The world is under the spell of the news surrounding the long-awaited outcome of the presidential expected outcome of the presidential race, which will culminate on November 5. With the recent events of Donald Trump's official nomination as the Republican Party's candidate, just days after he was the victim of a scandalous assassination attempt, and with President Biden's resignation for re-election, which left Kamala Harris, the current Vice President, as the most likely Democratic candidate, the atmosphere remains highly polarized.

It is valid to pause for a moment and ask ourselves: What have the last eight years of policy left for the U.S. economy and what might they mean for the next four years? Well, this is where our title becomes relevant, because much of what has been happening and could continue to happen has to do with taxes, and then I remembered Brad Pitt's famous line in his starring role in the movie "Do you know Joe Black?Do you know Joe Black? back in 1998: "Death and taxes" (In this world there are only two things that are certain: death and taxes). I must, however, offer an apology, because despite my obvious crush on Pitt, the phrase is actually attributed to Benjamin Franklin, father of the American fatherland. Brad, though, gets credit for making it world famous.

Today, one of the main concerns of the financial markets today is the growing U.S. debt, There seems to be a broad consensus that this problem will not be solved during the next administration, either Democratic or Republican, since in light of the policy approach outlined by its leaders, both options would mean a sustained increase in the indicator over the next few years, both options would mean a sustained increase in the indicator over the next few years. Therefore, for the time being, this variable must be taken as a given to analyze the status quo of the world's leading economy.

It is therefore interesting to to understand what has happened during the last two terms of office in terms of policies in terms of policies and try to analyze what the proposals going forward could mean.

During his term in office between 2017 and 2021, Donald Trump succeeded in bringing about the biggest tax reform in three decades, known as the Tax Cuts and Jobs Act (TCJA), which was enacted in 2017 and went into full effect on January 1, 2018.

Joe Biden, president since 2021 and who will be in office until Jan. 20, 2025, is getting credit for leading the country through the pandemic, creating millions of jobs, rebuilding critical infrastructure and eliminating billions in student loans. for guiding the country through the pandemic, creating millions of jobs, rebuilding critical infrastructure and eliminating billions in student loans.

With respect to the TCJA, it has been pointed out that it changed the U.S. economy and its effects will continue to be felt for years to come. One of the most significant changes was the cut in the corporate income tax rate from 35% to 21%, which, of course, has exacerbated the nation's deficit (it went from 76% of GDP in 2017 to 99% today). Individual income tax rates were also reduced and the standard deduction was increased. While the cuts initially boosted the economy, the effect has faded because of the nearly $3 trillion deficit increase.

The TCJA expires in 2025, which means whoever wins the election will have the opportunity to fight to keep it or let it expire. Trump has shown interest in making his tax reform permanent. On the Democratic side, if we assume Harris as the nominee, then hopefully she will toe the Biden line and thus likely keep some of the tax cuts, such as those benefiting households earning less than $400K per year.

Among the observed effects of the TCJA, it is a fact that the greatest benefits have gone to higher-income individuals and small business owners, although the increase in the standard deduction and the Child Tax Credit has benefited middle-income people. Some estimates put the cost of maintaining the TCJA cuts at about $3.8 trillion over the next decade, which would undoubtedly be an explosion in the nation's debt.

Trump has promised to make even more tax cuts. If this happens, obviously the deficit would grow even faster and the debt would be even higher.

The alternatives proposed by the Democratic side include several programs to reduce taxes on those earning less than $400,000 a year while raising taxes on corporations and the wealthiest Americans. On the corporate side, the proposal is to increase the rate to 28%, intensify the fight against tax evasion by multinationals and quadruple the tax on stock buybacks. As for individuals, a 25% tax on income is proposed in the classification of multimillionaires. Together, it is estimated that these policies would raise about US$5 trillion in revenue by 2034.

For other interesting interesting facts about what Trump's and Biden's policies have implied for the U.S. economy and the impact that proposals from both sides may generate on growth in the coming years, be sure to read the second part of this article next week.

Milene Rodriguez
Strategy and Investment Analyst