At End of Trump Tax Cuts, Progressives See Leverage to Target the Rich

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from The Wall Street Journal,

Democrats prepare for policy fights with Republicans with the 2017 tax law set to lapse next year.

Huge pieces of Republicans’ 2017 tax law are scheduled to lapse after next year, and Democrats see that deadline as a rare chance to reset fiscal policy and raise taxes on corporations and high-income households.

Policymakers and analysts expect a yearlong fight and Christmas-season negotiations to prevent tax increases from hitting most Americans after Dec. 31, 2025, when the law’s cuts end. Lawmakers are starting to think through what leverage they have—and how and when to use it.

“Tax policy will be front and center on the 2025 agenda because the system will undergo an earthquake even if Congress does nothing,” said Sen. Elizabeth Warren (D., Mass.). “We must have our own agenda and we will.”

The shape of the 2025 tax fight hinges on the 2024 election results, with the House, Senate and White House all up for grabs this November. Divided control of the government could yield familiar brinkmanship on tax policy, like the frequent deadline-driven fights over the debt ceiling and government spending. If neither party has enough power to impose its will, a multitrillion-dollar stare-down could bleed into 2026.

Some progressives say no deal might be better than a bad one, at least temporarily, to force Republicans to split tax cuts for households making under $400,000 from those making more than that.

“Democrats are in a position to isolate the fight on taxing the rich and corporations, an issue on which they have a really strong advantage,” said Bharat Ramamurti, a former Biden White House aide who recently met with congressional progressives about the coming tax debate.

Progressives and Democrats should clearly lay out conditions, favoring an extension for most Americans but recognizing that the impact of expiration isn’t that large for many low-income households, said Michael Linden, a former Biden administration official.

“I don’t think we should think of this as a cliff,” Linden said. “Democrats should feel very comfortable drawing a clear line that rich people’s taxes cannot go down.”

Republicans generally favor extending expiring tax cuts and see all of the 2017 law as a success that should continue.

“If President Biden allows the Trump tax cuts to expire, he will be responsible for decimating middle America and small businesses with a mountain of new taxes,” Rep. Jason Smith (R., Mo.), chairman of the House Ways and Means Committee, said on social media Thursday.

One challenge for Democrats in divided government would be separating tax cuts for the top sliver of households from the rest.

“You just say no. You just say no,” to extending tax cuts at the top, said Rep. Pramila Jayapal (D., Wash.), who chairs the Congressional Progressive Caucus. “You have power and you have leverage and you make sure that that happens.”

The effects of blowing past the tax-cut deadline would be significant—but more gradual and predictable than a debt-ceiling breach that could spark a financial crisis. Both sides might have incentives to stop tax-cut extension bills they oppose if they are confident they can win the political aftermath in January 2026.

Unless Congress acts, taxes would rise on about 62% of American households, according to the Tax Foundation, which favors lower rates and fewer deductions.

Republicans have been warning about the harms of full expiration, criticizing a Biden campaign tweet that said he favored letting the tax cuts lapse and highlighting the potential tax increases on middle-class families.

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