EXTEND YOUR HAND, CONT’D: There likely are some caveats in those findings, to be sure. It might not be that surprising that, in a vacuum, voters prefer bipartisan action to partisan hardball, so those survey findings might be tested when actual policymakers delve into the actual details on those expiring policies in 2025. (Some might conceivably quibble with the wording of the polling question as well.) Still, Paolo Mastrangelo, the co-founder of American Policy Ventures, said it was still key for lawmakers to hear that deep voter interest in bipartisanship. Mastrangelo said the expectation for many folks on Capitol Hill already is that next year’s tax debate will be a partisan exercise, and that it would be good for them to hear that their constituents might not believe that a positive outcome. “The poll shows that a stark majority of Americans, regardless of party affiliation, want Congress to work together on TCJA. This should make Members of Congress think twice, take a step back, and consider the upsides of engaging in real bipartisan conversations,” Mastrangelo told Weekly Tax. Looking ahead: It’s certainly true that some of the opening moves for next year’s tax debate have at least implied that Republicans and Democrats would like to figure out the end result amongst themselves. House Majority Leader Steve Scalise has openly talked about using budget maneuver called reconciliation early in 2025 to extend all the expiring TCJA provisions should GOP get the full sweep in November, while the tax teams formed by Ways and Means Chair Jason Smith (R-Mo.) to discuss next year’s situation are Republican-only. To be fair, Republicans do seem the more likely to win all of the House, Senate and presidency this fall. And it’s also worth noting that the talk about what might happen next year isn’t fully focused yet — a good number of people in both parties, for instance, are talking about how the need for fiscal restraint might color the debate over extending tax cuts. Meanwhile, former President Donald Trump, the presumptive GOP nominee, seems more likely to push for even further tax cuts on top of what’s expiring at the end of 2025. Bottom line: A big challenge for any bipartisan cooperation next year will be what are very real differences between the two parties on tax policy, with Democrats continuing to push for higher taxes on the rich and corporations. (More on that in a bit.) A Trump addendum: The former president said at a Las Vegas rally on Sunday that scrapping taxes on tipped income would be a top priority for his potential second term. “When I get to office, we are going to not charge taxes on tips,” Trump said, via The Washington Post. That might not be bad politics in Nevada, a swing state with a strong service sector. But at this point, it’s tough to say whether taxes on tipped income will be a hot-button issue in the broader tax discussions. LET’S RAISE SOME TAXES: American University’s Institute for Macroeconomic & Policy Analysis is out with a new paper today arguing that higher taxes on capital gains and dividends wouldn’t drag down economic growth. In fact, the new brief argues that President Joe Biden’s budget proposal — practically doubling the rate on capital gains and dividends, from 20 percent to 39.6 percent, on households making more than $1 million a year — would even spark the slightest bump in economic growth. Ignacio Gonzalez, an economics professor at American and one of the brief’s authors, told Weekly Tax that he didn’t think those findings should be particularly provocative — pointing, among other things, to research that found that the Bush-era tax cut for dividends had little impact on investment. “Somehow, many people still believe wrongly that a decline in these types of taxes is a powerful mechanism to incentivize investment,” Gonzalez said, adding that increasing the rate on capital gains and dividends also help to boost the progressivity of the tax system — “because they’re not distortionary, and they target something that we know has been most of the cause in wealth inequality.” The new paper comes as Biden and other Democrats have been floating a variety of new methods for increasing taxes on the accumulated assets of the very rich. Gonzalez and his co-authors, Juan Montecino, and Vasudeva Ramaswamy, argue that taxes on capital gains and dividends don’t have much bearing on long-term growth or the business decisions of companies, particularly very established companies, because those taxes are levied after investment decisions have already been made. Combined, Biden’s capital gains and dividends proposals would boost GDP by 0.43 percent over a decade, according to the American paper. Those findings, as Gonzalez himself acknowledged, are sure to not be universally accepted. Other experts have found that lower taxes on capital gains might encourage more investment and economic growth, but that other factors were more important. More conservative-leaning experts, meanwhile, do believe that higher capital gains taxes drag down investment — noting, among other things, that levies on capital gains taxes essentially layer a second level of tax on top of the corporate income tax. Erica York of the Tax Foundation added to Weekly Tax that higher capital gains rates can cause investors to simply hang on to their assets for tax reasons, which can distort investment decisions, and can incentivize immediate consumption over savings.
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