Four years after former President Trump signed his 2017 tax-cut law, most of the measure is unlikely to be reversed in the near term, even under a Democratic president and Congress.
Democratic lawmakers were united in voting against the legislation, and they and President Biden subsequently campaigned on rolling back the law’s tax cuts for high-income individuals and corporations.
Speaker Nancy Pelosi (D-Calif.) called it “the worst bill in the history of the United States Congress” several weeks before the 2017 tax law was enacted.
Four years later, Democrats are struggling to undo major portions of the law, and it increasingly looks like the Trump bill will be lasting.
Sen. Joe Manchin (D-W.Va.) might have given Democratic efforts to really change the law in this Congress a fatal blow on Sunday by announcing his opposition to the Build Back Better Act.
While the most recent versions of Biden’s social-spending and climate package did not directly change key aspects of the 2017 law, in part due to opposition from Sen. Kyrsten Sinema (D-Ariz.), it’s not clear any version of the measure will now make it to the president’s desk.
Democrats were prepared to target the $10,000 ceiling the law imposed on state and local tax deductions, which Trump and the GOP had aimed at blue-state districts, as part of the Build Back Better agenda.
But that issue badly divided the party, with some seeing a provision to raise the ceiling as benefiting the rich.
The failure of Democrats to make significant progress on rolling back the Trump tax law comes as a surprise to some tax-policy experts.
“A lot of people thought that the corporate tax rate would go up,” Kyle Pomerleau, a senior fellow at the American Enterprise Institute.
“We did think a Biden administration with a Democratic Congress would easily be able to raise the top individual rate from 37 percent to 39.6 percent,” he added.
Trump signed his signature legislative accomplishment, known as the Tax Cuts and Jobs Act, on Dec. 22, 2017. The law cut individual income tax rates, increased the standard deduction and child tax credit, slashed the corporate tax rate from 35 percent to 21 percent and overhauled how the U.S. taxes corporations’ foreign earnings, among other things.
Biden frequently criticized the Trump tax cuts while he was running for president in 2020, at times saying he wanted to “eliminate” them because they benefited wealthy people and corporations.
When Biden was elected and Democrats won two run-off elections to take a narrow Senate majority in January, it appeared the party would have a real chance to go after Trump’s tax law.
Biden’s initial proposals for his economic agenda this year called for rollbacks of parts of the GOP tax law. For example, it proposed raising the corporate tax rate to 28 percent and raising the top individual income tax rate from 37 percent back to its pre-GOP tax law level of 39.6 percent. It also called for significant changes to the international provisions in the law.
House Democrats also initially sought to roll back the tax-rate cuts in their initial version of Biden’s social-spending package, in order to pay for spending in areas such as child care, health care and climate. The House Ways and Means Committee in September approved legislative text that would have raised the corporate tax rate to 26.5 percent, raised the top individual income rate to 39.6 percent, modified the 2017 law’s international provisions, limited a deduction created by the 2017 tax law for owners of pass-through businesses and terminated the law’s increase in the estate-tax exemption.
But despite the widespread support from Democrats for rolling back the tax law, subsequent changes to the social-spending package removed many of the provisions that take direct aim at the GOP law.
The House version of the social-spending package approved in November did not raise either the corporate tax rate or the top individual income tax rate, and did not make changes to the estate tax or the pass-through deduction. While the bill did modify the Trump tax law’s international provisions, the changes were more modest than Biden’s initial proposals.
In order to offset the cost of spending in the bill without raising tax rates, the bill included other revenue-raising provisions, such as the creation of a minimum tax on large corporations’ income as reported on financial statements, a surtax on income above $10 million, and increased funding for IRS enforcement.
Democrats dropped the provisions to raise the corporate and individual income tax rates due to opposition from Sinema, who had argued it would not help the nation’s economic competitiveness.
But it’s unlikely that Sinema was the only Democratic lawmaker that had some resistance to reversing aspects of Trump’s tax law. Some of the areas where Republicans made tax-code changes in 2017 were also areas where many Democrats had also desired changes to some extent.
The Tax Cuts and Jobs Act “was closer to a bipartisan tax reform than some may want to admit,” said Pomerleau.
Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, noted that while the House-passed bill doesn’t explicitly repeal much of the GOP tax law, it does shrink the benefits of the law for certain corporations and wealthy households.
“It’s not nothing,” Gleckman said of the corporate minimum tax.
While many of Trump’s tax cuts appear to be here to stay in the near future, they may ultimately be rolled back at a later point.
The tax provisions affecting individuals in the law largely expire at the end of 2025, including provisions that have provided tax cuts to low- and middle-income households. At that time, Democrats and Republicans may try to negotiate a deal that rolls back the tax cuts for high earners in order to prevent the majority of taxpayers from seeing their taxes go up.
“What the tax code looks like in the long-term is still to be determined,” Pomerleau said.