It makes sense that Democrats don't want to repeal the Trump tax cuts
Three good reasons why Democrats would rather not scrap the 2017 tax law entirely
Earlier this week, The Hill published an article titled “Democrats back away from quick reversal of Trump tax cuts”:
Democrats are backing away from vows to reverse President Trump’s tax cuts if they take control of the Senate and White House.
Senate Democrats had suggested they could move quickly on the issue, but now say they are likely to delay stand-alone tax legislation if Democratic nominee Joe Biden is elected president and their party controls the House and Senate.
The article quotes four Democratic senators, all of whom were distinctly unenthusiastic about the idea of repealing the 2017 tax law immediately:
“I think we ought to make the decision when we have a better sense of where the economy is going,” said Sen. Dianne Feinstein (D-Calif.), who added “there’s an element of truth” to the argument that policymakers shouldn’t raise taxes during a recession.
All four of the Democratic senators quoted in the Hill article brought up the current crisis as a justification for why they’d be hesitant to repeal the Trump tax cuts in early 2021. And it does make sense that lawmakers don’t want to raise taxes while the economy is so fragile. But I think there’s more going on.
It has been clear for a while — even before the pandemic — that Congressional Democrats don’t want to repeal the 2017 tax law, at least not in full.
For evidence, look at the House of Representatives. Since Democrats took control of the House in early 2019, they’ve passed bills covering dozens of major policy areas: election reform, labor, immigration, and many other topics. The purpose of passing these bills is to make a clear statement about what Democrats’ priorities are, as well as to get lawmakers on the same page about what key legislation should look like once Democrats take the White House. But crucially, House Democrats have not passed any legislation to repeal the Trump tax cuts. They haven’t even considered such a bill in committee, as far as I’m aware. (By contrast, Congressional Republicans famously voted dozens of times on bills to repeal the Affordable Care Act before they gained control of the White House.)
Now, if you had fallen asleep on December 22, 2017 and didn’t wake up until now, you might be surprised that Democrats aren’t chomping at the bit to repeal the Trump tax cuts at the earliest possible opportunity. After all, when the 2017 tax act was being passed, Congressional Democrats were absolutely furious. Senator Ron Wyden called the 2017 tax bill “the ultimate betrayal of the middle class.” Every Democratic member of Congress voted against the law. People marched in the streets to demand that lawmakers “repeal the TrumpTax [sic]” and Speaker Pelosi joined them.
But there are good reasons why Congressional Democrats don’t seem to want a full repeal of the 2017 tax law. I can think of at least three.
1. The 2017 tax law included some things that Democrats like
When a tax bill is 186 pages long, there’s bound to be something in it that you like. Despite Democrats’ general antipathy toward the 2017 tax act, the law does contain some provisions that Democratic lawmakers support. A few examples:
Eliminating the ability of multinational companies to indefinitely defer paying taxes on their offshore income.
Strengthening a limitation on the deductibility of high salaries paid to senior business executives.
Replacing the personal exemption for children with an expanded child tax credit. This policy swap made tax benefits for children somewhat more progressive.
More generally, the 2017 tax act made some progress in addressing certain long-held tax policy concerns of Democratic lawmakers. For years, Democrats had argued that a 35% corporate tax rate was too high and that the U.S. tax code’s treatment of foreign-source income needed to be overhauled. The 2017 tax law made progress on both of these concerns — even if Democrats think that it went too far on the corporate rate and didn’t go far enough on the international side.
So, one good reason why Democrats don’t want a full repeal of the 2017 tax act is that they’d prefer to retain some parts of the law.
2. Repealing the 2017 tax law would increase taxes on the middle class
The 2017 tax law reduced taxes for every income group in the United States, including the middle class, as shown in this chart from the Tax Policy Center:
So, a full repeal of the 2017 tax law would mean higher taxes on the middle class in the short and medium term. And this is something that many Democratic lawmakers would prefer to avoid. The Biden campaign, for instance, has pledged not to increase taxes on households making less than $400,000.
Of course, Democratic lawmakers could repeal the 2017 tax law while simultaneously passing a separate set of middle class tax cuts, to hold most taxpayers harmless. But it would be hard to guarantee that no middle-class household would see its taxes go up. Ultimately, the easiest way to avoid tax hikes on the middle class is not to pursue a full repeal of the Trump tax cuts.
3. Large portions of the 2017 tax law are set to expire anyway
A final reason why Democrats aren’t rushing to repeal the Trump tax cuts is that they’re largely set to expire at the end of 2025. Why waste political energy repealing something that’s already scheduled to go away on its own?
From Democrats’ perspective, something like 3/8ths of the damage of the Trump tax cuts has already been done. With every additional year that goes by, the urgency of repeal diminishes.
(That said, there’s a counterargument to this point. As 2025 draws closer, there will certainly be an effort to make the Trump tax cuts permanent or at least to extend them. Because nobody knows who will control the White House and Congress in 2025, it’s possible that Republicans will have a significant amount of leverage over the fate of the Trump tax cuts. If Democrats come into power first, there’s an argument that they might want to proactively set the terms of debate for 2025, while they have the chance.)
Conclusion
While Congressional Democrats were quite unhappy about the passage of the 2017 tax act, I think they’ve realized correctly that it doesn’t make sense to repeal the entire law. If Democrats take the White House and Senate, they’ll likely pursue a more piecemeal set of changes to the Trump tax cuts: repealing or scaling back some provisions, while retaining or expanding others.
At the end of the day, it looks like Congressional Democrats want to define their tax policy agenda on their own terms, not simply in opposition to the recent changes made by Republicans. And that’s a good thing.
Happy new year to all Jewish subscribers who are celebrating this weekend! May you be written and sealed in the Book of Life.