Seeking to woo targeted groups of voters during his campaign, President-elect Donald Trump rolled out plans for a sweeping array of tax breaks, including promises to eliminate levies on tips, overtime pay and Social Security benefits, for millions of Americans.
Now comes the harder part – actually keeping all those promises. Even though Republicans will control Congress, enacting the president-elect’s broad tax agenda could be a heavy lift. The risk is that if the party is unable to deliver, some Americans who voted for Trump because they were yearning for a little help with their high cost of living may wind up disappointed.
Both Trump and GOP lawmakers have said that tax relief – including extending their signature 2017 tax cuts that are set to expire at the end of next year – is one of the top legislative priorities for the coming year.
“Cutting taxes for the American people, cutting taxes on tips for hard working Americans, on Social Security for our seniors,” Karoline Leavitt, a Trump transition spokesperson, said on Fox News’ “Sunday Morning Futures.” “These are things that can be done through Congress, and we’ll be working with members on Capitol Hill to get that legislation drafted so President Trump can sign it into law immediately and make real changes for the American people.”
However, Trump’s extensive tax wish list is very pricey and comes at a time when the nation’s debt is rising swiftly. Extending the 2017 Tax Cuts and Jobs Act could cost more than $4 trillion, and the incoming president has promised more than $3.3 trillion in tax relief measures on top of that.
Although Trump claims that his plan to raise tariffs will replace the revenue lost to these tax breaks, experts say that’s not possible. Instead, the president-elect’s platform will blow a nearly $8 trillion hole into the federal budget over the next decade, according to the Committee for a Responsible Federal Budget.
Enacting Trump’s multitude of new tax proposals could be challenging given the revenue constraints and deficit concerns, Marc Gerson, a member of Miller & Chevalier, a Washington D.C.-based law firm specializing in tax matters, told CNN.
“What I imagine will happen is that one or more of the Trump campaign tax proposals will be included as a kind of tip of the hat,” said Gerson, who previously served as tax counsel for the House Ways and Means Committee when it was led by Republicans. “Maybe it’s done on a more scaled back basis or maybe it’s done on a temporary basis.”
Notably, when Trump vowed to eliminate taxes on tips, several GOP lawmakers swiftly introduced bills, Gerson noted. But exempting overtime pay is more complicated, and eliminating the levy on Social Security benefits can’t be done under reconciliation, a procedure that allows Republicans to approve legislation in the Senate with fewer than the standard 60 votes. (Republicans will have at least 52 seats, with one race yet to be declared, so they will need to use reconciliation to pass the tax package.)
GOP lawmakers in both chambers have already started exploring how to extend the 2017 tax package. Idaho Sen. Mike Crapo, who is expected to take the helm of the Senate Finance Committee in the coming term, has said that “everything in the tax code will be under consideration, including new ideas” and that “pro-growth tax policy does not need to be offset,” Mandi Critchfield, his communications director, told CNN.
Spokespeople for Missouri Rep. Jason Smith, who could continue to lead the House Ways and Means Committee if Republicans keep control of the chamber, did not return a request for comment.
Though cost will be an issue as the tax package is constructed, there are lots of different levers that lawmakers can use to adjust the cost of the provisions and remain consistent with Trump’s campaign promises, said Chris Campbell, a former staff director of the Senate Finance Committee under Republican leadership and a former assistant Treasury secretary in the first Trump administration.
“Congress will have to work carefully to construct the legislative package that includes the president’s tax promises in the most fiscally prudent way they could manage,” Campbell, now CEO of Incamera Solutions, a global advisory firm, told CNN, adding he wouldn’t be surprised if such a package becomes a priority during the first 100 days of the new administration.
In addition to eliminating taxes on certain income, Trump also floated making interest paid on car loans fully tax deductible; getting rid of the controversial cap on state and local tax deductions; ending the double taxation on Americans who live abroad; exempting police officers, firefighters, veterans and active-duty military from federal income tax; and even exploring jettisoning the federal income tax itself.
Eliminating taxes on tips
Among Trump’s most repeated promises was an end to taxes on tips, which he unveiled at a June rally in Nevada, a swing state that’s home to many hospitality workers. Though his campaign didn’t release details on the proposal, Trump indicated that he would eliminate both federal income taxes and payroll taxes, which fund Social Security and Medicare.
Also unclear is how much tipped income would be free of taxes, whether the relief would only apply to workers in certain industries and whether any guardrails would be put in place to prevent others from gaming the system.
Many tipped workers would not benefit from eliminating federal income taxes on tips since they don’t earn enough to pay income tax, according to The Budget Lab at Yale University.
Virtually all tipped workers would get some tax relief if Trump also gets rid of payroll taxes on tips, the Tax Policy Center found. However, these workers would then get smaller Social Security payments after they retire.
Soon after Trump promised to get rid of taxes on tips, Republican Sen. Ted Cruz of Texas introduced a bill titled “No Tax on Tips Act,” which would allow workers to deduct tips paid by cash, check, credit card and debit card on their federal income taxes. However, it would not eliminate federal payroll taxes, which total 15.3%, half of which is paid by employers. Rep. Byron Donalds, a Republican from Florida, introduced companion legislation in the House.
However, the legislation contains few, if any, guardrails to stop high-income workers from shifting their pay to tips to try to escape taxes, according to the Center for American Progress, a left-leaning policy institute.
“Sen. Cruz’s bill would open the door to tax abuse that could provide a windfall to hedge fund managers, lawyers, and other high-income professionals,” wrote Brendan Duke, senior director for economic policy at the center.