Regardless of who occupies the White House in November, taxes are expected to remain a hot-button issue in 2025. This is largely because the tax cuts implemented during Donald Trump’s first term in 2017 are scheduled to partially expire at the end of next year.
Both Trump and Vice President Kamala Harris have put forward economic plans that involve alterations to current tax laws, but any changes will require congressional approval. Therefore, the outcome of the presidential race is
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What might change in the economy and tax policy under Trump versus Harris?
Trump’s approach to tax policy includes a push for further tax cuts, building on the 2017 Tax Cuts and Jobs Act. He proposes lowering the corporate tax rate even more from its current 21%, and reducing individual tax rates to 15%. Trump aims to fund these cuts through increased tariffs on imported goods, which he asserts are paid by exporting countries, although these tariffs effectively function as a tax on consumers.
"Our plan will massively cut taxes," Trump asserted at a campaign event in York, Pennsylvania, on August 19. "I gave you the best tax cut in history."
In contrast, Harris advocates for allowing the tax cuts to expire to fund various programs. Her plan includes enhancing the child care tax credit, ensuring tax reductions for those earning under $400,000, and possibly supporting a $25,000 incentive for first-time homebuyers.
"Instead of Trump's tax hike, we will pass a middle-class tax cut benefiting more than 100 million Americans," Harris declared in her acceptance speech at the Democratic National Convention, seemingly targeting Trump’s tariff plan.
The contrast between Trump and Harris reflects two distinct economic philosophies. Republicans have long championed the idea that tax cuts stimulate economic growth by encouraging investment and hiring—a concept often referred to as "trickle-down" economics. However, this theory has had mixed results. Many economists argue that recent tax cuts have primarily led to increased executive bonuses and stock buybacks rather than significant job creation or investment in growth.
On the other hand, Democrats advocate for using revenue from higher taxes on corporations and wealthy individuals to directly fund investments in green energy, healthcare, and infrastructure, believing this approach fosters economic growth and benefits a broader segment of society.
Both parties have consistently passed their preferred legislation without securing adequate revenue to cover the costs, effectively increasing the national debt that future generations will inherit. This pattern is likely to persist regardless of the November election's outcome.
Experts estimate that extending the current tax cuts, which are set to expire, would cost $3.8 trillion over the next decade.
“Trump has pledged even more tax cuts—if enacted, this would obviously accelerate the deficit and expand the debt,” noted William Gale, a senior fellow at the Brookings Institution, in May.
According to a recent analysis by the nonpartisan Penn Wharton Budget Model, if Trump fulfills his campaign promises, the national debt could rise by $5.8 trillion over ten years. In contrast, Harris’ proposals would increase the debt by $1.2 trillion over the same period. This analysis did not account for the potential impact of exempting service workers’ tips from income tax—a proposal supported by both Trump and Harris.
A significant portion of the $3.4 trillion difference between the candidates' plans stems from the Trump tax cuts for individuals—an extension that Harris opposes.
Given the GOP's emphasis on the national debt—often attributing its increase to the Biden administration despite its rise under Trump as well—any proposals to reduce taxes are likely to face substantial resistance.
“I don’t think it’s a straightforward case of making the TCJA permanent,” Rep. Blake Moore of Utah, a member of the House Ways and Means Committee, stated earlier this year. He expressed concern about the growing national debt and the challenges of extending existing tax cuts.
Some of Harris’ proposals, such as taxing unrealized capital gains (the increase in value of assets like stocks or homes that haven’t been sold), might struggle even in a Congress fully controlled by Democrats.
However, a divided Congress could allow for negotiation and compromise, according to Brian Gardner, chief Washington policy strategist at Stifel. He suggested that some measures, like a modest increase in the corporate tax rate or a higher tax on stock buybacks, might gain traction among both progressive Democrats and populist Republicans.
“We are still a long way from Congress drafting a tax bill, so much can change between now and then,” Gardner noted. “Political dynamics and budgetary considerations will influence which parts of the Harris agenda could become law if she wins. Initiatives like taxing unrealized capital gains and a housing down payment tax credit could face significant hurdles, while proposals such as changes to the corporate tax rate and increased taxes on stock buybacks might be more feasible.”
Even in 2017, when the GOP controlled the White House, Senate, and House, passing the tax bill was a tight squeeze—a two-vote margin in the Senate and a 224 to 201 vote in the House with no Democratic support.
As the 2024 campaign heads into its final stretch, voters can expect continued debate on tax issues. Trump will likely frame Harris and her vice-presidential pick, Minnesota Gov. Tim Walz, as Marxists threatening the American dream, while Harris will aim to depict Trump and Republican Sen. J.D. Vance of Ohio as allies of the wealthy elite.
Ultimately, the fate of tax policies may hinge on a few key legislators in either chamber of Congress