Going on Offense in the Trump Tax-Cut Battle

The debate leading up to the New Year’s Eve 2025 deadline should be about more than whether to keep the Trump tax cuts for the rich or let them go. It's an opportunity for so much more.

By William Rice

Regular readers of this Substack know that most parts of a big tax law slanted towards the rich enacted in 2017 by Donald Trump and congressional Republicans are due to expire at the end of next year. The GOP and its wealthy donors want to extend all the expiring provisions—at a cost of nearly $5 trillion—while President Biden and congressional Democrats want to let the tax cuts exclusively benefiting the rich and big corporations disappear on schedule, while preserving the parts of the law that benefit working families. 

But the debate leading up to the New Year’s Eve 2025 deadline should be about more than whether to keep the Trump tax cuts for the rich or let them go.  It should also address the larger issue of how we can use this moment to improve the tax system through progressive reforms. Since we’re having to rewrite big parts of the tax code anyway, it’s a great opportunity to raise taxes on the rich and corporations more than the expiration of the Trump law would alone. That’s how we can narrow economic inequality and raise the revenue we need to build an economy that works for everyone, not just those at the top, and to lower public debt. 

Towards that end, the whole law should be on the bargaining table, not just the provisions that are scheduled to run out. The most costly permanent part of the law is the huge cut in the corporate tax rate, from 35% to 21%, which will wind up costing us $1.3 trillion in lost revenue over the law’s first decade. (Of course, the law’s “permanent” provisions are only permanent in the sense that they have no expiration date. Any part of a law can be amended or repealed.)  

This two-fifths reduction in the corporate tax rate was entirely unwarranted. American corporations were already making record profits before the tax cut, and have just made more money since. Meanwhile, corporate taxes as a share of federal revenue have shrunk by two-thirds since the middle of the last century. As a share of the economy, corporate taxes have been stagnant for the past four decades, even as profits have leapt by half. 

The bill’s proponents claimed the benefits of the corporate tax cut would trickle down to workers in the form of higher pay. But you can probably guess what really happened: corporations used their tax cuts to make their rich CEOs and shareholders even richer by going on an unprecedented stock buyback spree. (By reducing the number of shares outstanding, buybacks raise the value of stock remaining in investor hands.) One study found million-dollar-a-year executives got a $50,000 raise in the first few years courtesy of the corporate-rate cut, while the lowest-paid 90% got nothing. 

This costly and wasteful tax giveaway to big businesses and their wealthy stockholders is so egregious that even some Republican lawmakers now want to pull at least some of it back. Fully restoring the 35% rate under which Corporate America was already thriving is the best idea. 

But in other areas going back to the status quo before the Trump law is insufficient. The estate tax, for instance, is scheduled to strengthen somewhat on Jan. 1, 2026—but not become as strong as it used to be and should be again. The estate tax is supposed to make lucky heirs of family fortunes share some of their unearned windfall with all of us who weren’t born rich. It’s meant to curb the creation of economic family dynasties that destabilize our economy, disrupt our society and endanger our democracy. 

But thanks to the Trump-GOP tax law, almost no inheritors now pay the tax: more than $27 million per couple can be passed down tax-free in 2024, with the amount rising each year with inflation. If the law is allowed to expire on schedule, that “exemption” amount would fall to around $14 million in 2026 (and more in subsequent years). That’s still too high. 

Sen. Bernie Sanders (I-VT) has a plan that would return the exemption amount per couple to $7 million. That was the level as recently as the Obama administration and low enough to assess substantial family-wealth transfers without asking anything of 99.5% of families who may want to pass along a nest egg to their kids. 

Sanders’ bill would also set higher tax rates for really stratospheric fortunes and close loopholes that let family dynasties hide away their riches in special trusts. 

The top individual tax rate is set to return in 2026 to 39.6%, where it was before the Trump tax law cut it to 37%. This year, only the portion of a couple’s income that tops roughly three-quarters of a million dollars ($731,000) is subject to that top rate, and the figure keeps going up with inflation. Despite Republican claims to the contrary, there’s no evidence that economic growth is more robust when the top tax rate on the highest earners is lower. But simple math shows we lose a lot of revenue when we coddle those with huge incomes.

Instead of settling for a return to the 39.6% top rate, however, we should impose higher rates on the very biggest incomes. In the last few years, bills have been introduced in Congress to assess small surtaxes on incomes over $2 million per couple—raising $635 billion over a decade—and on incomes over $10 million, which would bring in over $200 billion. 

It’s often said the best defense is a good offense. Advocates for tax fairness need to seize upon the chance presented by the expirations in the Trump-GOP tax law to not only prevent the extension of bad tax policy but to enact far-reaching, long-overdue progressive reforms.