The extension of Trump-era tax cuts in 2025 will add up to $5.5 trillion (€5 trillion) to the US’s already soaring budget deficit, a Dublin conference on tax was told yesterday.
Rohit Kumar, co-leader of PwC’s national tax services practice in Washington, sounded the alarm on the upcoming expiration of the Tax Cuts and Jobs Act and how it is destined to shape US tax policy for years to come.
Enacted by former president Donald Trump in 2017, the act cut US corporate tax rate from 35 to 21 per cent, the largest such rate cut in US history, while lowering marginal income tax rates for most workers.
With the legislation set to expire in 2025, the outcome of the US election will determine which political party will handle these expiring tax breaks, Mr Kumar told PwC’s annual tax policy event.
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“At the end of next year, the marginal tax rates for every working American goes up ... this is a politically intolerable result,” he said.
“They did this on purpose. They knew full well that when these things were due to expire that no matter who was in charge (Congress on a bipartisan basis) would want to extend some or maybe all of the expiring tax relief,” Mr Kumar said.
“The problem is — when they did this in 2017 — they hadn’t anticipated the pandemic, they hadn’t anticipated the scale of federal spending that would follow or the slowdown in the economy,” he said, noting the scale of the budget deficit is significantly higher now, close to $2 trillion annually.
“If Congress wants to extend everything, no tax increases on incomes, it will cost the US government about $5 trillion-$5.5 trillion over the next 10 years,” Mr Kumar said.
This election will determine who deals with the expiration of these large tax cuts and most likely how the US responds to the stalled element of global tax reforms led by the OECD, which reconfigures tax rights closer to the source of earned revenue, he said.
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If elected for a second term, Mr Trump will most likely not change US corporation tax but he could impose a 10-15 per cent tariff “across the board” on all US imports, a move that could greatly disrupt global trade, including Irish exports, Mr Kumar said.
He noted that Democratic candidate Kamala Harris was already talking about lifting US corporation tax back up to 28 per cent but this could be politically impossible if Republicans control the US Senate, he said.
Also speaking at the event, Minister for Finance Jack Chambers noted that while there was concern about the impact of changes to the global tax regime on Ireland, “certainty and stability” was a “huge plus for us”.
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