Biden and Trump Pledge to Extend Expiring Tax Breaks Amid Concerns Over Funding

Presumptive nominees President Joe Biden and former President Donald Trump have both committed to extending expiring tax breaks for most Americans, yet questions persist about how these extensions will be funded. The Tax Cuts and Jobs Act of 2017 (TCJA), enacted by Trump, introduced trillions in tax breaks set to expire after 2025 unless Congress intervenes. This expiration could result in increased taxes for over 60% of filers, according to the Tax Foundation.

The expiring individual provisions include lower federal income brackets, higher standard deductions, a more generous child tax credit, among others. However, the federal budget deficit presents a “huge sticking point” as the 2025 tax cliff nears, according to Erica York, senior economist and research manager with the Tax Foundation’s Center for Federal Tax Policy.

Extending TCJA provisions fully could add an estimated $4.6 trillion to the deficit over the next decade, as reported by the Congressional Budget Office in May. The cost of extending significant parts of the TCJA has increased by about 50% since initial estimates in 2018, according to the Committee for a Responsible Federal Budget.

In 2018, the Congressional Budget Office estimated that economic growth from the TCJA would cover approximately 20% of the tax cuts' costs. However, studies have shown that the effects were smaller. “There’s no serious economist who thinks that the Tax Cuts and Jobs Act remotely came close to paying for itself,” stated Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center. “And nobody thinks that extending it or making it permanent is going to pay for itself.”

Supporters of the TCJA argue that the 2025 extensions would pay for themselves through faster economic growth. Yet, analyses from organizations including the Yale Budget Lab, Tax Foundation, Penn Wharton Budget Model, and American Enterprise Institute estimate only a 1% to 14% offset, as reported by the Committee for a Responsible Federal Budget in June.

Regarding proposals, Trump aims to extend all TCJA provisions, while Biden plans to extend tax breaks for taxpayers earning less than $400,000, which includes most Americans. Biden’s top economic advisor, Lael Brainard, in May advocated for higher taxes on the ultra-wealthy and corporations to fund TCJA extensions for middle-class Americans. Conversely, Trump has reiterated his support for tariffs, or taxes on imported goods from other countries.

However, the feasibility of these policy proposals remains uncertain, especially without clarity on which party will control the White House and Congress.

By fLEXI tEAM