On the final night of the Republican National Convention, president Donald Trump warned that former vice president and Democratic candidate Joseph Biden would raise taxes on “almost all American families” and impose corporate taxes that would lead to the collapse of the stock market and the economy.
This isn’t true, experts say. And when it comes to tax plans, Trump offered little in the way of concrete policy or figures.
Craig Wild, senior partner at Wild, Maney & Resnick, LLP, said the President’s accomplishments on the tax front promised more than they delivered, particularly for ordinary Americans.
“The tax reductions, first of all did not help the middle class,” Wild said. That’s especially true in high cost-of-living states where the amount of property tax and mortgage interest taxpayers could deduct dropped sharply. “Wealthier people were helped, as were corporations.”
Trump’s contention about Biden’s plan to tax American families contradicted the former vice president’s own statements that he won’t raise taxes on people earning less than $400,000.
“A lot of the question is around the indirect effects of the impact the tax plan would have on taxpayer income,” said Garrett Watson, senior policy analyst at the Tax Foundation.
“Some portion of the corporate income tax increases would affect the income of those who earn below more than $400,000,” he said, because studies show that companies pass along some — exactly how much is up for debate — of their added tax bill to workers in the form of lower wages.
But some of the tax breaks proposed by Biden and his running mate Kamala Harris, such as her plan to introduce a new, refundable credit worth up to $6,000 per family, could cancel out businesses’ shifting of their tax burden onto workers, said Watson.
Biden’s tax change proposals would also be targeted towards the wealthiest American taxpayers and big businesses. He has proposed raising the top marginal tax rate from 37 percent to 39.6 percent, eliminating the payroll tax cap for high earners, taxing capital gains at income tax rates and raising corporate taxes.
The Republican-led Tax Cuts and Jobs Act of 2017 cut the top corporate tax rate from 35% to 21%.
Biden has proposed a top corporate tax rate 28%, splitting the difference between the pre- and post-Tax Cuts and Jobs Act figures.
The Tax Cuts and Jobs Act goosed the economy in the quarters immediately following its implementation, but failed to spark a more sustained increase in GDP growth rates, worker productivity or wage growth.
The capital investment promised and higher wages the law’s proponents had virtually guaranteed never materialized. Instead, stock buybacks spiked. In the first year after the Tax Cuts and Jobs Act was implemented, members of the S&P 500 bought back a combined $806 billion worth of stock, a figure roughly $200 billion higher than the previous record, set in 2007.
With that corporate tax cut money circulating primarily on Wall Street as opposed to being invested in the real economy, tax receipts plummeted in the first year after the tax cut, even as the country’s rising debt load was raising red flags for GOP traditionalists and deficit hawks.
Yet on Thursday, the President went on to promise even more, saying, “I will cut taxes even further for hard-working moms and dads. I will not raise taxes. I will cut them, and very substantially.”
Policy analysts say that even before the pandemic struck, the math behind Trump’s tax plan wouldn’t add up.
Despite reassurances from White House insiders like National Economic Council Director Larry Kudlow that “a good chunk” of the TCJA’s cuts had already paid for themselves by the first half of last year, the reality is a growing debt burden. The Organisation for Economic Co-operation and Development found that the U.S. tax-to-GDP ratio dropped by 2.5 percent from 2017 to 2018 — the largest falloff of any developed country.
The President also talked taxes in the context of tariffs and his on-again, off-again trade war with China, saying. “We will also provide tax credits to bring jobs out of China back to America, and we will impose tariffs on any company that leaves America to produce jobs overseas.”
In spite of a trade war that various studies estimate will cost a total of $316 billion by the end of this year and has shaved a collective $1.7 trillion off corporate America’s market cap, little evidence suggests that the trade war has prompted companies to manufacture in the U.S. instead of China. Rather, analysts at the Brookings Institution wrote in a recent report that the President’s trade war “severely damaged the U.S. economy.”