in the next year and a half.

Mohsin: That’s Bloomberg politics editor and tax policy expert Laura Davison. As we barrel towards November’s election, which party takes the White House and Congress will have a big impact on your taxes.

Davison: The political issue here is that then you will have, you know, big corporations paying a drastically lower rate than smaller businesses. As well as, individual households will also face a relatively small, but still a, a tax hike as well. So that's going to be the political pressure on both sides going into 2025. 

Mohsin: Today on the show: we dig into the 2017 tax cut that’s about to be up for debate again. I speak with Laura, and with Bill Hoagland from the Bipartisan Policy Center, about the nuts and bolts of this l aw, and what a second Biden or Trump administration would mean for taxpayers’ wallets… and the broader economy.

From Bloomberg’s Washington bureau, this is the Big Take DC podcast. I’m your host Saleha Mohsin.

Back in early 2017, Donald Trump announced a pretty big new tax proposal.

Donald Trump: At the heart of our plan is a tax cut for everyday working Americans…

Mohsin: The Tax Cuts and Jobs Act.

Trump: Our tax plan will ensure companies stay in America, grow in America and hire in America…

Mohsin: Laura Davison and I were covering the Trump administration at the time. She’s an expert when it comes to wonky tax policies, so I asked her to walk me through Trump’s big tax bill.

Davison: The 2017 tax cuts were basically a goal that Republicans in Congress have had for years and finally when Trump got elected, they had a Republican trifecta. They had majorities in the House, Senate, Trump in the White House. And said, okay, this is our moment to push through a big tax cut, sort of in the style of what Reagan did in the ‘80s.

Ronald Reagan: We presented a complete program of reduction in tax rates. 

Mohsin: Here’s President Ronald Reagan in the summer of 1981.

Reagan: Again, our purpose was to provide incentive for the individual, incentives for business to encourage production and hiring of the unemployed, and to free up money for investment…

Mohsin: Reagan cut personal taxes—the amount you pay on your income each April—across the board by 25%. He fundamentally changed the tax code, especially as it related to the highest income earners.

Davison: Essentially 30 years later, the tax code hadn't been substantially updated since then. And they’re like, ‘okay, we want to overhaul a lot of how taxes are paid.’ And so the two big goals they had were to reform corporate taxation and then to make a tax cut politically popular, to get people behind it, they were like, ‘look, we need to do some things that really resonate with voters.’

Mohsin: Let’s break that down. First, Trump and fellow Republicans wanted to tackle corporate taxes. 

Trump’s plan brought that rate down from 35% to 21.

Davison: They also wanted to change the way that US multinational companies, companies that operate globally pay their taxes. 

Mohsin: Like what companies? 

Davison: We're talking about Procter and Gamble, Coca Cola, um, you know, all of the tech companies, Apple, Google, Facebook. They have, money that they're earning all over the world. 

Mohsin: That meant their tax payments were… complicated. And they took advantage of that.

Davison: They were playing a lot of games, you know, they were able to, like, book money in countries that had a lot lower tax rate, and not pay US income taxes. 

Mohsin: The Trump administration wanted to incentivize these huge, multinational companies to keep their business in America. To not game the system by keeping their business in other countries with lower tax rates.

Davison: They basically said, for every big company that has money offshore, we want to charge a one time tax and then that money can continue to grow and you can use that in your offshore subsidiaries tax free going forward. But they also said, when you earn income in the US, you pay US income rates, and then when you earn money offshore, you pay a lower rate, essentially. The idea was to bring the IP back to the US, bring the headquarters back to the US, and still have the US be the main hub there. So a lower tax rate in the US was a key goal for that. 

Mohsin: But that lower tax rate only applied to large corporations—the Pfizers and Apples of the country. Other American businesses—like your local bookstore, or mom and pop grocer—they wouldn’t benefit. Because most small businesses don’t file their taxes as corporations—they file business taxes on their owners’ personal tax returns.

Before Trump’s 2017 bill, that didn’t matter so much, because the top corporate tax rate was 35% and the top individual rate was 39%.

Davison: So they were really close. 

Mohsin: Now, corporations would be paying only 21%. But individuals and small businesses could still pay up to 39%. That’s a huge gap.

So lawmakers added another key provision to the tax bill: letting small business owners deduct 20% from their personal tax payments.

Davison: So small businesses basically, got one fifth of their, their earnings tax free. 

Mohsin: Let’s recap: multinational corporations got a major tax break, and it incentivized offshore companies to keep their business based in the US. And small businesses could write off a fifth of their earnings.

But there’s another side of the 2017 tax bill—the part meant to get most Americans behind it. Cutting the amount individuals have to pay when they file their taxes each year. The bill expanded tax credits for families with more kids.

Davison: Another thing that ended up being quite, uh, politically difficult was, what they did to the state and local tax deduction, which is called SALT. And this was a tax break that says that basically anything you pay to a local jurisdiction or a state, you can deduct that from your federal tax bill as well, so you're not paying taxes twice on the same income.

Mohsin: When the bill came up for a vote, Congress pretty much voted along party lines. Not a single Democrat supported it. But with Republicans in control of Congress and the White House, it passed.

In December of 2017, Trump touted the win at a rally in Florida.

Trump - CSPAN: I can think of no better Christmas present for the American people than giving you a massive tax cut. That's what's happening…

Mohsin: But tax cuts are not free.

Davison: So the bill cost about $1.5 trillion, which is a pretty massive sum, but, um, they were able to include in this legislation a lot of what they call pay-fors, things that offset the cost. 

Mohsin: Plus, advocates argued, these tax cuts would boost the economy. 

Davison: The idea here is that that would stimulate economic growth when you provide a simpler and lower tax rate for businesses, that then they would invest more in workers, invest more in equipment. Uh, there were certain tax provisions that encouraged businesses to, to buy more computers, trucks, factory, uh, materials, things like that to, to increase productivity.

Mohsin: You can hear Trump making a very similar argument to the one Reagan pioneered in the ‘80s, at an event for the conservative Heritage Foundation in October of 2017.

Trump: My Council of Economic Advisors estimates that this change along with a lower business tax rate would likely give the typical American household around a $4,000 pay raise. And that's money that will be spent in our economy…

Davison: We saw some of that, but we didn't see the level that the Trump administration and the Trump Treasury at the time projected would happen. 

They threw out some numbers, there would be, you know, billions and billions or, you know, as much as a trillion dollar of, um, you know, offshore cash coming back into the US. That didn't happen. They projected that there'd be an average of $4,000 tax cut per household. That also didn't happen. That they would see their earnings go up by $4,000. That was also not accurate.

Mohsin: It’s hard to assess just how these tax cuts measured up to their projections because they went into effect in 2018. Two years later, COVID hit and upended the entire economy. 

Davison: So the scorecard on how well this performed is really murky, though by kind of every, major scorekeeper who's looked at this, the Congressional Budget Office, the Joint Committee on Taxation, several outside think tanks, the tax cuts did not pay for themselves in, in increased economic output. That is pretty clear, um, across the board.

Mohsin: And extending these tax cuts would only further add to the country’s spiraling debt.

Coming up, we get into that, and what Trump and Biden want to do about the individual tax cuts that are up for debate next year.

To understand what’s at stake for Americans in the tax rate debate ahead, I sat down with Bill Hoagland. He’s senior vice president at the Bipartisan Policy Center. 

He came to the think tank after over 30 years on Capitol Hill, including time as an advisor to former Republican Senate Majority Leader Bill Frist. He says he’s seen great examples of bipartisan compromise over the years—and he thinks this tax bill could be just that sort of opportunity.

Hoagland: I think there is bipartisan support for many elements of the tax cut, particularly as it relates to the individual tax cuts.

Mohsin: But he told me, there’s also bipartisan concern, about the country’s rising debt and deficits.

Hoagland: And therefore, the politics of this are that you're not going to be able to easily extend these tax cuts, which some people would say another ten years would be a $7 trillion hit to the deficit, unless you offset that. You don't offset those kinds of tax cuts unless you're looking at some major spending reductions. So unless it's a clean sweep for Republicans—House, Senate, and the White House—this is not going to be as smooth sailing. 

Mohsin: Not that either party has proven they’re committed to real action on the nation’s debt pile. In the past 16 years, under Presidents Obama, Trump, and Biden, the federal debt has more than tripled to $34 trillion.

But they are concerned with these expiring tax laws.

So, break it down for me. If Trump is elected, what has he said about what he would do on tax policy and what do we know about what his campaign is thinking? 

Davison: Trump is, is, is easier to describe, partially because he hasn't said all that much specifically.

Mohsin: Bloomberg’s Laura Davison again.

Davison: He, um, talks about taxes a lot when he's on the campaign trail. 

Trump: You're gonna have the biggest tax cut…

Davison: At a rally in New Jersey, which is notably a very high tax place, a couple weeks ago, he said that he was going to pass a middle class, upper class, lower class, and business class tax cut.

Trump: You're suffering under some of the highest property taxes and sales taxes in the nation. [boo]…

Davison: But he hasn't gotten down to the policy specifics of what this looks like. He's been meeting with a lot of folks who have advised him previously on taxes. And they've been pitching him on some ideas on going further than just renewing the tax cuts, you know, having bigger cuts than what he did in 2017. But his campaign hasn't endorsed any of these ideas. I should be very clear that, um, they're still thinking, yes, tax cuts, but publicly they have not gotten into the details about what this looks like.

Mohsin: I asked Laura what part of Washington is most important for Republicans to clinch if they want to see those tax cuts extended:

Davison: The White House is probably the most determinative factor, because, I'll say that most people are expecting control of Washington to be divided, and whether that means Biden or Trump in the White House, people are sort of anticipating that the House will go to the Democrats and Republicans will have the Senate, and the big wild card on how this debate goes is whether it's Biden or it's Trump.

Biden is almost totally on the other end of the spectrum. He has a, you know, multi hundred page plan on what he would do for tax cuts. Part of this is the advantage of being the incumbent is that you have, um, the Congressional Budget Office and, um, OMB, uh, when he put out his budget proposal earlier this year, he has a full tax plan.

It broadly looks like two things. One, raising taxes on corporations, both raising the corporate rate from that 21 level to 28 percent, as well as making sure that companies operating offshore are paying a higher tax rate. And then on the individual side, Biden has said he wants to keep all of the tax cuts, including the Trump tax cuts, in place, for people making under $400,000. But then having people above that amount pay more.

Mohsin: Because when it came to the individual side of the 2017 tax law, it was the highest earners who benefited the most.

Davison: And that's a lot because of this pass through deduction that I talked about. So people who owned small businesses, both got the individual rate cuts, but also got a much bigger tax cut on their business income.

Mohsin: At a campaign event in Scranton, Pennsylvania in April, Biden hammered home the difference between his and Trump’s approaches to the issue of high earners—comparing what he called his “Scranton values” to Trump’s “Mar-a-Lago values.”

Joe Biden: For more than 40 years, our Republican friends have promised the best way to grow the economy from the top down. But here's what they don't tell you. It's never worked. The benefits don't trickle down and the very wealthy pay less in taxes and we have to borrow more and invest less…

Mohsin: Biden is proposing measures like increasing the tax rate on the money you make off of investments, called capital gains… getting rid of that pass through deduction, and creating a so-called billionaires tax.

Davison: This concept of taxing the really, really wealthy, is wildly popular with both sides of the aisle. 

Mohsin: In fact, a recent Bloomberg News / Morning Consult poll found that seventy seven percent of swing state voters supported a billionaires tax to make up for Social Security shortfalls.

Davison: 77 percent of people in the US don't agree on anything.

Mohsin: In spite of this, our most recent poll found that more swing state voters trust Trump on taxes over Biden.

Whoever wins the White House in November, what they decide to do about the expiring tax cuts has huge implications for the US economy.

Davison: Renewing the Trump tax cuts is incredibly expensive. It cost about 1.5 trillion in the first place for both the corporate side, the individual side, all of that. To renew just the individual side for the next decade cost 4.6 trillion. Basically, you know, an, an increase of, you know, somewhere from two to three X,  just to increase a portion of them. And so that's going to be a huge fight in Congress of, you know, between Republicans and Democrats, do they add to the deficit? Do they pay for them?

Mohsin: I asked Bill Hoagland, from the Bipartisan Policy Center about this. He said, in some ways, the way we talk and think about tax cuts, as they relate to national debt… it’s short sighted. We’re all concerned about the taxes we pay today, but if we keep letting the debt creep up, we could be paying the price tomorrow.

Hoagland: What is this debt that we've accumulated? It's a tax on you, your generation, future generations. It is a form of a tax. It will be paid in the future. One way of looking at this is, we don't need to further add to the already very high level of debt that we're already incurred.

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