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A decision Donald Trump made in his first presidential term has triggered one of the most important policy choices at stake in this year’s election. The massive tax cuts for individuals that Trump signed into law in 2017 will expire at the end of 2025 unless Congress and the next president act to extend them. So far, the question of whether to preserve the Trump tax cuts has received almost no attention in the early stages of a presidential contest dominated by other issues (including abortion, inflation, and immigration), Trump’s legal troubles, and Joe Biden’s age.
But the fate of Trump’s expansive and expensive tax cuts will frame all the budget decisions for the federal government over the next decade, determining how much money is left for other priorities—including investing in children, cutting taxes for the middle class, and preserving entitlement programs for seniors.
“It is the largest economic-policy debate of the decade, with trillions of dollars on the table,” Chuck Marr, the vice president for federal tax policy at the Center on Budget and Policy Priorities, a left-leaning think tank, told me.
This massive choice is looming primarily because of how Trump and congressional Republicans passed his tax plan in 2017. They relied on a special legislative procedure called “reconciliation” that allows a budget to clear the Senate with support from only a simple majority, rather than the 60 votes required to break a filibuster.
Because Republicans did not identify budget cuts or revenue increases to offset the tax cuts for individuals, they were subject to another provision of budget law that bars the use of reconciliation for any proposal that increases the federal deficit for a period beyond 10 years. To meet that requirement, the tax cuts had to expire at the end of next year. Budget experts call that kind of deadline a “fiscal cliff.” (By contrast, Trump and congressional Republicans did identify offsetting tax increases that allowed them to pass permanent cuts in the corporate tax rate.)
Trump and Biden’s contrasting plans for the expiring tax cuts represent a fundamental divergence over how much the federal government spends and taxes—and who benefits from the choices on each side of that ledger.
Trump has already indicated that, if elected, he will push to extend for another decade all of the expiring individual tax cuts. Trump and his allies argue that such reductions are the best way to generate sustained economic growth and higher wages—a claim that critics say is simply not supported by academic research. “It’ll be very bad for this country if that’s not extended,” Trump insisted in an interview earlier this month on CNBC. Trump advisers have floated the possibility that, if reelected, he would seek even more cuts for individuals and possibly corporations.
In the federal budget Biden released last week, he again indicated he would allow the tax cuts to expire for individuals making more than $400,000 and families making more than $450,000 a year. He said he would extend the reductions for those earning less, but pledged to fully offset the costs.
This difference in approach has huge implications for the federal government’s balance sheet. The best estimates are that the Trump cuts have already cost the federal government about $2 trillion, and extending them in full for another decade starting in 2026 would reduce federal revenue by an additional $3 trillion to $3.5 trillion. (That doesn’t include the hundreds of billions more in increased interest costs, because the lost revenue would raise the federal debt.) Taxpayers in the top 1 percent of all earners would save an average of about $49,000 a year, and those in the top one-tenth of 1 percent would save nearly $176,000 a year, according to projections by the nonpartisan Urban-Brookings Tax Policy Center. By contrast, taxpayers in the middle of the income distribution would save slightly less than $1,000 annually.
Because the benefits of Trump’s tax plan are tilted so much toward the top, Biden’s plan to rescind the cuts for the top 5 percent of earners would recover a substantial amount of revenue—about $1.2 trillion to $1.4 trillion over the next decade.
And even that gaping difference doesn’t capture the full divergence between the two men’s tax agendas. The budget the president released last week anticipates raising almost $5 trillion more in other federal taxes over the next decade. Biden proposed establishing a new 25 percent minimum tax for billionaires, immediately restoring the top income-tax rate for the highest earners to its pre-Trump level, and increasing Medicare taxes on earnings and investments for upper-income taxpayers. He also proposed a series of tax increases on corporations (including raising the basic corporate tax rate to 28 percent from the 21 percent that congressional Republicans and Trump reduced it to). Increased taxes on investment income and high-value estates would raise hundreds of billions more.
Some of that money would go toward offsetting the cost of Biden’s proposal to extend the Trump tax cuts for taxpayers earning less than $400,000, administration officials told me. (The rest of that cost, they said, would be met by other tax increases that Biden, if reelected, would specify later.)
But Biden would also use the revenue from his tax hikes to fund new programs, including universal prekindergarten, greater subsidies for child care and home health care for seniors, and a national program of paid family leave. Biden has also proposed to permanently extend subsidies for health insurance under the Affordable Care Act, which are also set to expire after 2025. And he is pledging to reduce taxes for middle-class families by $765 billion over the next decade, primarily by restoring the expanded child tax credit that cut childhood poverty nearly in half after it was approved in the COVID rescue plan of 2021.
The largest complicating factor for the tax and spending plans of both Trump and Biden is the growing population of seniors. Just since Trump’s tax cuts were passed, the number of Americans 65 and older has jumped from about 50 million to nearly 65 million. The Social Security Administration projects that number to continue rising to 75 million by 2035 and about 80 million by 2045. When the Trump tax cuts were approved, there were nearly four working-age adults potentially paying taxes for every senior receiving retirement benefits; now the ratio is about three workers for every retiree.
Combined with rising health-care costs, the growing senior population has swelled the share of the federal budget consumed by the three big entitlement programs for the elderly: Social Security, Medicare, and Medicaid. In 2000, the federal government spent an amount equal to about 9.4 percent of the nation’s total economic output on entitlements; now the figure has soared past 14 percent, and it is expected to exceed 15 percent by the middle of the next decade.
To give a sense of how big a bill that represents, those entitlement costs alone would nearly match the annual average of total federal revenue for the past half century, according to the Congressional Budget Office. That doesn’t leave much money for funding everything else the federal government does (an amount equal to about 6 percent of economic output) without raising taxes or rapidly enlarging the deficit.
Fully extending the Trump tax cuts while the cost of supporting the elderly is rising so fast constitutes “a massive disconnect,” Howard Gleckman, a senior fellow at the Tax Policy Center, told me. “The old cliché is when you are in a hole, the first thing you have to do is stop digging.” If Trump is elected and follows through on this, “they will be digging faster than ever,” Gleckman said. Brian Riedl, a senior fellow at the conservative Manhattan Institute, doesn’t disagree. But the rising cost of funding programs for the expanding senior population makes it impossible for either Biden or Trump to meet all of their fiscal promises, Riedl told me.
From the outset of his political career, Trump has distinguished himself from other Republicans by insisting that he will not cut Medicare or Social Security. But Riedl said Trump can’t fulfill that promise and extend his tax cuts too: “It is virtually impossible to stabilize the debt while extending the tax cuts and not paring back Social Security and Medicare,” he told me.
Conversely, Riedl argued, Biden can’t fully fund the programs Democrats want while seeking to raise taxes on only the highest earners. “It is essentially mathematically impossible,” Riedl said. “There are not enough taxes on the rich to make the numbers work.”
Many liberal-leaning economists and tax experts agree that Biden’s proposed cutoff for extending the Trump tax cuts is too high. “I think it’s unfortunate,” Marr, of the Center on Budget and Policy Priorities, told me. “Do we really need to have lower tax rates for people making $300,000?”
Barack Obama had to make a similar decision the last time the federal government faced this kind of “fiscal cliff.” That was at the end of 2012, when the tax cuts approved under George W. Bush were set to expire. Bush also had been forced to make his tax cuts temporary to comply with the reconciliation requirements.
Originally, Obama had insisted he would not extend the cuts for individuals or families earning more than $250,000. But in frantic last-minute talks, Biden, then Obama’s vice president, negotiated an agreement with Senate Republican Leader Mitch McConnell to end the Bush tax cuts for earners at the same levels Biden is proposing now: $400,000 for individuals and $450,000 for families. That agreement preserved more than four-fifths of the Bush tax cuts’ total cost. The unexpectedly high cutoff point Biden negotiated represented an early acknowledgment that the Democratic electoral coalition was growing more reliant on socially liberal, upper-middle-income voters—but it also grated on liberals.
The decision on what to do with the Trump tax cuts next year is so momentous in part because it comes on top of the costs of that earlier decision. Bobby Kogan, the senior director of federal budget policy at the Center for American Progress, a liberal-leaning think tank, has calculated that the Bush and Trump tax cuts have cost the federal government a combined $10 trillion in lost revenue. If the Trump tax cuts are extended in full, Kogan told me, the combined costs would reach a cumulative $26 trillion by the middle of the next decade.
How much money is that? Kogan said that if Washington were still receiving all of the taxes it has lost from the Bush and Trump cuts, the federal government’s total revenue would cover all its spending—including domestic discretionary programs, entitlements, and defense—except for the cost of interest on its debt. That would be true, Kogan projects, even as the senior population continues to grow.
“We used to have a system where, even with that growth in the senior population, we were going to have enough revenue to keep up with that forever,” Kogan told me. “Then we did these tax cuts, and now we don’t. It’s true those costs are growing, but revenue was also growing.”
Neither party is considering meeting the financial needs of an aging society by restoring tax rates to their level before the Bush and Trump cuts. And even a Congress with narrow Democratic majorities in both chambers would be unlikely to pass all the tax increases Biden has proposed. But Biden’s plan would at least seek to meet future revenue demands and limit debt growth by substantially increasing taxes on the affluent and corporations. Trump’s blueprint would shrink federal revenues and enlarge the debt to provide large further tax reductions that disproportionately benefit those same constituencies. As on so many other fronts, the difference between the two candidates could not be starker.
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