INTERVIEW: Zach Moller

Zach Moller is director of the economic program at Third Way, a D.C.-based think tank that is committed to "mainstream American values of opportunity, freedom, and security" and champions "modern, center-left ideas," according to its website. Moller also worked for the Senate Budget Committee and the Committee for a Responsible Federal Budget. We spoke on Sept. 10 about the 2024 U.S. presidential election and the 2025 "Tax Cliff," when much of the 2017 Tax Cuts and Jobs Act will expire.

Are there issues that are coming out in the campaign that you think are going to be relevant for the big tax showdown that's going to be happening in 2025? It's sometimes hard to translate what they're talking about now with what's going to be happening then.

Obviously, who wins gives significant ramifications to how the tax fight plays out. Donald Trump will protect as much of his tax pieces on the individual side, that need extension, as he can. Harris wants to open it back up for those at the high end of the income spectrum, that does bleed down a little bit into the into the business and corporate side. Unlike the individual code, because of all the expirations built in because of budget reconciliation rules, the corporate, international side has advantages. Everyone gets to stand up and say, this is all settled. We don't need to do anything on corporate, and if they don't do anything, corporate international more or less stays the same. The TCJA settled a lot on that side.

But the door isn't slammed shut and locked. We've got R&D amortization, 100% bonus depreciation, trickling out over time, and then on the international GILTI [global intangible low-taxed income] rate set to rise. That's the foot in the door. Or, if you're like a horror movie person, it's like the arm that reaches out as they're trying to try to close the door.

So that's definitely created room to reopen the conversation. But lots of people have different opinions on whether or not those should be reopened for conversation. What does that look like? I think Democrats have talked a lot on rates. Are Democrats going to re-endorse a 28% corporate rate or maybe down to 25%? But there's even some Republicans that are talking about corporate rates, some of the more populist side of the Republican Party, and some of those tax writers are thinking about it. I think it's in part because there's a general agreement that people need to be offsetting some of the costs of the TCJA extensions. It's very, very expensive. Something that we at Third Way have been focusing on a lot is making sure that it is that whatever tax deal is done is not abusive to the national debt, like the original TCJA. Of course, Donald Trump is campaigning on potentially taking rates even lower than 20%, especially for folks that fit his definition of U.S. job creators.

So companies might be thinking, we don't have to stress too much about corporate breaks. But both sides are really putting the conversation in play. And there were always these things that have to be done, like R&D, bonus depreciation and GILTI rates.

Best I can tell from what's already happened this year in Congress, Democrats aren't necessarily against the policy of extending the R&D deduction and the other things you mentioned. But they do think that more of the cost needs to be put onto the wealthy and corporations. So I've been wondering how that's going to play out, especially if Republicans are open to the idea of raising the rate as a way to cover some of these other policies.

It's definitely possible. If you think back to 2017, there was that debate on expanding the Child Tax Credit inside the TCJA, and they went from a 20% to a 21% corporate rate to pay for that expansion, as part of that deal. And no one threw a fit then, because 20%-21% is not that much of a difference when you're coming down from 35%. Democrats can very reasonably bring that up--"well, you made this trade in 2017, we should think about it. We should think about trading some of these corporate tax things for CTC-related things going forward as well."

And then even further complicating it, at least one of the big changes that you have in international is the fact that the GILTI rate increases, and so does the FDII rate. Democrats will probably say that, this is actually closer to the rate they'd like to see on GILTI. So, I wonder if there's going to be the same sort of bargaining going on over changing that, or maybe leaving it as it is.

The fact that changes are happening in current law makes it easier to let the GILTI and FDII rates rise. They don't have to do anything. Obviously, there are just a lot of complications on the international side, with the negotiations that Secretary Yellen has been leading on behalf of the United States in the broader international tax negotiations. I don't pretend to be an expert on the international side. But, there's going to need to be a broader conversation on how the rest of the world is implementing or not implementing this stuff, and whether or not we're getting on board or not, just from a technocratic, tax point of view, and not even thinking necessarily about revenue or competitiveness. The rest of the world is moving. Take politics aside, what do we have to be doing to react to that?

It's not so much part of the international side, but I do wonder, is the pass-through deduction part of this conversation? In theory, Democrats are all about raising more taxes from the rich. So you think it would be, but there doesn't seem to be much appetite for changing that one.

Section 199A is really complicated, in part because, like the rest of the individual code, it has this time bomb function with the TCJA expiration. And then on the other side of it, if you remember the politics at the time, a big issue was what was carved out to be acceptable for 199A and what wasn't. For example, professional services were not eligible for the 199A deduction. That became, like a big point of contention. They're picking and choosing here, and so that caused some drama. I think conceptually, people understand that you don't want to create incentives for one corporate structure, one business structure, for tax reasons, over another. But how we undo this and address this is going to be a big challenge. I don't have a solution.

If he were to win, Trump is talking about using tariffs, both as a trade policy, and then he also claims it will raise so much revenue that it'll pay for all the things he wants to do. If this is actually a serious policy, and it seems like it's an issue that he actually does care about, what would it mean for the overall corporate tax system? Is this going to replace the corporate tax system, or would it sort of crowd it out?

I don't think it's replacing the corporate tax system, because he's inherently doing it through executive order. He's not passing a whole bunch of tariffs through law. He's using his executive powers to do this on his own, which is challenging from a legal point of view. But you have to take this as a serious thing. Maybe not like this rate versus this rate, but he's going to do something, because he did all this and called it for national security in his first term. So he has a record, and this has to be taken very seriously.

Now tariffs are going to gum up the works and increase costs for businesses needing to import things to do what they do. These tariffs have waiver processes that you can apply--"I can't find a domestic producer for this thing, I need a waiver." There is a big possibility that this is weaponized in a political sense, companies that Trump likes are more likely to get waivers than companies he doesn't like. Is he going to make CEOS come to the White House and beg for these things?

There are a lot of really problematic ways that this can get applied. Which is also kind of scary and shows, from my perspective, why Trump is very bad for business. If you look at the independent modeling on agendas, Moody's Analytics has one, modeling the Trump Administration on the economy, and the tariff piece is one of the biggest things that's really detrimental to the economy. It could heat up inflation. Higher inflation means higher interest rates for longer, that just trickles through.

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