Republican presidential candidate Donald Trump’s recently unveiled Republican Party plan condemned President Joe Biden’s policies and stuck to Trump’s classic slogan of “making America great again.” The plan lists 20 points to help empower the American public. One of the points in the plan that may stand out to the average American worker is: “Big tax cuts for workers. And no tax on tips!”
Check out: Trump wants to abolish income tax – what it would mean for the economy and your wallet
Learn more: 7 Reasons You Need to Talk to a Financial Advisor to Boost Your Savings in 2024
It’s one thing to include something in your program, but developing a strategy to implement it is quite another. GOBankingRates reached out to experts to find out how the Trump administration could implement tax cuts for American workers.
Earning passive income doesn’t have to be difficult. You can start this week.
Make the Tax Cuts and Jobs Act permanent
During Trump’s presidency in 2017, he proposed the Tax Cuts and Jobs Act (TCJA). The law cut most income tax rates and increased the standard deduction. In addition, the TCJA increased the amount for the child tax credit. However, the TCJA expires at the end of 2025.
Dr. Jim Ronan, a lecturer in the Department of Political Science at Villanova University, said by extending the TCJA, workers can expect a continuation of these tax cuts.
“The promise of big tax cuts relies heavily on making the 2017 tax cuts permanent,” Ronan said. “Those cuts expire in 2025 and allowed for an expansion of the child tax credit and a doubling of the standard deduction, according to the GOP platform. So if these proposals are renewed, workers may not see much of a change. But if they expire, taxpayers could be in for an unpleasant surprise when they file their 2025 tax returns.”
Learn more: Trump wants to abolish income tax – 4 reasons why you should change your retirement planning
Adjustment of tax classes
When Trump enacted the TCJA, tax rates were correlated with certain pre-determined income brackets. However, if those brackets were expanded, certain brackets could see a lower tax burden.
“One way to reduce the tax burden on workers is to adjust tax brackets,” said Ariful Islam, financial expert at Sterlinx Global. “This could mean lowering the tax rate for middle-class and low-income families or raising their income limits so that more people benefit from lower tax rates.”
Increase in the standard deduction
TCJA already increased the standard deduction in 2017 – for example, from $6,500 to $12,000 for individuals.
Trump could double the amount and even increase it further, which would benefit many taxpayers.
“Most workers’ taxable incomes can be reduced by this president’s increase in the standard deduction,” Islam said. “It was used effectively in 2017, with it included as part of the TCJA, and could be expanded even further to provide more relief.”
Expansion of tax credits
Islam said there is an opportunity for the Trump administration to increase the child tax credit again or create additional tax credits that could benefit taxpayers.
“Another approach would be to expand existing tax credits, such as the Earned Income Tax Credit (EITC), or develop new ones that appeal to working families,” he said. “This is not only a strategy to reduce taxes, but also boosts household incomes and thus stimulates overall economic activity.”
Revision of wage and social security taxes
If you look at your paycheck, you’ll see certain taxes like FICA. Islam said Trump has the opportunity to restructure the way that’s handled to return more money to taxpayers.
“A payroll tax cut could provide immediate relief to workers by increasing take-home pay,” Islam said. “It can therefore be effective, especially if it directly impacts their salary without necessarily making a significant change to their tax returns.”
Trump has also floated the idea of not taxing Social Security benefits.
Michael Montgomery, a lecturer in the Department of Health and Human Services at the University of Michigan-Dearborn, says this could give workers a big financial boost.
Montgomery said: “More and more Americans are working at least part-time while receiving benefits. Trump’s proposal to exempt Social Security benefits from federal taxes, if implemented, would certainly benefit these workers.”
Deficit spending
One of the main reasons for the success of the TCJA, according to Jim Miller, a writer at Tangent Consulting, was the fact that the government spent more than it took in.
“It was funded primarily through increased deficit spending,” Miller said. “In addition, some provisions were designed to expand the tax base by eliminating certain deductions, such as limiting state and local tax deductions. This helped increase funding.”
Miller said this is one way to provide workers with further tax cuts, but it is not ideal.
“The Committee for a Responsible Federal Budget estimates that Trump’s tax cut plans could increase the current budget deficit by $150 billion to $250 billion over the next decade. So while increasing budget deficits may accomplish President Trump’s mission, it will not help in the long run and will only make the current budget deficit worse.”
Economic growth and financial management
To avoid a dramatic increase in the deficit while giving money back to Americans, Trump must find a delicate balance.
“To offset the revenue losses from the tax cuts, promoting economic growth is crucial,” Islam said.
He went on to say that there are a number of options for Trump to stimulate the economy.
“Implementing policies that encourage investment, job creation and business expansion can increase overall tax revenues and thus offset the fiscal impact.”
Ultimately, it will take a lot of strategy for Trump to successfully push through tax cuts for workers without serious financial consequences.
“The success of these measures depends on careful planning, broad legislative support and a focus on stimulating economic growth,” Islam said.
Editor’s Note on Election Coverage: GOBankingRates is nonpartisan and strives to objectively cover all aspects of the economy and present balanced reporting on politically focused financial topics. For more coverage on this topic, visit GOBankingRates.com.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: How would Trump offer “big tax cuts for workers”?
