Trump tariffs look to overshadow any tax policy wins
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Any Trump administration win on tax policy looks set to be overshadowed by the White House's tumultuous trade agenda.
Why it matters: Economic optimism across corporate America soared on hopes of tax cuts and deregulation, which some CEOs were sure would make up for any potential tariff pain.
- Those expectations now look far too sunny.
Driving the news: President Trump's top economic officials are racing to pass legislation that includes an extension of 2017 tax cuts by July 4.
- "The tax bill is moving forward," Treasury Secretary Scott Bessent said at a White House briefing Tuesday morning. "It will give American business certainty; it will give the American people certainty."
The intrigue: That deadline — if met, which is no guarantee — would come just four days before the 90-day pause on reciprocal tariffs is set to expire.
- Bessent hinted that the administration might be close to trade deals with India and South Korea. But he would not clarify the status of talks with China, America's largest trading partner — talks that Chinese officials deny are underway.
State of play: Major tax legislation is Congressional Republicans' central goal for the year.
- There remains plenty of uncertainty about how they will tweak taxes on individuals and what spending cuts the bill may include. However, the outlook for corporate taxes has gelled in the last few months in ways that business interests see as pro-growth.
- There is no talk about raising the corporate income tax rate to pay for other priorities, for example, and it looks like the legislation will allow "bonus depreciation" and the ability to immediately deduct research and development expenses, both of which incentivize investment.
- The outlook is a little murkier regarding whether the legislation may cap the corporate state and local tax deduction, something conservatives don't want to see.
What to watch: Bessent often likens Trump's economic agenda to a three-legged stool supported by deregulation, trade and tax cuts. The extent to which those policies are interlinked, however, remains unknown.
- Over the weekend, Trump claimed tariff revenue would help offset tax cuts for individuals. This suggests substantial levies on imports would need to remain in place, downplaying the possibility of tariff reductions from the trade deals the administration itself has touted.
Speaking to reporters, Bessent said the administration would aim for high tariff revenues to support tax cuts and trade deals, though it's unclear what that would look like in practice.
- "The president campaigned on no tax on tips, no tax on Social Security, no tax on overtime, and restoring interest deductibility for American-made autos — so tariff income could be used for tax relief on all those immediately," Bessent said.
The bottom line: The White House is counting on tax cuts to buoy economic growth. Even leaving aside the political realities of tax reduction promises, ongoing tariff uncertainty could keep a dark cloud over the economy.
