Tax Reform in the Balance: Can Trump Deliver on Promises?
As the dust settles on the election, all eyes are on President-elect Trump’s tax policy promises. From extending the 2017 tax cuts to new individual and business tax relief, the stakes are high. But can Trump deliver on his promises, especially with a potentially narrow GOP majority?
A Complex Landscape
Trump’s tax plan is ambitious, with promises to cut taxes on tipped income, overtime pay, Social Security taxes, and more. However, experts warn that delivering on these promises won’t be easy, especially with concerns about rising national debt and an economy where bond traders are pushing yields higher.
Corporate Tax Cuts: A Priority?
While traditional GOP tax policy favors business tax cuts, corporations may not be the top priority. Rohit Kumar, PwC’s tax policy services leader, notes that the odds of a dramatic tax increase have been taken off the table, but corporations may still face revenue pressure.
Individual Tax Cuts: The Real Priority?
Dustin Stamper, head of the tax legislative affairs practice at Grant Thornton, suggests that individual tax cuts may take center stage. “Look at which tax cuts were getting the most focus on the campaign trail. A lot were more populist individual tax cuts.”
The Path Forward
Assuming the GOP maintains control of the House of Representatives, the first big discussion on Capitol Hill will be about extending the 2017 tax cuts and how to finance them without increasing the deficit. Rohit Kumar predicts that lawmakers will have to make tough choices on priorities.
The Role of Reconciliation
The Trump administration and GOP members on the Hill are expected to use the reconciliation process to enact tax policy with only Republican votes. However, this approach may not be suitable for all provisions, such as Social Security tax cuts.
Tariffs: A New Argument?
The Trump administration may argue that aggressive trade tariffs can help limit the deficit impact of new tax cuts. However, this approach would require flexibility on the Hill when it comes to how tax law is scored.
The Budget Battle Ahead
The first detailed look at which campaign proposals are being pursued will come in a budget proposal that the new president sends to Capitol Hill, typically in the spring. But with mandatory spending items growing relative to GDP, the deficit will continue to grow, and the bond market has been signaling concerns.
The Verdict
While long-term economic concerns may not be the deciding factor in Washington, D.C., the reality is that near-term policy wins often take precedence over deficit concerns. Can Trump deliver on his tax promises? Only time will tell.
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