When Republicans last set out to change taxation in America, they spent years combing through the details of the internal revenue code. They traveled the country, held hearings and drafted early versions of a bill, eventually passed in 2017, that they hoped would transform a sclerotic tax system with long-held conservative principles.
This time around, as Republicans prepared for another opportunity to change how taxes in the world’s largest economy are collected, their core ideas came not from a Washington think tank or corporate accountant. Instead, in President Trump’s telling, a waitress at his hotel in Las Vegas complained to him about having to pay taxes on her tips while he dined there during the 2024 campaign.
Soon, the seemingly offhand remark became a centerpiece of Mr. Trump’s successful campaign back into office. Republicans on Capitol Hill embraced the idea, too, and Congress this week voted to create a new tax exemption for tipped income for the next few years. At an event at the White House last month promoting the legislation, Mr. Trump credited the waitress with helping him win Nevada, where many people work for tips.
“A legend was made,” Mr. Trump said. “We won Nevada by so much. Republicans don’t win Nevada. We won Nevada. So I want to thank that young, beautiful waitress. Thank you very much.”
The tips provision, while ultimately only a sliver of the sprawling package that lawmakers passed this week, marked an important evolution in how the Republican Party, long dedicated to lowering taxes, has approached that goal. Rather than the type of systematic re-examination of the tax code that took place in 2017, the new Republican bill introduces a series of novel, populist and temporary cuts that Mr. Trump cooked up during the 2024 campaign to try to win the support of key constituencies.
At the same time, even as Mr. Trump’s return to office pointed the party’s tax agenda in a more populist direction, the new bill is in many ways the apotheosis of a traditionally conservative, supply-side philosophy. Once Mr. Trump signs the legislation, which he is expected to do on Friday, many of the tax cuts made in 2017 will be the law of the land for the foreseeable future, rather than just temporary features.
Overall, the tax code now blends this classical Republican vision of a more corporate-friendly and simpler tax code with Mr. Trump’s improvisational notions for popular, easy-to-brand tax cuts. Those two strands have combined, in a sometimes contradictory way, to create a tax system that is expected to bring in far less government revenue than many experts believe is necessary, all while generating little additional economic growth and still returning the largest savings to the rich.
To satisfy the demands of hard-right lawmakers who wanted to limit the increase in the deficit, the legislation also slashes the social safety net, with changes that are expected to cause millions of Americans to lose health insurance and food benefits.
To conservative tax experts and some former Republican aides, this new orthodoxy in the G.O.P. is an incoherent one, a reflection of a political party that clings to much of its traditional economic agenda while only partially shifting toward trying to offer more tangible benefits to the working class, increasingly the Republican base of support.
“There doesn’t seem to be an overarching theory of the case of what the tax code ought to be doing, and that’s a real missed opportunity,” said Jonathan Burks, who was chief of staff to former Speaker Paul D. Ryan, a Wisconsin Republican. “You’ve not had that same intellectual trend, in terms of developing a policy agenda over the last eight years of what ‘good’ looks like, and instead you have a handful of campaign promises that have become these defining requirements.”
‘It Was Time’
When Dave Camp, a former Republican congressman from Michigan, led the powerful Ways and Means Committee from 2011 to 2015, there were clear problems with the tax code. Both Republicans and Democrats wanted to rework the taxation of large companies’ earnings overseas and believed that the corporate tax rate, then at 35 percent, was too high. They worried that the system left American companies at a competitive disadvantage.
“I knew it was time that there was a serious reform of our tax code,” said Mr. Camp, now a senior policy adviser at the accounting and consulting firm PricewaterhouseCoopers. “It did take years to really get the issues in a place where policy could happen.”
That left the G.O.P. well prepared when, to much of the world’s surprise, Mr. Trump won the 2016 election and the party swept to full control in Washington. The pent-up desire to fundamentally change how American companies were taxed then merged with a Republican instinct to always cut taxes for individuals when given the chance.
“There is a general feeling among Republicans that taxes are always too high,” said Dave Kautter, a top tax policy official in the first Trump administration. “So we had to get individual taxes down, but the big problem was business taxes. We were becoming uncompetitive as an economy on the world stage.”
A first principle for Republicans at the time was to “broaden the base and lower the rates,” a mantra for conservative tax experts. Essentially, the goal was to excise as many loopholes and special deductions from the tax code as possible, increasing the amount of income subject to taxation. That larger pool of money could then be taxed at lower rates, limiting the revenue loss.
This approach meant that Republicans sought to crack down on deductions that, while affecting only relatively small slices of the population, could be very valuable for those who took them. Chief among them was the state and local tax deduction, which allows Americans to write off taxes they have paid to their state and local governments on their federal return — the so-called SALT deduction.
With the 2017 bill, called the Tax Cuts and Jobs Act, Republicans capped SALT at $10,000, enraging lawmakers from high-tax states like New York and New Jersey who voted against the bill. The new cap prompted a yearslong crusade to restore a larger deduction.
At the same time, the 2017 law limited other valued tax breaks, like one for mortgage interest, while expanding the standard deduction, which is available to Americans who choose not to itemize, or claim specific tax breaks. The result was that many more Americans chose to take the standard deduction; in 2017, before the law passed, 69 percent of Americans did so, but by 2020, the share was up to 91 percent of Americans.
Throughout the process of crafting the 2017 bill, Mr. Trump had relatively few demands, pushing for the corporate rate to go as low as 20 percent. Republicans were ultimately able to cut it to 21 percent in the bill, still a huge drop from 35 percent, and at the same time offer new tax incentives for capital investment and overhaul the entire international tax system.
“His big demands were much more top-line like that and not all this laundry list of priorities that he has today,” said George Callas, a former Republican tax aide.
Overall, the bill was the most thorough tax overhaul in a generation. It slashed rates for corporations, as well as for individuals up and down the income ladder. It was expensive and gave its biggest benefits to the rich. And it cleaned up the tax code by curbing some key deductions. Because of its cost, Republicans decided to schedule many of the tax cuts to expire at the end of 2025 so that the sticker price seemed lower.
‘We Have to Do Something’
Setting a 2025 expiration helped Republicans record a smaller cost of the bill in 2017 — estimates at the time put it at $1.5 trillion. But it created another conundrum for Republicans. They would have to eventually figure out how to keep the cuts going, or risk suddenly higher taxes for many Americans in 2026, a potential political disaster ahead of the midterm elections.
“The problem now is there was no big motivation for another tax reform,” said Erica York, an analyst at the Tax Foundation, a think tank that generally favors lower taxes. “It’s: ‘We have this big expiration, and we have to do something.’”
Into that void came Mr. Trump’s 2024 re-election campaign. Not only did he run on making the 2017 tax cuts permanent, but he also unleashed a barrage of ideas for new tax cuts, often targeted toward whatever audience he was speaking in front of. At a campaign rally on Long Island, Mr. Trump went so far as to call for lifting the cap on the state and local deduction that he had signed into law.
Versions of many of those proposals — including lifting the SALT cap, making car loans tax-deductible and not taxing overtime — are soon to become law, while several other campaign promises, like changing how Americans living overseas are taxed, were abandoned once Mr. Trump took office.
With Republicans in Congress largely focused on extending the 2017 tax cuts, Mr. Trump’s off-the-cuff and outside-the-box ideas were an opportunity for the party to offer new tax cuts. The hope was that the cuts, many of them aimed at working-class Americans, could help blunt Democratic attacks that Republicans cut taxes only for the rich.
Still, the effect of the many new tax breaks in the legislation passed this week is to reverse much of the progress made toward simplifying the tax system. More Americans are likely to itemize because of the new, $40,000 cap on the state and local tax deduction, while many workers and employers will have to figure out how to claim the new deductions for tipped and overtime income. And even if they take the standard deduction, many Americans will now be able to write off up to $1,000 ($2,000 for married couples) in charitable donations from their taxes.
“When the new provision is a tax break, people are happy to have some compliance costs to get the tax break,” said Joel Slemrod, an economist at the University of Michigan. “But from the point of view of the tax system, we end up with more complexity. That’s how it happens.”
And the populist nature of the new tax cuts is limited. Several of them will be available only to the slices of the working class that happen to work for tips or overtime, though a new $6,000 deduction will be available for many Americans 65 and over. But working-class gains from the tax cuts are expected to be overwhelmed by the loss of benefits from the bills’ cuts to the social safety net.
To offset part of the cost of the cuts, Republicans sliced deeply into Medicaid and food stamps, rather than raising taxes on rich Americans, an option that some populist-minded conservatives like the former Trump adviser Stephen K. Bannon pushed for and that Mr. Trump repeatedly flirted with. The vast majority of the tax cuts in the legislation are simply extending the last round of cuts from 2017.
“We see in this bill there has been a shift in the way Republicans do tax policy, but it’s not a massive shift,” Ms. York said. “The corporate rate is being maintained, the top rate is being maintained, there aren’t tax increases on capital gains. There’s been a shift to include these more populist policies Trump campaigned on, but not go so far as to raise taxes on the rich or anything like that.”
Andrew Duehren covers tax policy for The Times from Washington.
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