Comprehensive Overview and Analysis of Donald Trump’s 2024 Tax Plan

Former President Donald Trump has not released a fully detailed taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. plan as part of his current bid for reelection, but he has suggested several tax policy ideas. Among various proposals, he seeks to extend the expiring 2017 Tax Cuts and Jobs Act (TCJA) provisions, further reduce the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate, exempt tips and Social Security benefits from tax, impose a universal 10 percent or higher baseline tariff on all imports, and increase tariffs on China to at least 60 percent. Additionally, he has discussed replacing the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. with tariffs.

The impact of Trump’s proposals will vary significantly depending on which combination of policies are pursued. The economic effects could range from slightly positive to slightly negative, while the revenue effects range across different magnitudes of deficit increases. As with any economic model, ours does not capture all potential effects of the proposed tax and tariffTariffs are taxes imposed by one country on goods or services imported from another country. Tariffs are trade barriers that raise prices and reduce available quantities of goods and services for U.S. businesses and consumers. policies, such as changes in compliance costs, geopolitical implications, the impact of different tax burdens on various sectors, or how uncertainty affects economic decision-making.

Our estimates illustrate that Trump’s proposed tariffs threaten to offset the economic benefits of his proposed tax policy changes while falling short of offsetting the tax revenue losses. Trump’s combination of policies could therefore shrink economic output and increase the national debt.

Modeling the Major Trump Tax Plan Ideas

Given Trump’s various proposed tax and tariff policies, we have estimated a range of potential economic and revenue effects based on the different policies he has discussed.

Key Tax Policy Proposals:

• Permanence of expiring individual provisions of the TCJA
• Permanence of expiring estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. provisions of the TCJA
• Permanence of business tax phaseouts of the TCJA (100 percent bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs., R&D expensing, and an EBITDA-based interest limitation)
• Lowering the corporate tax rate to 20 percent
• Lowering the corporate tax rate to 15 percent
• Exempting tips from income taxes
• Exempting Social Security benefits from income taxes
• Eliminating green energy subsidies in the InflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers fewer goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. Reduction Act

Key Tariff Policy Proposals:

• Raising current Section 301 tariffs on China to 60 percent
• Imposing a universal 10 percent tariff on all US imports
• Foreign retaliation on US exports, matching the 60 percent and 10 percent tariffs
• Imposing a universal 20 percent tariff on all US imports

Note that we do not model Trump’s recent proposal that would restrict the 15 percent corporate tax rate to firms exclusively engaged in domestic production, as it lacks specifics; implementing such a policy would likely reduce the economic and revenue effects. We also exclude from our analysis the proposal by vice presidential candidate Sen. JD Vance to increase the child tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. to $5,000.

Debt, Economic, and Revenue Effects of Trump’s Major Tax and Tariff Proposals

Using the Tax Foundation’s General Equilibrium Model, we estimate that Trump’s major tax changes would increase long-run GDP by about 1.5 percent. The largest drivers are the permanence of individual, estate, and business tax components of the TCJA, collectively increasing long-run GDP by 1.1 percent. Lowering the corporate tax rate to 20 percent (+0.1 percent GDP) and then to 15 percent (+0.3 percent GDP), along with exempting Social Security and tips from income tax (+0.1 percent GDP), account for the remaining increase. Repealing the green energy tax credits has no long-run effect on GDP as these policies are set to expire.

The gross tax cuts could reduce federal tax revenue over the 10-year budget window by $6.1 trillion on a conventional basis and by $5.3 trillion on a dynamic basis. Repealing the IRA green energy tax credits would increase revenue by $921 billion, resulting in a net revenue impact that would decrease federal tax revenue by $5.2 trillion on a conventional basis and by $4.4 trillion on a dynamic basis.

We estimate that proposed tariffs of 60 percent on China and an additional 10 percent on all imports would reduce long-run GDP by nearly 0.8 percent. Increasing the 10 percent tariff to 20 percent would result in a combined economic effect leading to a 1.3 percent drop in long-run output.

To illustrate the potential harms from foreign retaliation, we estimate the impact of a 10 percent tariff on all goods exports plus additional in-kind retaliation on US goods exports to China. This combination would reduce US GDP by an additional 0.4 percent in the long run while raising no additional revenue for the US government.

The 10 percent universal tariff could generate around $2 trillion over 10 years, while increased tariffs on China would raise about $560 billion. Increasing the universal tariff to 20 percent would raise almost $1.3 trillion in additional revenue. The total revenue increase from tariffs ranges from $2.6 trillion to $3.8 trillion on a conventional basis and from $2.1 trillion to $3.1 trillion on a dynamic basis, factoring in foreign retaliation.

Overall, we estimate that the combination of proposed tax and tariff changes, including foreign retaliation, would reduce long-run GDP by nearly 0.2 percent and hours worked by 387,000 full-time equivalent jobs. Both the capital stock and wages could still rise—by 0.3 percent and 0.6 percent, respectively—as the better treatment of capital investment from permanence for 100 percent bonus depreciation and R&D expensing dominates these economic channels. Depending on which combination of proposals Trump ultimately pursues, the overall impact on GDP could range from slightly positive to slightly negative for the US economy.

Under the full suite of tariffs and IRA repeal, we estimate the deficit would rise by $1.3 trillion over the next decade on a conventional basis. Accounting for economic impacts, the deficit could rise by $1.2 trillion over the next decade. The increase in the budget deficit would lead to higher interest payments made to foreigners, reducing American income (GNP) by 0.2 percent and creating a wedge between American output and income. The extent to which the budget deficit rises hinges on the exact combination of proposals, with a larger deficit increase resulting in a larger decrease in American income.

On both a conventional and dynamic basis, debt-to-GDP could rise under Trump’s proposed policy combination. Conventionally, it would rise by 10.6 percentage points, and dynamically by 9.4 percentage points.

Overall, Trump’s policies could reduce distortions in one area of the tax system, namely income taxes, only to introduce new distortions in another area, namely tariffs. The proposed combination of policies poses risks of shrinking the economy and increasing the national debt.

Modeling Notes

We assume TCJA permanence entails the following changes, described here in our recent publication:

• Lower rates and reconfigured brackets
• Larger standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes.
• Eliminated personal exemption
• Larger child tax credit
• Limited itemized deductions, including for state and local taxes paid, home mortgage interest, and miscellaneous
• Eliminated Pease limitation
• Larger AMT exemption and exemption phaseout thresholds
• 20 percent deduction for pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. income and limitation on noncorporate losses
• Larger estate tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax.
• 100 percent bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment.
• Expensing for research and development
• Deduction for net interest limitation based on EBITDA

To model the economic effects of tariffs, we treat them as an excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages,