(Bloomberg) — Donald Trump’s ever-growing litany of tax proposals includes something for almost every American family: tipped workers, hourly employees, senior citizens — and now even the higher-income residents of Democratic-led states whose tax breaks he took away while president.
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And he’s not done yet: Trump will make a speech on Tuesday in Georgia to outline his vision to use tax breaks and other incentives to bolster US manufacturing.
The former president has thrown out such a wide range of tax proposals that even his own advisers are unsure about which ones he intends to enact if elected. Some of the pronouncements have come as surprises and caused angst among allies.
Within Trump’s orbit, the former president’s menu of tax ideas is seen as a way to appeal to voters in an extremely tight election — particularly, low-and-middle-income Americans frustrated by high prices looking for financial relief.
“I see it as a way of Trump trying to figure out how he can win over more working-class Americans,” said Stephen Moore, a senior fellow at the Heritage Foundation and informal economic adviser, who briefs Trump every few months on the state of the economy. “Some of the ideas are good. Some of the ideas are not so good. On balance, most of the ideas are good.”
Not since President George H. W. Bush asked voters to read his lips has a president made such big promises on taxes in an election campaign. For Trump, as with Bush, the question is whether he can keep them. (Bush, despite his “no new taxes” pledge, increased levies.)
“Principles of sound tax policy, economics — that’s no longer in the driver’s seat. Politics is in the driver’s seat. That’s why we’re seeing carve-outs and things that sound good on the campaign trail,” said Erica York of the Tax Foundation, a right-of-center think tank.
If elected, Trump would go into negotiations with Congress regarding a wish list totaling $11 trillion and counting, according to the Tax Foundation. That includes the extension of the 2017 tax cuts, which will expire unless Congress acts. He has also pledged as much as $2.8 trillion in additional revenue from tariffs to offset a portion of that cost. The former president and his allies have said his tax-cut proposals would bolster economic growth, helping to offset some of the cost, though his campaign hasn’t provided any details.
The Trump campaign said he isn’t making empty promises.
“President Trump delivered on his promise to cut taxes in his first term and he will deliver again in his second term,” said spokeswoman Karoline Leavitt.
Vice President Kamala Harris has also made tax policy a central part of her campaign, pledging to increase the child tax credit, create incentives to first-time home-buyers and expand deductions for startup businesses. She even co-opted one of Trump’s signature ideas — no taxes on tips, giving the proposal bipartisan momentum. Harris is planning her own economic-focused address this week.
The Tax Foundation found that Harris’ tax plan would decrease the deficit because the reductions are more than offset by higher levies on corporations and wealthy households.
Pinch of SALT
Trump has targeted his proposals at key election constituencies. When in Nevada, a state with the highest percentage of service and hospitality workers, he made a surprise proposal to end taxes on tips. He’s offered to eliminate taxes on Social Security, a boon to retirees. To woo blue-collar workers, he proposed ending taxes on overtime.
And in his latest proposal, he reversed himself on one of the more controversial provisions of the Tax Cuts and Jobs Act, his signature tax rewrite of 2017.
By capping the deduction of state and local taxes at $10,000, Trump helped to offset a higher standard deduction and lower overall rates in the 2017 bill. The SALT cap also had a political dimension: The taxpayers most affected are in districts with higher home values and higher tax rates — and are predominately run and represented by Democrats.
But the 2022 midterm elections helped sweep a number of Republicans into some of those districts, especially in New York State, where lawmakers have lobbied Trump to change course.
“It disproportionately hurts states like New York,” said Representative Michael Lawler, a Republican representing the Hudson Valley who said he raised the issue with Trump last month. “So, I’m heartened, obviously, to hear the former president say he will work with us to fix it.”
As for how the restored SALT deduction would be paid for, Lawler said: “Nobody knows.”
Moore said some of Trump’s economic advisers have discussed reviving SALT in a scaled-back fashion, allowing homeowners to deduct up to $15,000 or $20,000 annually, instead of the $10,000 permitted now.
One idea which Trump genuinely is wedded to, advisers say, is his proposal of no longer taxing tips. That idea has been under consideration since the primaries, his advisers say, but they held off on announcing it until the more competitive general election.
Tax Base
How far Trump can go will depend on which party controls Congress next year, but Trump’s tax plan could face obstacles in both parties over concerns about costs and fairness.
Many of his proposed carve-outs go against the grain of four decades of tax policy, prompted by President Ronald Reagan who vowed to “broaden the base” by eliminating targeted tax breaks and lower rates for everyone.
Any move to exclude a certain type or source of income from taxes will undoubtedly change how people work. A no-tax-on-tips policy, for example, could prompt more workers to agree to lower wage in exchange for the promise of more tips. An hourly worker could rearrange his or her schedule to maximize overtime — and might even agree to a lower hourly rate to do so.
“Could some employers get creative? I suppose so. At the end of the day, to be honest, I’m more concerned about the incentives the other way,” Representative Russ Fulcher, an Idaho Republican who has a bill to eliminate taxes on overtime pay. “As exacerbated by Covid, we have these programs in place that encourage not working, and that’s a problem in itself.”
–With assistance from Billy House.
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