A little more than two months from now, voters in the United States will be electing a new President. A new ‘leader of the free-world’, who among the various global geo-political challenges will also have to deal with unprecedented domestic economic hardships. Election fever is peaking and so are promises made by both sides. Both the Democrat presidential nominee Kamala Harris and her Republican counterpart Donald Trump have pulled out all stops, not only to snag fence-sitters but also to convert voters from opposing camps.
Harris, the Democratic U.S. presidential nominee has said that she will announce a tax credit for small business start-ups next week. Speaking at a market tour in Savannah, Georgia, she made clear her focus on the small business community. “Half of America’s working population either owns, runs or works in a small business”, she said, adding that strengthening the economy could not happen without the participation of small businesses.
Harris had earlier announced that if elected to power, her administration would pass a middle-class tax cut. Speaking at the Democratic National Convention in Chicago, the U.S. Vice President had accused her opponent Donald Trump of working against the middle-class. “Trump fights for himself and his billionaire friends and he will give them another round of tax breaks that will add up to $5 trillion to the national debt”, she said from the podium at the convention. Harris claimed that Trump would enact a “national sales tax” which would raise the burden on middle-class families by almost $4,000 a year. “Well, instead of a Trump tax hike, we will pass a middle class tax cut that will benefit more than 100 million Americans”, Harris said.
Donald Trump, in contrast, has his tax agenda focused on the rich and the industry. In his previous stint as the U.S. President, Trump slashed corporate tax to 21 per cent from 35 per cent. He promises to slash it further to 15 per cent if elected again. Kamala Harris has said she will raise this tax to 28 per cent.
Trump is also playing on the Make America Great Again (MAGA) card and has promised a big tariff hike on imported goods. This he says will bring down the import bill as well as help domestic producers. He plans a 10 per cent baseline import duty. On Chinese imports this duty could go up to 60 per cent.
The tax cut promises come at a time when Americans are staring at a ‘tax shock’ 16 months from now.
The Tax Cuts & Jobs Act (TCJA) passed in 2017 by the Trump administration had slashed taxes on individuals as well as the industry. While individuals and families were gifted with lower tax rates and a doubling of standard deduction among other sops, the industry saw a massive tax cut.
Several of these lower tax liabilities end in 2026. Several policymakers in the U.S. are not in favour of extending a lot of these sops which they say add an estimated $4.6 trillion to the U.S. deficit in the next 10 years.
An interesting aside of this tax war is the effort to attract the young with both sides promising tax breaks for the gig economy. Both Trump and Harris have announced they will remove tax on tips received on various services. As Trump announced on Thursday, “To get more relief to working-class citizens and seniors on fixed incomes, we will have no tax on tips, and we will have no tax on Social Security benefits.”
