Politics and Taxes: How Elections Impact Your Tax Bill
According to the Pew Research Center, voter turnout surged to nearly 63% in the high-stakes 2020 general election, a rate not seen in decades. Turnout typically hovers closer to 50% when the presidency is up for grabs.
But if people knew just how much their vote could impact their tax bill, chances are good that half of them wouldn’t stay home on Election Day.
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“Elections can, directly and indirectly, impact taxes, affecting taxpayers in different ways,” said Dana Ronald, CEO of the Tax Crisis Institute. “For example, a change in party control of Congress or a state legislature could mean different tax policies that would affect individual and business income tax bills. Politicians may enact tax cuts, changes in tax brackets, or even repeal deductions and credits.”
The President and Federal Taxes
Article I, Section 8, Clause 1 of the United States Constitution, often called the Tax and Spend Clause, states: “The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States.”
Although the Constitution empowers Congress to collect revenue, the president wields significant influence over tax policy — particularly when his party also controls both houses of Congress, which it usually does at the start of a new administration.
“The most significant impact of elections on taxes is often felt when a new president takes office,” said Ronald. “Presidents tend to bring different priorities for the tax system that would directly affect taxpayers.”
The Reagan Legacy
According to Forbes, President Ronald Reagan signed the most significant tax reform legislation in history. It changed the way presidents campaigned on taxes and cemented the link between elections and tax policy in the American consciousness.
In the 1940s, when the country was financing World War II, the top income tax rate for the wealthiest Americans hit 94%. It never dropped below 70% until 1981, the year Reagan took office.
By the end of Regan’s second term in 1988, the top rate fell by more than half from 70% to 28%. For context, it’s 37% today. At the same time, the lowest earners saw their tax rate increase from 14% to 15% over the course of the Reagan years.
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Reagan’s proponents say that his tax reforms created a recession-killing economic boom that ended the era of crisis inflation and put America back to work. His detractors call them a giveaway to the wealthy that came at the expense of critical social programs, made future tax increases inevitable and sent the budget deficit and national debt soaring.
One thing that was not up for debate was Reagan’s success in steering American tax policy. From that moment forward, Americans voted like their taxes depended on it.
Election Winners Choose Tax Policy Winners
In the post-Reagan era, nearly all candidates promise to ease the tax burden on those who pay too much and force those who don’t pay enough to kick in their fair share. Those who win elections get to decide who belongs in which group.
“Every new government will bring its own set of reforms,” said Mark Wenger, founder and CEO of MyGov.me, a platform that enables data-driven civic participation and discussion. “And these new laws might not be favorable for everyone.”
Every tax policy change in history has one thing in common: they all have winners and losers.
Inflation Reduction Act Cemented Biden’s Winners and Losers
President Biden campaigned on increasing taxes on the wealthy and large corporations. Despite a razor-thin margin in Congress, he pushed through the Inflation Reduction Act (IRA) of 2022, a sweeping piece of legislation that could have a big impact on your tax bill.
According to Kiplinger, the top IRA winners include:
- Those who receive Affordable Care Act tax credits, which the IRA extended through 2025
- Homeowners considering green upgrades — the IRA provides credits for the installation of solar panels, EV charging stations and energy-efficient heating and cooling systems
- Motorists who switch from gas to EVs or other “clean” cars, including hydrogen fuel cell vehicles — the IRA adds new credits and expands existing ones
- Medicare recipients who buy prescription drugs — the IRA caps out-of-pocket costs at $2,000 per year while providing free vaccines and capping insulin costs at $35 per month
The losers who pay for those expensive initiatives are large companies with incomes over $1 billion, many of which Biden has long accused of shirking their fair share of the federal tax burden. The IRA establishes a minimum 15% corporate tax rate and a 1% excise tax on stock buybacks for the biggest companies.
Many of Trump’s Winners Will Soon Be Losers Again
Many of Reagan’s reforms were permanent, but more recently, tax overhauls tend to contain key provisions that phase out over time.
For example, some of the most crucial components of President Trump’s signature Tax Cuts and Jobs Act (TCJA) of 2017 will expire after 2025 without further Congressional action. Most notably, individual income tax rates are scheduled to revert back to their higher pre-TCJA levels starting on Jan. 1, 2026:
- 10%: No change
- 12%: Reverts to 15%
- 22%: Reverts to 25%
- 24%: Reverts to 28%
- 32%: Reverts to 33%
- 35%: No change
- 37%: Reverts to 39.6%
Elections Can Bring Little Changes With Big Ramifications
Elections can also indirectly impact your taxes in ways that aren’t as obvious as, say, having to fork over 15% of your income to the IRS instead of 12% like the year before.
For example, Biden’s IRA wasn’t the only major tax overhaul that became law last year. The SECURE 2.0 Act included many provisions that could have enormous, if less apparent, consequences for your taxes, including:
- Pushing back the starting age for 401(k) required minimum distributions (RMDs)
- Automatically enrolling employees in workplace retirement plans by default
- Increasing catch-up contributions for older savers
- Boosting unused 529 contribution limits for Roth IRA “roll-ups”
- Increasing flexibility for qualified charitable distributions
Whether you like these provisions or not, they will impact millions of Americans and their ability to retire on their own terms. And none of them would exist — at least not in their current form — had the House, Senate or presidential elections gone the other way in the previous cycle.
It’s not just federal tax policy that matters, either. Everything from the sales tax you pay when you buy gum at the store to the property taxes you pay on your home will be decided through elections that take place much closer to home.
“Changes in the administration also mean changes in the tax policy of state and local governments,” said Ronald. “It’s essential to stay informed on these changes so taxpayers can be proactive regarding their taxes.”
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