Election cycles always raise discussions about taxes and this one is certainly no exception. A quick history of tax legislation reminds us that federal tax bills must be introduced in the House of Representatives, and ultimately approved by both the House and the Senate before reaching the President’s desk. However, Presidents can, and routinely do, have a heavy hand in suggesting what that bill might look like. Like all federal legislation, tax bills can stall out in the Senate via a tactic known as the filibuster, under which a single senator or group of senators can exercise their right to unlimited debate keeping a bill from being brought to a vote indefinitely. Unlike other federal legislation, however, tax bills can avoid this fate through a procedure known as budget reconciliation, which is available only to bills directly impacting the federal budget. There are six criteria applied to determine whether a bill qualifies for budget reconciliation, one of which is the provision that the bill not increase the federal deficit beyond a certain number of years, usually 10. This is why tax legislation is frequently passed for a finite, temporary period with sunset provisions.
The Tax Cuts and Jobs Act of 2017 (TCJA) was passed through budget reconciliation and absent further legislation, most of the TCJA provisions will sunset in 2025, reverting to the rules that were in effect in 2017. Since many of these provisions affecting individual taxpayers will end in 2025, the candidates’ tax plans are a vital topic in the 2024 election.
As everyone has undoubtedly experienced, political candidates say a lot of things, and occasionally those things morph as a campaign cycle marches on. As best we can tell at the time of this writing, according to a tracker set up and maintained by the Tax Foundation (taxfoundation.org), the following are the items the two main presidential candidates have been considering:
Former President Trump
- A universal tariff on all U.S. imports of 10% to 20% for most countries, and up to a proposed 60% on imports from China (these currently average 0 to 1.6%).
- Make the individual income tax cuts from TCJA permanent.
- Make the expiring estate tax cuts from TCJA permanent.
- Exempt Social Security benefits from taxation.
- Exempt tip income from taxation.
- Exempt overtime pay from taxation.
- Reinstate the unlimited SALT deduction/remove the deduction cap imposed by TCJA (TCJA caps the deduction at $10,000; pre-TCJA law did not impose a cap).
- Consider expanding the child tax credit to a $5,000 universal credit (TCJA set this at $2,000 per child under age 17; pre-TCJA law set this at $1,000 per child under age 17).
- Lower the corporate tax rate from 21% to 20% (generally) and 15% for companies who make their products in the U.S.
The Tax Foundation analysis estimates that former President Trump’s plan would increase the federal deficit by approximately $1.3 trillion over 10 years.
Vice President Harris
- Exempt tip income from taxation.
- Expand the child tax credit from $6,000 for children under age 1; $3,600 for children ages 2 to 5; $3,000 for children over 5 (TCJA set this at $2,000 per child under age 17; pre-TCJA law set this at $1,000 per child under age 17).
- Expand the earned income tax credit for filers without qualifying children.
- Expand premium tax credits for health insurance.
- Implement a new homebuyer’s credit of $25,000 over 4 years.
- Increase the top individual income tax rate to 39.6% on income above $400,000 for single filers and $450,000 for joint filers (currently the top rate is 37% on income above $609,350 for single filers and $731,200 for joint filers).
- Increase the corporate income tax rate from 21% to 28%.
- Increase the long-term capital gains and qualified dividends tax rate to 28% for taxable income above $1 million (currently the top capital gain rate is 20% for taxable income above $518,901 for single filers and $583,751 for joint filers).
- Expand the base for the net investment income tax (NIIT) to include nonpassive business income and increase the rates from 3.8% to 5% for income above $400,000.
- Increase Medicare to 5% on income above $400,000 (the current rate is 1.45%).
- Create a 25% “billionaire minimum tax” to tax unrealized capital gains of high-net-worth taxpayers.
The Tax Foundation analysis estimates that Vice President Harris’ plan would reduce the federal deficit by approximately $1.7 trillion over 10 years.
It is important to note that this represents the candidates’ wish lists. Regardless of which candidate finds themselves in the White House come January, these wish list items will face Congressional scrutiny, budgetary limitations and many other potential fiscal roadblocks before becoming an actual bill, and even more before being passed into law. It is unlikely that either list would be passed into law exactly as presented. However, this gives us an idea of what the candidates would like to see, and in which direction the ultimate winner would likely steer the federal tax ship.
We know that tax considerations are just one element to weigh when researching the candidates, but it is an area that concerns most voters for obvious reasons. It can be difficult to know which provisions will be a benefit and which might be a burden, and even harder to determine what the net effect of all the provisions might be in your specific situation. If you have additional questions, or would like to see how all of this might apply to you personally, please reach out to one of our tax professionals at SingerLewak LLP. We are happy to help you navigate your decision from a tax standpoint. Whatever the decision is, we encourage everyone to let their voice be heard on November 5th.