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White House: Extending Trump’s tax cuts would be an 'inflation bomb'

The White House is releasing a new public memo to allies Thursday that seeks to link the extension of Trump-era tax cuts to inflation, a top-of-mind issue for voters.

The Republican push to extend and deepen tax cuts enacted in 2017 represents "a MAGAnomics economic agenda that would trigger an 'inflation bomb' and raise costs for middle class families," White House senior deputy press secretary Andrew Bates said in the note being released to reporters and activists.

The memo was provided first to Yahoo Finance.

TOPSHOT - US President Joe Biden (L) and Vice President Kamala Harris gesture during a campaign event in Philadelphia, Pennsylvania, on May 29, 2024. (Photo by Mandel NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
President Joe Biden and Vice President Kamala Harris during a campaign event in Philadelphia on Wednesday. (MANDEL NGAN/AFP via Getty Images) (MANDEL NGAN via Getty Images)

At issue are the 2017 cuts that then-President Trump signed into law, with many provisions that expire at the end of 2025.

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On the campaign trail, Biden has discussed extending parts of the law that impact Americans making under $400,000 annually. He wants to allow other provisions to expire, which would effectively be a tax increase on the richest Americans.

Read more: Biden proposes tax credit for first-time home buyers. Here's how it works.

Republicans, meanwhile, warn against the economic turmoil that could follow from an increase in rates. They are pushing for a full extension and even exploring some new cuts such as a lowering of the corporate tax rate.

Some conservative economists justify lowering taxes by pointing to increases in tax revenues that accompany economic growth. Other analyses found that revenues did increase after the enactment of the 2017 cuts but not enough to pay for the bill entirely.

The White House note also touched on the corporate tax rate, which Trump’s 2017 law lowered to 21%.

That provision is not scheduled to expire at the end of 2025, but Biden is pushing to raise it to 28% while Trump is aiming to push it even lower, to 15%.

Bates charged Thursday that GOP efforts there are aimed at "protecting the same corporations who are ripping off the American people with high prices, refusing to lower costs even as they make record profits."

New government data released Thursday morning showed corporate profits decreased by $21.1 billion in the first quarter of 2024 after reaching an all-time high to end 2023.

Taxes are an issue likely to unify Republicans across the spectrum.

In an interview Wednesday night with Semafor, House Speaker Mike Johnson telegraphed a wide-ranging approach to the coming tax debate, saying, "We want to have a much larger scope, multiple issues to address in addition to the expiration of the Tax Cuts and Jobs Act."

And it’s an issue that unifies even Republicans who deeply dislike Trump himself.

In a recent Yahoo Finance interview, former House Speaker Paul Ryan said he wouldn’t vote for Trump this fall but when the conversation turned to taxes, he charged that Biden's plan could increase taxes on small and medium-size businesses.

Ryan helped pass those 2017 tax cuts during his time in Washington and says he still prefers Trump’s agenda there saying, "I believe he would be better on regulations and taxes."

This week’s White House memo comes as lawmakers jockey for position over the contours of next year’s debate.

This week, Republicans have signaled a plan to use the budget reconciliation process — which would require only a simple majority in the Senate — to fast-track the issue if Trump wins.

It’s a plan that would require a Republican sweep this fall of the House, Senate, and White House. But it’s a maneuver that has been used repeatedly in recent years.

Reconciliation is how Republicans enacted the 2017 Tax Cuts and Jobs Act and also how Democrats passed the Inflation Reduction Act in 2022.

The new White House memo cites economists who are already raising alarms about the costs of fully extending the tax cuts. It included Columbia University professor Adam Tooze, who recently discussed how Trump's positions could be a "recipe" for inflation.

Read more: How to protect your savings against inflation

Other economists have warned that Trump’s overall agenda — from tax cuts to tariffs to proposals for an immigration crackdown — could spur inflation, with a debate being over how much.

One look at the issue from economists Ryan Sweet and Bernard Yaros of Oxford Economics found that a "full-blown Trump scenario" could push prices up between 0.5% and 1% in 2026 and 2027.

"Despite those warnings, House Republican leadership took new steps laying the groundwork to extend the Trump tax giveaways to the rich after they expire in 2025," Bates wrote about the GOP plans.

WASHINGTON, DC - DECEMBER 20:  U.S. President Donald Trump, flanked by Republican lawmakers, celebrates Congress passing the Tax Cuts and Jobs Act on the South Lawn of the White House on December 20, 2017 in Washington, DC. The tax bill is the first major legislative victory for the GOP-controlled Congress and Trump since he took office almost one year ago.  (Photo by Chip Somodevilla/Getty Images)
Then-president Donald Trump was flanked by an overflow crowd of Republican lawmakers as they celebrated Congress passing the Tax Cuts and Jobs Act in 2017. (Chip Somodevilla/Getty Images) (Chip Somodevilla via Getty Images)

Budget analysts have also put varying price tags on the tax changes. The budget hawks at the Committee for a Responsible Federal Budget released a new estimate Thursday that extending certain parts of the law would cost $4 trillion through 2034.

The Congressional Budget Office, Congress’s fiscal scorekeeper, has also looked at the issue. It put the price tag at between $3.5 trillion and $4.6 trillion through 2033 depending on different assumptions about spending and revenues.

Some market analysts worry that a new round of tax cuts accompanied by new deficits could be disruptive to markets.

"Trump is the more bearish of the candidates simply because his programs advocate continued tax cuts and more expensive things," longtime bond investor Bill Gross told the Financial Times over the weekend. He said, in total, "Trump’s election would be more disruptive."

Ben Werschkul is Washington correspondent for Yahoo Finance.

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