Trump’s Next Task Is Turning ‘Beautiful Bill’ Into Economic Boon

Now that President Donald Trump’s $3.4 trillion tax and policy bill is the law of the land, the administration should do everything in its power to make it work as intended. If the White House wants to unleash a new age of economic growth and prosperity, it must win both an administrative and messaging battle.

First, the administration must prioritize investment. Policies such as full expensing, which allow businesses to immediately write off the costs of investment, made an impact in the 2017 Tax Cuts and Jobs Act—even when it was implemented on a temporary basis.

Now that these provisions are permanent, the growth potential can’t be overstated. The government needs to ensure these tools achieve their goals, but part of that will require a pivot on trade.

The administration has a strong desire to boost manufacturing investment and support onshoring and there are many provisions in the new tax bill that support this aim. But the administration’s erratic trade policy is driving up the costs of key inputs that manufacturers rely on to build things in the US.

Trump’s tax and trade agendas clearly contradict one another. While the new tax law works to support onshoring and domestic investment, Trump’s constant string of shifting tariffs will drive up the costs of those same activities. Tax Foundation research has shown that the ongoing trade war largely could wipe out the economic benefits of the recently enacted law.

The administration must sort out its policy priorities and then communicate with workers. The TCJA cut taxes for everyone, yet polls from the onset showed that people didn’t believe it. Eight years later, many people once again may feel that Trump’s new reforms won’t lower their taxes.

Part of that may be intentional on Republicans’ part. Trump campaigned on eliminating taxes on tips, overtime, and Social Security. The state-and-local-tax caucus in Congress won major concessions from conservatives, resulting in a bigger tax cut for workers in high-tax states. Those battles were at the forefront of the debate; unless you fall under one of these constituencies, you’d be forgiven for thinking this law does little for you.

What the bill did for millions of Americans, though, is avoid a massive automatic tax hike had the TCJA been allowed to expire on Dec. 31. Opponents of the new tax law argue that it gives a massive tax cut for the rich and a tax hike for the working class. That narrative assumes that the multi-trillion-dollar tax increase that would have hit 62% of US taxpayers at the end of this year would have been just fine.

When the dust settles, I expect the US tax code to be nearly as progressive after the passage of this legislation as it has been in recent years. This is because the law’s most significant provisions largely maintain the rates, brackets and credits that determine tax liability for most taxpayers. The higher cap on the state and local tax deduction will benefit higher income taxpayers, but there are limits that curb the gains from that change.

However, Republicans should be cautious to avoid overselling the benefits of the new law. Families expecting a large tax cut may be disappointed when tax season rolls around. Many Americans wrongly measure a tax increase or decrease based on their tax refunds, and Republicans should be prepared to explain what the bill accomplished when tax filing season begins next year.

Finally, the administration must get to work on the implementation details. It took more than a year for many TCJA regulations to be finalized, and the Biden administration took time rolling out the complex regulations for the Inflation Reduction Act. New guidance and regulations will need to be developed on a host of provisions, including the new interest deduction for auto loans, tips, overtime work, and dozens more.

The Treasury Department will have to give narrower policies special attention. Provisions such as no taxes on tips or overtime work are aimed at a small number of people, and they’re also temporary.

But just because these policies will expire at the end of 2028 doesn’t mean they will be less prone to abuse. Treasury needs to ensure these provisions, flawed as they are, go toward the intended workers and families instead of creating new loopholes that clever taxpayers can game.

On the whole, the new Trump tax law can deliver some positive outcomes for the economy. Without it, we’d be stuck with a harmful trade war as the administration’s only major economic policy initiative. But the law is a far cry from tax reform.

While it avoids a significant tax hike, many of the new provisions it introduces will make the tax code more complex and more difficult for many taxpayers to understand.

Republicans have staked much of their agenda on the new tax law. They should now be ready for the next stage of the challenge.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Daniel Bunn is president and CEO of the Tax Foundation, a think tank in Washington, D.C.

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