Trump, Biden debate spurs worries over fitness and taxes

The contentious debate Thursday evening between President Joe Biden and former President Donald Trump included some discussion on tax policy, but Biden’s unsteady delivery left many Democrats worried about his ability to continue his campaign.

“Look, the greatest economy in the world,” said Biden, according to a transcript by CNN, which hosted the debate in Atlanta. “He’s the only one who thinks that, I think. I don’t know anybody else who thinks it was great — he had the greatest economy in the world. And, you know, the fact of the matter is that we found ourselves in a situation where his economy, he rewarded the wealthy. He had the largest tax cut in American history, $2 trillion. He raised the deficit larger than any president has in any one term. He’s the only president other than Herbert Hoover who has lost more jobs than he had when he began, since Herbert Hoover. The idea that he did something that was significant.”

Trump responded to a question from moderator Jake Tapper about his proposal to impose a 10% tariff on all goods imported into the U.S., but also responded to Biden’s statement about taxes.

“The only thing he was right about is I gave you the largest tax cut in history,” said Trump. “I also gave you the largest regulation cut in history. And that’s why we had all the jobs. And the jobs went down and then they bounced back and he’s taking credit for bounce-back jobs. You can’t do that.”

Tapper then asked Trump about the Tax Cuts and Jobs Act that was passed under his administration in 2017 and how many of the tax cuts are set to expire next year. If the tax cuts are extended and expanded, as Trump has proposed, that would add to the deficit. “You want to extend them and go even further, you say,” said Tapper. “With the U.S. facing trillion-dollar deficits and record debt, why should top earners and corporations pay even less in taxes than they do now?”

“Because the tax cuts spurred the greatest economy that we’ve ever seen just prior to COVID, and even after COVID,” Trump responded. “It was so strong that we were able to get through COVID much better than just about any other country. But we spurred — that tax spurred. Now, when we cut the taxes, as example, the corporate tax was cut down to 21% from 39%, plus beyond that, we took in more revenue with much less tax and companies were bringing back trillions of dollars back into our country.”

Trump argued that the economy expanded as a result until the COVID pandemic hit. 

Tapper gave Biden an opportunity to respond to his question about the national debt.

“He had the largest national debt of any president in a four-your period, number one,” said Biden. “Number two, that $2 trillion tax cut benefited the very wealthy. I — what I’m going to do is fix the tax system. For example, we have a thousand trillionaires in America — I mean, billionaires in America. And what’s happening? They’re in a situation where they, in fact, pay 8.2% in taxes. If they just paid 24% or 25%, either one of those numbers, they’d raised $500 billion in a 10-year period.”

“We’d be able to right wipe out his debt,” he added. “We’d be able to help make sure that all those things we need to do — childcare, elder care, making sure that we continue to strengthen our healthcare system, making sure that we’re able to make every single solitary person eligible for what I’ve been able to do with the COVID. Excuse me, with dealing with everything we have to do with — look, if — we finally beat Medicare.”

Trump seized on Biden’s verbal slip-up and returned to the issue of immigration. “Well, he’s right,” said Trump. “He did beat Medicare. He beat it to death. And he’s destroying Medicare because all of these people are coming in, they’re putting them on Medicare. They’re putting them on Social Security. They’re going to destroy Social Security.”

Tax experts weigh in

Biden’s performance in the debate raised concerns about whether he will ultimately back out of the race.  “I think there’s a question, I suppose, will Biden still be the nominee, and I think the time to make that decision is quick,” said Ian Boccaccio, principal and practice leader at the tax services firm Ryan. “I understand, for instance, in Ohio, you have to be on the ballot in 40 days. Whether they can put somebody else in or not is the question, but even if they do, I think from a tax perspective, the Biden objectives won’t change all that much.”

He noted the Biden administration wants to increase corporate taxes, while Trump wants to reduce corporate taxes.

“If you look at Biden versus Trump, at the corporate tax level, the first one is the headline corporate tax rate,” said Boccaccio. “It’s currently at 21%. That’s because of the 2017 Trump tax act. It was at 35 prior to that. Biden wants to increase that from 21 to 28%. Trump has said to the media he’d like to drop it.”

Trump hasn’t cited a specific corporate tax rate, but according to various reports, it could be 20% or 15%, while Biden wants to raise the rate from 21% to 28%. 

 “The candidates talked about tax in predictable, if imprecise ways,” said John Gimigliano, principal in charge of the federal legislative and regulatory services group within KPMG’s Washington national tax practice, in a statement. “For Biden, that meant raising taxes on the wealthy, and for Trump, it included extending his 2017 tax cuts coupled with new tariffs. But the overall vagueness of the tax discussion is a good reminder that when the time comes, these decisions will be made on Capitol Hill, not on Pennsylvania Avenue. In the end, last night’s tax discussion was perhaps most useful for setting the direction, if not the details, of the coming tax fight.”

Trump mostly is in favor of extending the TCJA. “Generally there is that desire by former President Trump to continue and extend the provisions,” said Rochelle Hodes, a principal in the Washington national tax office at Crowe, ahead of the debate. “Republicans in Congress are not all settled on what provisions they think should be extended and whether there should be offsets. We had a statement from President Biden and his folks that they want to extend the individual provisions, so that folks with $400,000 or less of income are not affected.”

Corporate AMT

Then there’s the 15% corporate alternative minimum tax regime that was introduced under the Biden administration’s Inflation Reduction Act of 2022. “You only trip corporate AMT if you have income of a billion dollars or more over the past three years. so very few companies are actually caught up with corporate AMT,” said Boccaccio.

Biden wants to increase the rate on corporate AMT from 15%, where it is today, up to 21%, but Trump’s campaign has not yet weighed in on the corporate AMT, but he has called for repealing many of the provisions of the IRA.

The corporate AMT came in response to calls for a 15% global corporate minimum tax under Pillar Two of the Organization for Economic Cooperation and Development’s efforts to crack down on corporate tax avoidance. Treasury Secretary Janet Yellen has been a vocal proponent of the OECD plan, but so far Congress has not agreed to pass legislation to conform to the OECD plan.

TCJA international tax provisions

“If Trump was elected, I see nothing in what he’s saying that he has any intent to conform with Pillar Two, which is simply a worldwide agreement to ensure a minimum corporate income tax of 15%,” said Boccaccio. “We are one of the nations that hasn’t signed up for that yet. Under Biden’s plan, he does have a provision called the untaxed profits rule. And this passed, it would get us in conformity to Pillar Two under the OECD. This untaxed profits rule would effectively require a 15% minimum tax for all companies. It would replace what’s currently called BEAT, the Base Erosion and Anti-abuse Tax regime, which was enacted by Trump. That particular BEAT regime basically adds an incremental tax to U.S. corporate taxpayers, to the extent they have significant payments from the U.S. company to the non-U.S. subsidiary or parent.”

The TCJA also includes the Global Intangible Low-Taxed Income, or GILTI, regime, which applies to income earned outside the U.S. by corporations’ non-U.S. subsidiaries that are more than 50% owned by U.S. taxpayers, taxing it at a rate of 10.5%.  

“A good portion of earnings could be subject to a 10.5% effective rate,” said Boccaccio. “Biden wants to increase that from 10.5% to 21%, effectively doubling it. Trump again is silent on this because again, his rule which was put in place in his tax act, is still the law of the land. He’s not looking to change that.”

Another part of the TCJA international tax regime is known as Foreign-Derived Intangible Income, or FDII. “This is a tax benefit for U.S. companies that are earning revenue outside of the U.S. on goods or services generated in the U.S.,” said Boccaccio. “It’s a benefit to keep your IP onshore if you’re in the U.S. Those revenue streams aren’t taxed at 21%, like regular revenue streams in the U.S.; you’re taxed at a reduced rate at 13.25%. It basically incentivizes U.S. companies that are selling abroad to keep their IP in the U.S. because instead of paying 21%, they pay a favorable rate of 13.25%. Biden wants to do away with that. He wants all this income to be taxed at the full corporate rate of 21% currently, or 28% if he gets his way. Trump is not on board with that either, because the law is currently what was in his tax act.”

Individual and pass-through tax cuts

Most of the TCJA provisions that are set to expire in 2025 involve individual taxes.

“I think if Biden does win, then those provisions will expire as planned,” said Boccaccio. 

The TCJA also included a 20% deduction for qualified pass-through businesses such as S corporations and partnerships, which would also expire in 2025.

“If you look at Biden’s latest blueprint, that’s not one of the major highlights that he’s super focused on,” said Boccaccio. “But nonetheless, it will expire and will require legislation to fix.”

It’s unclear if Biden and Democrats in Congress would be able to raise the $10,000 limit in the TCJA on state and local tax deductions as it’s seen as disproportionately benefiting higher-income taxpayers, although many lawmakers in blue states have been trying to get the so-called “SALT cap” lifted.

“That’s not really a benefit for the middle class,” said Boccaccio. “Therefore, I would not see it as a major campaign item for Biden. And Trump has made it very clear that he doesn’t support the SALT deduction. He thinks it’s a blue state thing and it’s the blue states’ problem if you don’t move to a red state.”

If Trump is elected, Republicans are likely to push for an end to the clean energy tax credits in the Inflation Reduction Act, although many of the tax breaks actually benefit red states and could be preserved by Trump.

“There are specific things in the IRA that I think Trump will attack,” said Boccaccio. “But generally speaking, the IRA has provided a lot of job growth through all the funding that is taking place in this renewable energy transition. And Trump is a jobs guy first. If you look at the overall infrastructure bill, and the IRA, we’re seeing a lot of spending in red states.”