Both Donald Trump and Kamala Harris are promoting a troubling idea: Hyper-targeting tax subsidies to narrowly favored activities or occupations. While Trump and Harris are increasingly using this tool, Trump has been far more aggressive.
The tension between using the tax code to raise revenue versus rewarding specific activities or benefitting specially defined groups is hardly new. But this year’s collection of proposed credits and deductions would be more tailored than a bespoke suit. And they’d make the tax code less fair and less efficient.
Both Trump and Harris would make certain income entirely tax-free for some workers but not others. Trump would make one medical treatment free but not others, even those aimed at achieving the same result.
Targeting Voters
What is this all about? In part, hyper-targeting may be an effort to limit increases in the deficit. But it’s also a way for candidates to attract narrow slices of voters. For instance, both candidates announced their tax-free tips plans in Nevada, a swing state with more tipped workers per capita than any other. Similarly, both are battling to win the support of suburban women, who broadly reject Trump’s views on abortion.
Take those tax-exempt tips. Both candidates say tipped workers should get a tax break while other workers making the same amount of money, but in wages, would not.
Similarly, Trump would exempt Social Security benefits from tax. But why should government retirement checks be exempt from federal tax while income from most private annuities, another form of retirement savings, is taxable?
Why Is IVF Special?
Then there is Trump’s promise to make in vitro fertilization (IVF) free. He has not said how this would work, suggesting he’d either force insurance companies to pay or make it a new government benefit.
While several states already mandate limited insurance coverage for IVF, it seems improbable that Trump would propose a federal coverage mandate. The most likely alternative for government to provide free care to those not receiving public insurance such as Medicare and Medicaid would be a refundable tax credit.
Trump has talked only about free IVF. But what about those who receive other fertility treatments, such as intrauterine insemination, surgery, or medications?
And why should treatment for conditions such as infertility be eligible for a tax credit while cancer or dementia care is not?
Subsidizing Newborns
At the same time, Trump wants to allow parents to deduct their costs of raising a newborn, which averages about $13,000 annually. Such a deduction might benefit middle- and upper-income parents who can claim other itemized deductions but it would be useless for many low-income families who would be better off with the standard deduction ($14,600 for a single filer and $29,200 for a married couple in 2024).
Trump has not said, but this new deduction could come on top of the existing Child and Dependent Care Tax Credit, which already provides a limited subsidy for the cost of caring for a child. It also could be added to the Earned Income Tax Credit and the Child Tax Credit (CTC).
Trump’s running mate JD Vance wants to increase the CTC to $5,000, though Trump himself has remained silent on that idea.
For her part, Harris has proposed both increasing the CTC amount and adding an additional credit for newborns.
Instead of doubling up on existing subsidies for the care of very young children, why not create a new deduction or credit for the cost of caring for an elderly parent, which on average is vastly more expensive? Or to care for a child with a disability? Are these expenses less “pro-family?”
Trump’s latest: Lowering the corporate tax rate from 21% to 15%, but only for firms “that make their products in America.” But an arbitrary tax code definition of “make” will inevitably create unintentional consequences.
Broadening the Subsidies
Of course, candidates could avoid these inequities by opening the doors to much broader government subsidies. But that could add tens or hundreds of billions of dollars to the cost of these subsidies and might raise some awkward questions, especially for Trump.
For instance, government-funded health care, even for a specific treatment for one condition, would be a departure from past policy. The federal government does cover specific conditions through Medicare, such as end stage renal disease. But Trump seems to be hinting at an entirely new government program. One that, curiously, would be a step in the direction of Medicare for All proposed by Senator Bernie Sanders (I-VT), a concept Trump has decried as a “socialist takeover of our healthcare.”
In fairness, these are not the only examples of hyper-targeting tax benefits. For example, military pay earned in a combat zone is exempt from federal income tax. But the practice is exceedingly rare.
The current crop of highly targeted tax break proposals not only would be unfair and inefficient but present a tempting opportunity to game the revenue code. And that would create an administrative nightmare for the IRS, which, for example, would have to define eligible tipped workers or exactly which fertility treatment would trigger a credit.
