Tax policy provisions will play role in election cycle

As Republican candidates prepared to square up for the first presidential debate of the election cycle Wednesday night, tax policy experts are eyeballing the future of the Tax Cuts and Jobs Act, the 2017 legislative crown jewel of the Trump administration which eliminated the advance refunding of tax-exempt bonds and put a cap on the state and local tax deduction. 

Restoring advance refunding and removing the SALT cap deduction remain points of emphasis for the muni world. Some of the key provisions of the TCJA come up for review in 2025, with many muni leaders predicting that if any serious movement on the two issues happen it will be with new lawmakers in place. The contentious terms of the law are already making an appearance on the campaign trail 

"I expect to see the future of the TCJA debated, especially because one of the central issues facing the next occupant of the White House will be how to address the expiring tax code," said Erica York, senior economist, Tax Foundation. "Several candidates have already indicated they would extend the tax cuts, and President Biden has also indicated openness to extending the tax cuts for people making under $400,000. The future of the individual income tax is fair game." 

Tax Foundation

York also points to the recent Fitch downgrade as a spur for reexamining the math resulting from rising deficits, interest costs, and the loss or revenue from extending the tax cuts. 

The only Republican candidate not on the record for supporting the extension of the Trump tax cuts is Vivek Ramaswamy who hasn't revealed a position. Chris Christie has also said that he would keep the SALT cap in place. There have been several bipartisan legislative attempts in the current Congress to restore advance refunding and adjust the SALT cap deduction, but the parties have well-established trench lines for the underlying law.   

"The corporate provisions in TCJA are by and large permanent, it is the individual income tax provisions, that are up for renewal at the end of 2025," said William Gale, senior fellow, Brookings Institute, co-director of the Urban-Brookings Tax Policy Center. "I believe that all Republican candidates will support extension of all the temporary provisions in TCJA.  I am guessing that Democratic candidate will support extension of the middle- and lower-income tax cuts but not the cuts at the top."

House Republicans have made clawing back a $80 billion funding increase to the IRS a major issue. The tactic strikes some policy experts as unrealistic. "They have resorted to some frankly outlandish claims that thousands of IRS agents with machine guns are going after middle-class families," said Steve Wamhoff, federal policy director, Institute on Taxation and Economic Policy. 

"The stuff is just bizarre and shows a level of desperation on their part. I suspect that the Republican presidential candidates will feel obligated to follow this approach because it's the only way they can even come up with to criticize one of Biden's biggest legislative accomplishments." 

The costs of the country's entitlement programs promise to be a subject of great discussion. Presidents Biden and Trump have both committed to not touching Medicare or Social Security while DeSantis, Pence, and Nikki Haley have signaled they are open to adjusting the program for younger people.  

Wamhoff also points out that Congressional Republicans want to extend several corporate tax breaks while the Biden Administration wants to expand the Child Tax Credit. Biden is also looking for Congress to enact legislation to implement the global minimum tax.