The True Cost of Trump’s Tax Plan (with Samantha Jacoby)

Episode Summary

Executive Summary: The episode examines the 2017 Trump tax cuts as a case study in trickle-down economics, arguing they overwhelmingly benefited corporations and high-income households while adding trillions to deficits and delivering little to no broad economic growth. Tax expert Samantha Jacoby explains which provisions expire in 2025, how Congress could use that moment to raise revenue, strengthen the child tax credit, and reverse inequality, and why IRS enforcement funding is essential to collecting owed revenue.

Main Topics: 2025 expiration of Trump tax provisions (Priority: 5/5): The conversation explains that many individual tax cuts from the 2017 law expire in 2025, creating a major legislative opening to either extend, reform, or allow them to lapse. Who benefited from the 2017 tax law (Priority: 5/5): Jacoby details how the law prioritized permanent corporate tax cuts and temporary household cuts, with the largest gains going to high-income households, pass-through owners, and wealthy estates. Failure of trickle-down economics (Priority: 5/5): The hosts and guest argue that promises of self-financing tax cuts, wage gains, and broad GDP growth did not materialize, while deficits and buybacks did. Revenue needs and public investment (Priority: 4/5): The discussion frames higher revenue as necessary to fund Social Security, Medicare, climate action, housing, child care, and a stronger child tax credit. IRS enforcement and lost revenue (Priority: 4/5): The episode highlights that IRS budget cuts reduced audits of millionaires and corporations, and that better enforcement could recover large sums without changing tax rates. Tax reform and bipartisan possibilities (Priority: 3/5): Jacoby notes there is some bipartisan appetite for extending select family benefits and business provisions if they are paid for, though major reform remains politically difficult.

Key Arguments: The 2017 tax cuts were designed to permanently favor corporations and temporarily favor households, especially affluent ones. The law cost the federal government trillions and did not pay for itself, despite claims from Republicans and Trump administration officials. Cutting corporate taxes did not meaningfully raise wages for most workers; studies found no wage increase for workers in the bottom 90%. The pass-through deduction is a high-cost giveaway that largely benefits millionaires and should end. The corporate tax rate at 21% is too low; raising it to around 28% could generate substantial revenue. The child tax credit should be expanded because the 2021 temporary expansion sharply reduced child poverty. IRS underfunding reduces enforcement, especially for wealthy taxpayers and large corporations, and investing in the IRS increases revenue. Letting more of the 2017 law expire would create fiscal room for social investment and more progressive tax policy.

Data Points: Total cost of the 2017 tax law over 10 years: $1.9 trillion - CBO estimate for the original law, including permanent and temporary provisions. Additional cost if all expiring provisions are extended: $3.5 trillion over 10 years - Revenue loss on top of the original 2017 law if Congress renews the temporary tax cuts. Annual revenue loss from extending expiring provisions: About $350 billion per year - Derived from the $3.5 trillion extension cost over 10 years. Annual revenue loss from the original law: About $200 billion per year - Approximate yearly impact of the $1.9 trillion 10-year cost. Top individual tax rate cut: 39.6% to 37% - One of the permanent/temporary household provisions that benefited high earners. Tax cut for a married couple with $2 million in income: $36,000 - Illustrative benefit from the top rate reduction alone. Pass-through deduction: 20% deduction - Lets owners of pass-through businesses deduct 20% of business profits. Effective top rate on pass-through income: 29.6% - Resulting rate for pass-through owners under the deduction, versus 37% for employees. Estate tax change: $4.4 million tax cut per couple - Benefit from doubling the amount that can be passed on tax-free for taxable estates. Pass-through deduction cost: $50 billion a year - Annual revenue loss from the deduction, more than half of which goes to millionaires. Potential corporate rate option: 28% - Jacoby says a rate around this level could raise significant revenue; the current rate is 21%. Revenue from raising corporate tax rate: Around $1.3 trillion over 10 years - Estimated revenue from moving the corporate rate to about 28%. IRS budget cut: 20% in inflation-adjusted terms - Reduction from 2010 to 2020, contributing to weaker enforcement. Audit decline for millionaires: 70% - Audit rates for millionaires fell sharply during the period of IRS underfunding. Audit decline for large corporations: 50% - Audit rates for large corporations also fell during IRS budget cuts. IRS funding in the Inflation Reduction Act: $80 billion over 10 years - Funding intended to rebuild enforcement capacity and raise collections. IRS funding cut in debt limit agreement: $20 billion - Reduction from the IRA’s original IRS funding commitment. Minimum tax on foreign income: 10.5% - Existing rate on foreign income of U.S. multinationals discussed as a target for reform. Temporary child tax credit expansion impact: Largest reduction in child poverty in history - How the 2021 expansion was characterized in the conversation.

Pivotal Quotes: "Middle out economics is the answer." — Nick Hanauer: Opening framing of the show’s economic philosophy. "Tax cuts plainly don't pay for themselves." — Samantha Jacoby: Direct rebuttal to trickle-down claims about growth and fiscal self-financing. "We shouldn't have the level of child poverty that we do. And we know how to fix it. We can do it through the tax code." — Samantha Jacoby: Her explanation of why she works on tax policy and revenue.

Implications: The episode argues 2025 is a crucial tax-fight moment: Congress can either deepen inequality and deficits by extending Trump-era cuts or use the expiration to fund families, enforcement, and public investment.