Trump proposes tax reductions aimed at the electorate he aims to defeat in elections
In a New York gathering this week, the previous president promised to decrease tax obligations if voters supported him.
The method by which Trump plans to implement these tax reductions varies based on the support he seeks.
In Nevada, a state that's borderline and relies heavily on the votes of casino staff, servers, and hotel workers, Trump assured elimination of federal taxes on tips. For the retired population, who are a reliable voting group, Trump proposed a different incentive: "Seniors should not pay tax on Social Security!" he declared on social media. Toward blue-collar workers that his campaign is aggressively trying to win over, Trump vowed this month to abolish taxes on overtime wages.
"It's time for the working class to finally receive a break, and that's what we're doing," Trump stated in Tucson, Arizona, mentioning various professions such as police officers, nurses, construction workers, and other skilled laborers as those who would benefit.
Moreover, his recent suggestion – a larger deduction for those paying higher state and local taxes – he presented as "saving thousands of dollars for residents of" his former state, New York (which he asserts he can still win), but also Pennsylvania, the most contested battleground of the 2024 campaign.
In total, his proposed tax cuts would amount to trillions of dollars.
In his third term as president, Trump seeks to simplify his party's messaging to appeal to more working-class voters. Bold slogans such as "No tax on tips" and "Make America Affordable Again" have replaced classic Republican principles – including deficit reduction – and detailed policy statements in the streamlined platform he forced on the GOP during their July convention in Milwaukee.
His tax proposals this time are well-suited for campaign signage at events and for use in television ads, several of which are currently airing in battleground states. A pro-Trump super PAC has even put "No Tax on Tips" onto stickers for supporters to distribute by placing them on their restaurant bills.
However, although Trump's proposed tax cuts might appeal to certain voters, their vague nature makes it difficult to determine exactly who would benefit.
Additionally, these measures would put substantial strain on the federal budget and, likely, on Social Security and Medicare programs. Trump has not specified how he plans to cover these tax reductions, other than pointing to tariffs, which he claims will generate trillions of dollars in revenue – although it may not be enough to cover all of his promises, according to some experts.
As Howard Gleckman, senior fellow at the nonpartisan Urban-Brookings Tax Policy Center, put it, "You can almost see the focus group that was behind each of these proposals."
Trump's targeted, but vague, tax cuts come in response to a public still uncertain about inflation and aim to put more money in their pockets if elected again. Remaining concerns about prices and pay continue to impact many voters as they head toward the election, to Trump's advantage, as he is generally perceived as better suited to handle the economy.
However, since Harris replaced President Joe Biden on the ticket, the polling gap between Trump and his Democratic rival in terms of the economy has narrowed. Like Trump, Harris has presented a series of populist economic proposals – including her proposal to abolish federal taxes on tips, which Trump has accused her of copying.
Harris, in turn, is focusing on targeted tax credits and deductions to offer relief to specific individuals. To help families with the cost of child rearing, she has proposed restoring the American Rescue Plan's popular expansion of the child tax credit to as much as $3,600 per year, up from $2,000, and making it permanent. She also wants to provide a $6,000 child tax credit for families with newborns.
For first-time homebuyers, Harris' plan would offer up to $25,000 in down payment support and a $10,000 tax credit. Harris has also proposed increasing a tax deduction for new small businesses to $50,000, up from $5,000.
Trump's tax cut pledges
Trump began his tax cut spree at a June rally in Nevada, where he vowed to abolish taxes on tips.
However, this proposition may not be significant for some tipped workers, as many earn insufficiently to pay federal income taxes. Some 60% of households with tip-earning workers would benefit, with average tax cuts totaling approximately $1,800, according to the Tax Policy Center.
If Trump also eliminates payroll taxes, which support Social Security and Medicare, then almost all tipped workers would receive a tax cut, totaling around $2,100 when including both income and payroll taxes, the Tax Policy Center found. However, these workers would then receive smaller Social Security payments after retirement.
Moreover, eliminating taxes on tips would impact the federal budget negatively, reducing revenue by between $150 billion to $250 billion over a decade, according to the Committee for a Responsible Federal Budget, a watchdog group.
This proposal would positively affect numerous senior citizens, initially. It would lessen the tax burden on US households by an average of $550, although the reduction fluctuates significantly depending on income level, as per the Tax Policy Center. Lower-income seniors, who don't pay taxes on their Social Security benefits, will see minimal, if any, adjustments. Middle-income and upper-middle-income households, however, will experience the most substantial increase in after-tax income.
However, excising this tax would also impact the stability of both Social Security's and Medicare's trust funds, which are currently financially unsteady. The depletion of the Social Security retirement trust fund would accelerate by more than a year, and Medicare's hospital insurance trust fund would be depleted six years earlier, reportedly by the Committee for a Responsible Federal Budget. Once the trust funds are depleted, the entitlement programs will be unable to fully pay out benefits. Seniors who end up incurring larger payment cuts than their tax savings will eventually suffer, with lower-income recipients bearing the brunt of the impact.
Eliminating this tax would also magnify federal deficits, as per a committee analysis, by an estimated $1.6 trillion to $1.8 trillion through 2035.
Recently, Trump declared he would abolish taxes on overtime pay, which could benefit both hourly workers and certain salaried employees. However, without further details, it's challenging to determine the specific beneficiaries and their potential savings. Based on estimates from the right-leaning Tax Foundation, abolishing federal income taxes on all overtime pay could amount to $680 billion over a decade, while eliminating both income and payroll taxes would escalate the expense to $1.1 trillion.
Most recently, Trump announced his intention to scrap the $10,000 limitation on state and local tax, or SALT, deductions on Truth Social, ahead of a New York rally. The majority of this cap's impact is borne by higher-income individuals in high-tax blue states who itemize their deductions.
Scrapping the cap would intensify the cost of extending the 2017 Tax Cuts and Jobs Act by $1.2 trillion over a decade, according to the Committee for a Responsible Federal Budget, which described such a move as "costly, distortionary and regressive." Nearly 92% of this relief would advantage the top 10% of households, while less than 1% would favor the bottom 60%.
Trump's approach to economic populism is not confined solely to tax cuts. At the New York rally, Trump pledged to impose a temporary cap on credit card interest rates at 10%, allowing "working Americans" to catch up. The typical credit card rate is nearly 21%, while the average retail store card rate is at a historical high of 30.45%. Credit card debt has surpassed $1 trillion, and an increasing number of individuals are experiencing difficulties in repaying their debts.
The conservative Heritage Foundation, however, is not in favor of imposing a cap on credit card rates, likening it to "price controls" – a term Trump has used to criticize Harris's proposal to ban corporate price gouging.
Whether any of these proposals become law is uncertain, as they necessitate Congressional approval, which could remain divided following November's election.
Trump shared his intention to eliminate taxes on tipped wages in a Nevada audience, promising to implement the change immediately. However, his campaign later retracted this timeline.
"President Trump will ask Congress to eliminate taxes on tips," spokeswoman Karoline Leavitt informed CNN in June.
In response to Trump's proposal to eliminate taxes on tipped wages, Harris accused him of copying her idea.
Considering Trump's tax proposals, politics in the upcoming election are expected to revolve heavily around economic issues and tax cuts.
