This post was originally published on this site
The next occupant of the Oval Office will inherit enormous fiscal challenges — an expiring tax code, a trade war, and a rapidly increasing debt burden, to name just a few. As GOP presidential hopefuls take the stage for the second Republican primary debate, the candidates should explain to voters how they will navigate the fiscal minefield without jeopardizing the American economy.
The expiring tax code is the result of the tax reform signed into law in 2017. Among its many changes, the law cut average tax burdens for households across the income spectrum, featuring a much larger standard deduction, a doubled Child Tax Credit, and lower tax rates. All of that is scheduled to expire after the end of 2025, leaving Americans with across-the-board tax hikes come January 2026.
The trade war is the result of hefty new tariffs levied on U.S. businesses that purchase goods from foreign producers. The tariffs, a tax paid by U.S. businesses, hurt U.S. manufacturing. They cost jobs and investment and raise prices for consumers. President Joe Biden has maintained most of the tariffs despite their failure to improve trade relations with China or strengthen U.S. manufacturing.
Lastly, the rapidly increasing debt burden is forecasted to exceed the size of the entire U.S. economy by the time the next president is sworn in. Budget deficits are projected to grow substantially, reaching $2.7 trillion in 2033, or 6.4% of gross domestic product (GDP). According to congressional scorekeepers, the federal government’s net interest cost will exceed $1 trillion annually by 2029, eclipsing the U.S. defense budget. The deterioration is the result of lawmakers’ unwillingness to exercise honest fiscal discipline.
Navigating this minefield will be no easy feat for the next president.
Several GOP candidates have expressed interest in continuing the 2017 tax reductions. While a wholesale extension would boost growth and maintain a simpler tax code, it would add upwards of $3 trillion to deficits over the next decade. Instead, the next president should use the expirations as an opportunity to further build on the 2017 reforms.
The 2017 tax law placed limits on itemized deductions for things like home mortgage interest and state- and local taxes paid to help pay for the tax cuts. Brokering a similar deal to prioritize the most pro-growth elements of the reforms in exchange for more base broadeners is one option.
Doing so would require an honest conversation about which policies candidates favor. Is it the rate cuts? The larger Child Tax Credit and standard deduction? The estate tax cuts?
Another option would be to start from scratch with a revenue-neutral reform. Tax Foundation research highlights that reforming the U.S. tax code to resemble our economic competitors, where people can file their taxes in just a few minutes, could boost the size of the economy by 2.5%, raise revenue and cut compliance costs by billions of dollars. Some competitors’ tax systems have been in place for more than two decades, proving to be a politically durable and growth-enhancing reform that the U.S. should take seriously.
“ GOP candidates on the debate stage should answer whether they support higher tariffs. ”
The next president must also address the ongoing tariff war.
Import taxes generate revenue for the U.S. government, but at a high cost. Studies of the tariffs implemented under former President Donald Trump and maintained by Biden have found them to be a losing policy. They cost more U.S. manufacturing jobs than they saved, harmed U.S. farmers, raised prices for U.S. consumers, and alienated our allies — all without changing unfair trade policies or reviving protected domestic industries.
Trump has proposed escalating the tariff war with a so-called 10% universal basic tariff. Applying a 10% tax to the things we purchase from businesses overseas would hike taxes by more than $2 trillion over the next decade. That would reduce government debt, but it would compromise growth and invite retaliation, making Americans poorer as a result.
GOP candidates on the debate stage should answer whether they also support higher tariffs. Ideally, they will learn the lesson from the Trump-Biden tariffs and outline a contrasting approach that includes openness to entering trade agreements. Embracing the freedom to do business abroad without incurring an import tax bill would promote growth and higher incomes for Americans.
At the extremes, a completely unpaid-for extension of the expiring tax cuts would be pro-growth but cost a vast amount of revenue while doubling down on the tariff war would compromise growth and economic stability but raise a significant amount of revenue.
The next president should steer clear of both extremes, crafting thoughtful, honest proposals to address the rising U.S. debt burden without jeopardizing the stability and growth that underpin the American Dream. The fiscal challenges may be daunting, but with pragmatic solutions, the next president can navigate the country toward a more prosperous future for all.
Erica York is senior economist at the Tax Foundation, a nonpartisan think tank in Washington, D.C.
More: Here’s how the Republican presidential candidates say they’ll whip inflation
