Why Extending Trump’s Tax Cuts is a Concern for Long-Term Investors
Tax cuts for billionaires might sound appealing, but they can be a bad deal for most investors.
The Promise of New Tax Cuts
At a recent campaign dinner with wealthy donors, former president Donald Trump promised to renew the tax cuts for billionaires and big corporations that are set to end in 2025. Since this announcement, Trump has been using fundraisers to promote these tax benefits. Meanwhile, House Majority Leader Steve Scalise proposed a plan to renew these expiring tax cuts using a special budget process. This would bypass the need for a large agreement in the Senate.
The 2017 Tax Cuts and Jobs Act (TCJA)
It’s no surprise that Trump wants to extend his 2017 Tax Cuts and Jobs Act (TCJA). This was one of his major achievements during his presidency. However, this act significantly increased the national debt and mostly benefitted foreign investors. One problematic aspect of the TCJA was a new deduction for pass-through businesses, which are businesses that don’t pay corporate taxes but pass the earnings to their owners who then pay personal income tax.
The Center on Budget and Policy Priorities found that this deduction was 50 times more likely to aid the top 1% of earners than those in the bottom 50%.
Investor Perspective: Economic Growth vs. Short-Term Gains
For investors, this isn't about political sides. It’s about policies that support long-term economic growth. Extending the TCJA fully would cost over $3.3 trillion—or $3.8 trillion with interest—through 2033, according to the Committee for a Responsible Budget (CRFB).
Extending the pass-through deduction in 2025, particularly for companies supported by hedge funds and private equity firms, could increase the debt dramatically by an estimated $700 billion. And this would likely result in minimal new economic activity.
The Impact on the Economy
In 2023, the economic situation was unusual because of strong economic growth and low unemployment, as mentioned by the Council of Economic Advisors (CEA). They linked this to the revenue-reducing impact of the 2017 tax cuts. This means the economy was healthy for the short term but suffered from high-interest payments on the debt and reduced revenues afterward.
Investing in critical infrastructure and innovation brings more substantial and longer-lasting economic growth, benefiting more investors.
The Long-Term Picture
While the 2017 tax cuts benefited billionaires in the short run, the long-term effects are concerning. The U.S. Treasury already has more than $34 trillion in debt. According to the CRFB, this debt leads to higher future taxes, reduced future spending, lower wages, and more tax money going towards interest payments instead of beneficial investments.
Conclusion: A Bad Policy for Most Investors
The evidence shows that extending tax cuts for the wealthiest is not a smart policy. These giveaways don’t support economic growth and increase wealth concentration, which can lead to political instability. This is bad for the majority of investors, including some patriotic billionaires.
Extending Trump's tax cuts may seem advantageous in the short term but could harm long-term economic health, impacting a broad range of investors.
