SYLVIE DOUGLIS, BYLINE: NPR.
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ADRIAN MA, HOST:
You know that old saying that nothing in life is certain except for death and taxes? Well, today, we are going to talk about taxes.
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WAILIN WONG, HOST:
And hopefully not bore you all to death.
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WONG: Email us from beyond the grave if that is you...
MA: Hey, I mean...
WONG: ...And we'll apologize personally.
MA: (Laughter).
WONG: In all seriousness, there is an inevitability around the way most of us think about taxes. This Byzantine set of rules that dictate how much of your income you have to fork over to help fund the government. And most of the time, it feels like we have no say in the matter.
MA: Yeah, but take heart, dear listener, because in the coming months, things are going to be different. This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma.
WONG: And I'm Wailin Wong. The last major overhaul of the tax code was in 2017 when Republicans passed the sweeping Tax Cuts and Jobs Act, but much of it is set to expire next year. And that means a big debate over tax policy is looming.
MA: Which also means voters this fall won't just decide who gets to be president or a congressperson, they will, in effect, be choosing teams in this tax policy showdown, teams that'll decide who pays for the government and how much for years to come.
WONG: Today on the show, we explain the battle lines forming in this tax code throwdown.
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WONG: The 2017 Tax Cuts and Jobs Act changed the tax code in a ton of ways. But you could bundle the most important ones into two categories - tax cuts for businesses and tax cuts for individuals. On the business side, it lowered the corporate tax rate from 35% to 21%, and it also gave businesses the ability to write off new investments.
MA: On the individual side, there were a lot of provisions aimed at reducing people's tax bills. For example, tax brackets were adjusted, so most taxpayers paid a bit less. They also increased the child tax credit, and many of these changes were particularly good for wealthy taxpayers, like reducing the estate tax or a special tax deduction for business owners.
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DONALD TRUMP: We are here today to discuss our vision for America's economic revival.
MA: Before the law was passed, here's how then-President Trump pitched it.
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TRUMP: We will cut taxes on American businesses to restore our competitive edge and to create more jobs and higher wages for American workers.
MA: And the Trump administration said this would cause the economy to grow so much over time that even with tax cuts, Uncle Sam would take in more revenue. And the tax cuts would essentially pay for themselves.
WONG: OK, so we're seven years in. Have any of these promises panned out? Take the corporate tax cut.
OWEN ZIDAR: It's the biggest corporate tax cut we've had in U.S. history.
WONG: Owen Zidar is an economics professor at Princeton. Recently, he and a few other economists published a study on the National Bureau of Economic Research's website.
ZIDAR: And it was just really enormous. And so, you know, it's natural to want to know how effective it was at generating economic growth and investment.
MA: By analyzing the tax data of about 9,000 corporations, they estimated the Tax Cuts and Jobs Act increased business investment in equipment and structures by around 10%. And that's mainly thanks to a change in the law that gave companies an incentive to buy equipment now rather than waiting until later.
ZIDAR: So, for example, if I buy a computer and it lasts five years, there is a provision in the Tax Cuts and Jobs Act that basically said, instead of spreading it out over five years, you can write it all off today.
WONG: The thinking behind this was companies, like, say, Amazon might build that new data center it was holding off on so it could get that tax write-off, or a restaurant owner might open a new location and hire people. And along those lines, Owen and his colleagues found this particular provision from the Tax Cuts and Jobs Act was pretty effective. But that's mostly where the compliments end. Owen says most of the tax cuts in the Tax Cuts and Jobs Act didn't do much to boost the economy.
ZIDAR: There's a big chunk of the Tax Cuts and Jobs Act that wasn't very well targeted for generating growth.
MA: When it came to wages, they found the Tax Cuts and Jobs Act did slightly increase people's pay about $750 a year on average, which is nothing to sneeze at, but it's also a far cry from the $4,000 a year pay bump Trump said most people would see. And in the end, Owen says most of the Tax Cuts and Jobs Act just wasn't all it was cracked up to be.
ZIDAR: It did have some increases in investment, but it was also the biggest corporate tax cut in history, and so it was quite expensive. So it really hurt revenue, and it had pretty modest and kind of smaller than promised impacts on wages.
MA: You're a professor. Like, if you were grading in those three buckets, like investment, wages and revenue, what grade would you give them?
ZIDAR: So, you know, I don't know if this is the age of great inflation, but I would probably give the investment a B, the tax revenue an F, and the wages a D.
WONG: OK, so what does that average out to, like, a C minus?
MA: Yeah, but, you know, some people listening might be like, oh, that's a passing grade.
WONG: (Laughter) Barely, just barely.
MA: So the Tax Cuts and Jobs Act apparently did not live up to the hype. Far from it.
WONG: But here's the thing. Next year, lawmakers will have another crack at it, with the exception of the corporate tax cut. Almost all of the tax cuts we just talked about are set to expire at the end of next year. And this sets the stage for the biggest debate over tax policy since the 2017 overhaul. And here's where voters really have a say because whether these tax cuts get extended or changed or scrapped altogether, that will depend on who they choose to run things in Washington next year, Republicans or Democrats.
MA: Yeah, among Republicans, the Tax Cuts and Jobs Act has a lot of fans, not the least of whom includes Donald Trump. On the campaign trail, Trump has promised to renew expiring tax cuts. Of course, that would come at a price. The Congressional Budget Office estimates it would add about $4.6 trillion to the deficit over the next decade.
KYLE POMERLEAU: So when the Tax Cuts and Jobs Act was initially passed, The federal government had significant debt, but the cost of that debt was much lower.
MA: Kyle Pomerleau researches tax policy at the American Enterprise Institute, which is a conservative-leaning think tank.
POMERLEAU: Fast-forward to today, that's not really the case. Debt is even greater, interest rates are even higher and interest payments as a share of the economy are probably close to, if not already, at historical levels. So it would be unwise for lawmakers to simply extend the entire individual tax cuts of the Tax Cuts and Jobs Act for both of these reasons.
WONG: Overall, though, Kyle thinks the Tax Cuts and Jobs Act was a step in the right direction. He likes that it simplified tax filing by replacing the personal and dependent exemptions with a larger standard deduction and child tax credit. And he thinks that provisions aimed at promoting business investment, including the lower corporate tax rate, should continue.
MA: On the Democratic side, President Biden has said if he's elected, he would actually maintain or even build on the Trump-era tax cuts, but only for people making less than $400,000 a year. At the same time, he said he would raise taxes on the wealthiest Americans and corporations.
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PRESIDENT JOE BIDEN: I'm a capitalist. If you want to make or can make a million or millions of bucks, that's great. Just pay your fair share in taxes.
MA: And this is more the direction David Mitchell would like to see things go. He studies tax policy at the left-leaning think tank called the Washington Center for Equitable Growth. And unlike Kyle from AEI, David thinks most of the tax breaks for businesses and wealthier Americans should go on the chopping block next year.
DAVID MITCHELL: I think that this is a great opportunity, actually, to reimagine what the tax cut can do for the economy writ large. And, you know, rejecting the trickle-down approach - I think turning the page on that and raising additional revenue from the top, investing in anti-poverty programs like the child tax credit and other social programs can actually be a boon for the economy.
WONG: In case you missed it, both Kyle and David are on board for the child tax credit. Look at that, some common ground between a conservative and a progressive tax policy expert.
MA: Yeah, and maybe lawmakers next year will find some common ground on tax policy, too. Maybe. Perhaps.
WONG: The hope springs eternal.
MA: (Laughter) This episode was produced by Angel Carreras and engineered by Valentina Rodríguez Sánchez. It was fact-checked by Sierra Juarez. Kate Concannon edits the show, and THE INDICATOR's a production of NPR.
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