President Biden and former President Trump — the presumed candidates of their respective political parties — will square off in the first presidential debate on Thursday night, June 27. While many topics could be on the table for the two US leaders to discuss, from inflation to foreign trade policies, one could take center stage above the rest: Taxes.

Market Domination welcomes on Tax Foundation Senior Economist and Research Director Erica York to discuss Trump and Biden's tax policies, especially as Trump-era tax cuts (also known as the TCJA — Tax Cuts and Jobs Act) are set to expire in 2025. Dating back to 2017, the TCJA tax cuts did succeed in bringing taxes down for a majority of Americans and enhancing "domestic investment." Which all leaves York pondering:

"And so the question going forward is if you let the tax cuts expire, about 62% of taxpayers would see their tax bills go up starting in 2026, when those would expire. Do we want to increase taxes for 62% of Americans? And in doing so, worsen these incentives for work and investment going forward?"

York hopes both Biden and Trump will fill in the blanks on their policy promises to lower taxes for Americans below a certain income level, as well as the long-term implications both candidates' tariff plans will have on the American consumer.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Luke Carberry Mogan.

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Video Transcript

President Joe Biden and former President Donald Trump are squaring off tomorrow evening.

In the first presidential debate of 2024 both candidates have signaled the tax policies that they're promising here with us to talk about.

The key questions going into the debate is Erica York, senior economist and research director at the tax foundation.

Thanks for joining us, Erica.

So in broad strokes, we kind of know the outlines here of what these two candidates are proposing.

Right.

Trump would extend tax cuts.

For example, he's talking about tariffs.

President Biden is talking about a higher tax on the wealthy and potentially on corporations as well.

So what do you want to sort of, what do you want to drill down on and know about that you think might get answered in the debate?

Yeah, we've heard these big picture outlines from both candidates on where they would take tax policy, but they've been extremely light on detail.

For instance, both Trump and Biden have mentioned extending the 2017 tax cuts in some form or fashion, but they don't address what they would do for the $4 trillion price tag that would bring along given where debt and deficits are now and CBO projections that just came out in the last week saying deficits are higher than, than we anticipated.

Um That's a question that that ought to be answered with some real honest accounting of, of the tradeoffs of whether you're going to fully extend the taxes and create this big hit to the federal budget or whether you're going to offset some of that, which means some people would have to see tax increases.

And Eric Treasury Secretary Janet Yellen spoke with Yahoo Finance this week and Trump's tax policies came up and specifically those 2017 tax cuts, take a listen to what she had to tell us.

Look, I'm governed by the Hatch Act and um I can't get into electoral politics.

Um I, I guess I could just make a couple of policy oriented comments, which is that the signature policy from the Trump years was the tax cut and Jobs Act and it promised an investment boom which really did not materialize.

It gave huge tax breaks to corporations and to wealthy individuals and it resulted in an enormous increase in the deficit and lowered tax revenues below historic norms.

Eric I'm just, I'm curious to get your reaction to Yellen's comments there.

Do you, do you think those are, are, are fair?

Are they accurate?

Politicians tend to overpromise on the effects that their signature policies will have?

So we did hear some rather wild promises about what those tax cuts would achieve.

But if you look at what economists like us at the tax foundation predicted they would do and you look at the academic literature that's coming out.

Now you find that yes, indeed.

When you lower the tax burden on investment, you get a response of increased domestic investment and that's exactly what did happen after the T CJ A. Um, so I do think on those grounds it was successful then it was also a tax cut as was in the name of the legislation.

It was designed to reduce taxes, particularly for individuals.

And we saw um, average tax rates go down across the income spectrum.

Whether we're talking about the bottom half of taxpayers, the, the middle half are or the middle quintile or the, the top 1%.

Um It did successfully bring average tax rates down as it intended.

And so the question going forward is if you let the tax cuts expire, about 62% of taxpayers would see their tax bills go up starting in 2026 when those would expire.

Do we want to increase taxes for 62% of Americans?

And in doing so worsen these incentives for work and investment going forward and if you don't do that, then how do you pay for it, I guess is the flip side?

Yeah, that, that's the question that both Trump and Biden need to answer.

Hopefully in the debate tomorrow because President Biden and his budget has said that he would continue the vast majority of the tax cuts for people making under $400,000 but hasn't spelled out how he would offset that price tag and neither has, has Trump.

It will require tough decisions about, you know, broadening the tax base further limiting itemized deductions like the T CJ did in part, but going all the way to offset the cost of lower rates.

Um No, no easy answer when it comes to tax reform.

And um especially when it's in a revenue, neutral manner, that means you do have to give up some tax um tax provisions in order to pay for the tax reductions elsewhere.

And also Eric, I'm just interested to get your, your take on another topic that could come up uh tomorrow, the debate which is tariffs, I mean, Biden Trump, you know, they have different approaches, but they both embraced broadly the concept.

Um I'm, I'm just curious, Eric, as an economist, how are you thinking about tariffs, that dynamic and the impact on the economy?

It's extremely unfortunate that both Donald Trump and Joe Biden are willing to walk down the tariff path.

Trump a little bit further or quite a bit further than Biden.

But nonetheless, both go in the wrong direction.

Look, we've got lots of evidence from the 2018, 2019 trade war, the tariffs Trump put in place and that Biden has maintained and now increased cost American consumers hurt manufacturing output, reduced jobs, resulted in retaliation, that harmed American ag producers resulted in additional taxpayer costs to bail out those ag producers and didn't improve trade relations with China.

So a lose, lose situation.

And it makes very little sense to continue those tariffs when the costs have very clearly outweighed any small benefits that, that you could try to, you know, look at under a magnifying glass.

Um But unfortunately that, that's where we are.

Um, both candidates seem to be trying to one up each other on tariffs and also say, you know, my tariffs won't cost the American consumer, but the other guys will and we know from really recent experience that the story that they're telling on tariffs just doesn't line up with how they're already playing out.

All right, we'll see if the topic comes up tomorrow.

We'll be watching Erica.

Thanks so much for joining the show today.

Appreciate it.

Thank you.