The 2024 presidential election is shaping up to be a battleground for corporate tax policy, with candidates Donald Trump and Kamala Harris offering vastly different visions for the future of the Tax Cuts and Jobs Act (TCJA). The TCJA, passed in 2017, significantly overhauled the U.S. tax code, resulting in a reduction of the average effective tax rate for large corporations from 22% to 12.8%. While this resulted in significant tax breaks for many corporations, critics argue that it disproportionately benefited higher-income individuals and corporations, raising concerns about its long-term impact on federal revenue.
However, many key elements of the TCJA are set to expire in 2025, igniting a debate about their potential extension and future direction. Both Trump and Harris have put forward distinct proposals, with far-reaching implications for American businesses.
Trump’s Plan: A Continued Path of Tax Cuts
Trump, echoing his past policies, advocates for extending most of the TCJA provisions and making them permanent. He proposes further reducing the corporate tax rate from the current 21% to 20% for all corporations, with a further reduction to 15% for those manufacturing all their products within the United States. This initiative is intended to incentivize domestic manufacturing and create jobs.
In addition, Trump proposes allowing businesses to claim research and development tax deductions in the year expenses are incurred, rather than amortizing them over a period of years. This change could provide immediate relief to businesses engaged in research and innovation.
The Committee for a Responsible Federal Budget estimates that Trump’s proposed lower corporate rates could reduce the federal government’s revenue by about $200 billion through 2035, potentially leading to increased deficits.
Harris’ Plan: A Shift Towards Higher Taxes
In contrast to Trump’s approach, Harris proposes a significant shift towards higher corporate taxes. Her plan aims to raise the corporate tax rate from the current 21% to 28% and increase the corporate alternative minimum tax rate to 21%. This would place the U.S. corporate tax rate among the highest in major economies, potentially impacting the nation’s GDP negatively.
Harris also advocates for a $50,000 tax deduction for small business startup expenses, an increase from the current $5,000 deduction. This measure is designed to support small businesses and entrepreneurship.
The Committee for a Responsible Federal Budget estimates that Harris’ proposals would reduce the federal deficit by $1 trillion over the next decade, potentially alleviating concerns about government spending.
The Stakes for Businesses
The tax proposals put forth by Trump and Harris offer vastly different approaches and could have significant impacts on American businesses. Lower corporate tax rates, as advocated by Trump, could lead to increased investment, hiring, and economic growth. However, the potential reduction in federal revenue raises concerns about sustainability and the potential for future tax increases.
Higher corporate tax rates, as proposed by Harris, could potentially discourage investment and job creation, particularly for large corporations. However, increased tax revenue could be used to fund government programs and address societal needs.
Ultimately, the outcome of the 2024 election will have a profound impact on the future of corporate tax policy in the United States. The choices made by voters will determine the balance between promoting economic growth and ensuring fiscal responsibility.
