Following Donald Trump's election win on November 30, 2024, discussions surrounding his proposed tax cuts have intensified, particularly regarding their potential impact on the U.S. labor market and competitiveness against China. Job figures released on December 6, 2024, indicated that the U.S. labor market added 227,000 jobs, with average hourly earnings rising by 0.4%. However, concerns are mounting that Trump's tax cuts for the wealthy could undermine the progress made during President Biden's administration [ecd23e9a].
Trump has vowed to extend or make permanent the 2017 Tax Cuts and Jobs Act (TCJA), which previously lowered the tax rate from 15% to 12% and nearly doubled standard deductions. Andrew Loposser noted that this plan aims to alleviate inflation costs, while Paul Carlson warned that making these cuts permanent could lead to significant budget shortfalls in essential social programs [6c474dfb].
Critics, including Lindsay Owens of Groundwork Collaborative, argue that Trump's tax cuts and cuts to public investment could harm workers and the overall economy. Representative Brendan Boyle characterized Trump's agenda as a 'con' that disproportionately benefits billionaires while hurting middle-class families [ecd23e9a].
In contrast, the Ways and Means Committee highlighted that after the 2017 Trump tax cuts, real wages rose by 4.9% in 2018 and 2019, marking the fastest growth in 20 years. The lowest poverty rate in U.S. history was recorded, alongside historic low unemployment rates for African American and Hispanic workers. Chairman Jason Smith emphasized that the tax cuts benefited blue-collar workers, with the bottom 10% experiencing 50% higher wage growth than the top 10% [dc2f6620].
However, the expiration of these tax cuts has led to a research and development (R&D) recession in the U.S. in 2023. American businesses can currently only expense 20% of R&D costs annually, while China offers a 200% R&D super deduction. Restoring immediate R&D expensing could generate $70 billion in new investment and support 21 million jobs, according to the House Ways and Means Committee [97c2b977].
Moody's Analytics has predicted a recession by mid-2025 if Republicans gain control, which could lead to 3.2 million fewer jobs and a decrease in household income. Senator Martin Heinrich pointed out that Trump left office with fewer jobs than when he started, warning that his policies could create economic disaster for everyday Americans [ecd23e9a].
Additionally, the implications of these tax reforms are complex. The Child Tax Credit, currently set at $2,000, may face reductions under the proposed changes. Moreover, a proposed universal tariff ranging from 10% to 20% could raise household taxes by an average of $1,253, potentially increasing the prices of everyday items and provoking retaliatory actions from other countries [6c474dfb].
As the political landscape evolves, the impact of these tax policies on inflation and economic competitiveness remains a significant concern. Wayne Winegarden has highlighted that corporate tax reductions have previously improved economic competitiveness, but the long-term effects of Trump's proposals on the middle class and overall economy are still uncertain [6c474dfb].
With Election Day on November 5, 2024, approaching, voters will need to consider how these tax policies will shape their financial futures and the broader economic environment. The Trump tax cuts reportedly added nearly 5 million jobs before the pandemic, and American families' net worth increased by 37% post-tax cuts, according to the Ways and Means Committee [dc2f6620].