As November’s US Presidential election approaches, each candidates’ policies and proposals are coming into better focus. As these policies are vetted by the American public, the candidates’ tax policies are, as usual, a major point of contention. Although President Trump has not released a formal plan, he has expressed some ideas which we can evaluate and compare to Vice President Biden’s proposals.
President Trump’s Tax Plan
Overall, President Trump has essentially doubled down on the changes made in the historic Tax Cuts and Jobs Act of 2017 (TCJA). President Trump has offered commentary on the items mentioned below, but his overall tax policy planning for a second term has remained limited to informal statements rather than a documented proposal.
Individual Tax Rates
President Trump has stated that he intends to keep the top tax rate at 37% as enacted under TCJA. He has also suggested a 10% rate cut for “middle-income” taxpayers, although this has not been formalized.
Capital Gains Rates
Again, although this has not been formalized, President Trump has stated that he would consider reducing capital gains rates, potentially adjust capital gains rates for inflation, and/or issue a temporary “holiday” on capital gains taxes.
President Trump has stated he would extend the estate tax exemption increase enacted by TCJA. As you’ll recall, under the TCJA, the “lifetime exemption” amount increased to $11,400,000 and is indexed for inflation. President Trump has also stated he intends to keep the stepped-up basis rules as they currently stand.
The President has said that the executive order allowing employees to postpone Social Security taxes from September 1 through the end of this year could be extended and/or made permanent.
Other Tax Policies
Other than the above, the President has been vague about enacting further changes to the tax legislation. He has instead made comments alluding to extending other TCJA provisions such as the changes to itemized deductions, child and dependent tax credits, and corporate tax rates. While we can’t be sure that the status quo on all of these items will remain, it does not appear as though President Trump has the appetite for sweeping tax reform.
Vice President Joe Biden’s Tax Plan
Vice President Biden would enact several policies that would significantly alter the tax code. These would focus on not only undoing many of the changes enacted by TCJA but also making additional changes to the laws in key areas.
Vice President Biden has disclosed multiple formal tax policy proposals, so we have a far better idea of what a Biden presidency might look like from a tax perspective than we do a second term under President Trump. The Tax Foundation, a bi-partisan think tank focused on analyzing tax policy projects that Vice President Biden’s tax plan would raise tax revenue by $3.05 trillion over the next ten years.
Individual Tax Rates
Vice President Biden would impose an additional 12.4% (6.2% employer portion and 6.2% employee portion) Social Security payroll tax on earned income exceeding $400,000. Mr. Biden would also increase the top individual income tax rate back to 39.6%, as it was before TCJA (TCJA changed this rate to 37%). He would also phase out the Qualified Business Income (QBI) deduction for income above $400,000. Additionally, those making over $400,000 would see their itemized deduction benefit capped at 28% of value effectively limiting itemized deductions for those above this income threshold under Vice President Biden’s proposal.
Capital Gains Rates
Vice President Biden has proposed that, for income above $1M, long-term capital gains and qualified dividends would be taxed as ordinary income, so at 39.6% under his proposal.
Corporate Tax Changes
Corporate taxes specifically, as well as business taxes in general, would be subject to a number of changes under Vice President Biden’s proposals. Vice President Biden would increase the corporate tax rate to 28% (up from the current rate of 21%). The former Vice President would also create and impose a new minimum tax on corporations with book profits over $100M.
The Global Intangible Low Tax Income (GILTI) tax rate would double from 10.5% to 21%. However, Vice President Biden does have tax policies that would benefit “smaller businesses”, though that term hasn’t been formally defined. He would expand the New Markets Tax Credit and make it permanent. Additionally, he would offer tax credits for businesses using renewable energy or starting retirement plans.
The current estate tax exemption is set to revert to $5M in 2025. Vice President Biden has said he would hold to this date as well as eliminating the current step-up in basis for inherited assets.
Other Tax Policies
The proposals and policies that Vice President Biden has published to date are substantial and include many additional changes. This includes changes to various tax credits that may impact many taxpayers. Vice President Biden has proposed an increase to the Child and Dependent Care Tax Credit from $3,000 to $8,000. He also proposed an increase to the Child Tax Credit from $2,000 to $3,000 as well as an additional $600 credit for children under 6. Another proposal involves establishing a tax credit for “Made in America” products, which would establish a 10% tax credit for activities that restore production and manufacturing in domestic facilities. Without going into detail, Vice President Biden has stated that he would like to remove some tax provisions relating to real estate, making these investments less tax-friendly.
While we won’t know for sure what the future holds for taxes until some time after the election, we hope this outline provides you a summary of what the key issues could be. We’ll update this article as additional information comes out.
If you have any questions regarding this information, or any other issue affecting your organization, please contact your Blue & Co. advisor.