MARY REICHARD, HOST: It’s Wednesday the 19th of June, 2024.
Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Mary Reichard.
NICK EICHER, HOST: And I’m Nick Eicher. Time now for Washington Wednesday.
The first presidential debate this year between President Joe Biden and former President Donald Trump is next Thursday at 9 pm eastern. At CNN headquarters in Atlanta.
REICHARD: Both candidates’ campaigns are touting policies that are critical to different groups of voters; policies on issues like abortion, immigration, and inflation.
Add to that list taxes. President Biden has promised policies that would raise taxes.
But what about former President Trump?
EICHER: WORLD’s Washington Bureau reporter Carolina Lumetta has that story.
CAROLINA LUMETTA: Unlike most candidates running against an incumbent president, Former President Donald Trump has the advantage of running on his own past record. Speaking to the National Rifle Association last month, he focused on his tax policy:
DONALD TRUMP: Biggest tax cut in history. Biggest regulation cuts in history. Greatest economy in the history of our country…
During this campaign, Trump is promising to restore many of those policies that were overturned by his successor. He’s also promised to do a few new things.
For example, here he is in Las Vegas earlier this month.
TRUMP: So this is the first time I’ve said this, and for those hotel workers and people that get tips, you’re going to be very happy. Because when I get to office we are going to not charge taxes on tips, people making tips. [cheers]
Ending taxes on tip-based income would require congressional approval, and some members are already onboard.
Republican congressmen like Thomas Massie of Kentucky and Byron Donalds of Florida have taken to writing “vote Trump, no taxes on tips” on their restaurant receipts, which they then post to social media to spread the word. Yesterday, Massie introduced the Tax Free Tips Act of 2024 in the House.
Allowing service workers to not report tips to the IRS appeals to lower-income voters. But is it feasible?
Erica York is a senior economist and researcher at the Tax Foundation.
ERICA YORK: I understand the sentiment of wanting to lower people’s tax burdens and make it easier for them to keep more of their income. But doing that by granting exemptions to just certain types of income is really problematic.
Ending taxes on tips likely wouldn’t have a significant effect on the broader economy … since tips are already underreported and undertaxed. Douglas Holtz-Eakin is the president of the American Action Forum, a center-right think tank for domestic and economic policy.
DOUGLAS HOLTZ-EAKIN: So you’re really picking out a winner, which is the waiters and waitresses of the world and tilting the playing field from a tax perspective. And the question is, why would you want to do that? Why do you single anyone out? Why doesn’t everyone just pay their fair share of their full income?
Trump’s tax proposals extend beyond blue collar workers. In a closed-door meeting with CEOs in Washington last week, Trump reportedly said he’d also lower the corporate rate below 21 percent.
HOLTZ-EAKIN: It’s not obvious to me exactly why. What problem are you trying to solve? We knew in 2017 that we were losing the headquarters of major corporations. We knew the patents were being located in Ireland for tax purposes, not in the United States. There are a whole series of problems related to corporate taxation that were fixed by the provisions.
The next president will have to address the tax rates because the 2017 Tax Cuts and Jobs Act will expire in 2026. Here’s York of the Tax Foundation:
YORK: So in 2026, most Americans will wake up and face higher taxes unless Congress and the next president do something. If they just make everything permanent, though, that’s going to cost more than $4 trillion.
Trump’s plan to offset that number? Replace it with tariffs. At a Michigan rally last month, he promised to boost tariffs on all vehicles made in China.
TRUMP: On day one, we will throw out Biden-omics and reinstate a thing called Maga-nomics. I’ll terminate Joe Biden’s radical plan to kill Michigan’s economy by repealing his insane electric mandate, is that the craziest thing? We’re putting tariffs on foreign cars, and we’re bringing the car industry back to Michigan!
At other rallies, Trump has said he’ll impose a 60 percent tariff on all goods from China, not just vehicles. Another 10 percent tariff would apply to all imports in the U.S.
HOLTZ-EAKIN: The personal income tax rate is about $2 .1 trillion a year. The 10% tariff rate is 300 billion. So that 10 has to turn into 70 or higher since it’s going to diminish the amount of imports, to even come close to replacing the personal income tax. That doesn’t strike me as plausible.
The problem, according to some economists, is that such a plan could still raise taxes for the average American family. Holtz-Eakin says the proposal is similar to tariffs imposed during the Great Depression that actually raised domestic prices.
HOLTZ-EAKIN: But what that means for the larger economy over time is instead of moving from a place where they’re not generally globally competitive to another industry where they are, we trap the workers in a place where they’ve proven they can’t really compete and they need the tariff for protection. If you do it a little bit, it’s not the end of the world. If you do it on a large scale repeatedly, you interfere with the basic mechanism that makes America the largest, strongest economy on the globe.
While economists have concerns about Trump’s new tax and tariffs proposals, Holtz-Eakin says some of his previous policies are worth bringing back..
HOLTZ-EAKIN: What they really did is give each agency a regulatory budget. This is how much additional cost you can put on the private sector. And most of those budgets were zeros or negative numbers. So he essentially said, you cannot raise the burden of the regulatory state or you’re gonna cut it if at all possible. And I thought that would never happen and could not be done, and he did it. He did it to an amazing degree.
York, with the Tax Foundation, says taxes could be one of the most important issues the next president faces.
YORK: Unfortunately, so far we are not seeing the major candidates really seize that opportunity and cast a vision for what we can do to make the U .S. a great place to do business, a great place for workers to increase their labor force participation. We’re instead seeing these campaign politics of here’s what I’ve going to do to create a benefit for this specific group and here’s how I’m, essentially, try to get the votes from these constituents over here, rather than this positive overall vision of where tax policy could go.
Reporting for WORLD, I’m Carolina Lumetta.
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