Former president Donald Trump added more items to his long list of campaign tax promises, discussing ending income taxes in favor or tariffs and saying he would “think about” pushing to exempt active-duty military, veterans, police and firefighters from income taxes.
How seriously Trump meant either proposal remains to be seen. He has mentioned the possibility of using tariffs to replace income taxes before, but has yet to follow-up with any concrete proposals. The comment on a military and first-responder exemption only came up in response to a question from a podcaster. Trump typically does not release detailed plans for the policies he talks about, though sometimes off-the-cuff statements have quickly become hardened objectives in the past. The new comments follow a long list of recent tax cut proposals targeting a variety of constituencies, including proposals to make tips and overtime wages tax-free, eliminate (or simply raise) the SALT deduction cap, end taxation of Americans living abroad, create a deduction for auto-loan interest, and remove taxes on Social Security payments.
Trump’s campaign promises, if made law, would exempt tens of millions more Americans from paying income taxes. This would be a major break from traditional Republican goals of decreasing most individual tax burdens while broadening the overall tax base, though it is unsurprising given Trump’s populist instincts.
It’s unclear how realistic many of these proposals are given the budgetary and political challenges. While businesses might not see a direct impact from these proposals, any traction they pick up could make it harder for Republicans to address the expiration of the Tax Cuts and Jobs Act and other business tax priorities, including the pass-through deduction under Section 199A.
While Trump has promised to offset continued tax cuts with across-the-board tariffs — a consumption tax on foreign products — independent analyses from experts across the political spectrum do not see tariffs raising enough revenue to offset the cost of extending the expiring policies within the TCJA (among them income tax brackets and Section 199A) or offset the cost of new income tax breaks.
As he did in 2017, Trump is likely to lean heavily on Congress to fill in details. While Republicans are favored to win control of the Senate next year, the majority in the House of Representatives could flip to Democrats. And even if Republicans sweep both Congress and the White House, an already sizeable annual deficit and higher borrowing costs for the federal government are likely to add pressure to offset tax cut continuations, or new breaks, with new revenue from other sources.
Trump did pare back one recent tax promise: during an Oct. 22 campaign event in North Carolina, the former president said that his proposed deduction for auto loan interest would not apply to foreign-manufactured cars.
“Deductibility of interest is great, but only if the car is manufactured in the United States,” said Trump, according to Bloomberg News.
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