With the election less than 7 weeks away, we have outlined each candidate’s tax plans below.  Donald Trump has not released a full second-term tax plan, but has frequently talked about taxes and what his administration would like to accomplish during a second term, which we have addressed below.  Joe Biden and his campaign have issued several proposed ideas since kicking off his presidential campaign last year.  We’ll look at both parties’ wish lists:

 

Issue

Current Law

Trump

Biden

Individual Tax Rate ProposalsCurrently 7 Tax Brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%Proposed a ‘middle-class’ tax cut, which would lower the current 22% tax bracket to 15%, or otherwise adjust the tax brackets to add more middle-income earners to lower bracketsProposed restoring the top marginal income tax to 39.6% (up from 37%) for income over $400K
Capital Gains Tax RatesCurrently taxed at either 0%, 15% or 20% depending on incomeThree different general capital gain proposals:

1. Reduce the 20% top capital gains rate to 15%

2. Proposed indexing capital gains for inflation (taxpayers could increase their tax basis by the rate of inflation)

3. Enact a capital gains holiday that eliminates capital gains tax
For those earning over $1M, Biden has proposed removing the capital gains rates and instead taxing capital gains at ordinary rates
Itemized DeductionsState and Local Taxes (SALT) capped at $10,000
Wants to see the $10,000 SALT cap made permanent
Capping itemized deductions at 28% of their value
Section 199A Deduction20% deduction on Qualified Business Income (QBI)No phase out for high earnersPhasing out the 20% qualified business income for those earning over $400,000
Payroll TaxEmployers and employees each pay 6.2% Social Security tax on wages, up to the taxable maximum of $137,700 (for 2020)Has called for forgiveness for the employee-side of the Social Security payroll tax deferral plan that went into effect on 9/1/2020Proposed Social Security tax would kick in again for workers with wages over $400,000
Healthcare3.8% Net Investment Income Tax (NIIT) on income over a certain threshold ($250,000 MFJ)Wants to eliminate the 3.8% NIIT and Obamacare in its entiretyProposed increasing the health premium tax credit for those who buy health insurance through an exchange
EducationCurrently no tax credit for donations made to state-identified not-for-profit scholarship organizations.

Forgiveness of debt is included into taxable income.
Trump has expressed support of the Education Freedom Scholarship (EFS) bill, which would give tax credits to individuals and corporations that donate cash to qualified organizations for the purpose of providing scholarshipsForgiving student loan debt and excluding the forgiven amount from taxable income
Estate and Gift ExemptionsBasic exclusion amount is currently at $11,580,000
Proposed extending the TCJA estate exemption increase past the 2025 expirationProposed lowering the estate tax emption to around $5M & eliminating the step-up in basis for inherited assets at death
Corporate Tax Rates
Corporation tax rate currently at 21%
Reduce corporate tax rates to 20%
Increase corporate tax rates to 28%
Corporate Tax Deductions1. Currently 50% deduction for meals and 0% deduction for entertainment

2. 100% bonus depreciation set to phase out in 2023.
1. Allow businesses to deduct 100% of meals and entertainment

2. Give tax breaks to firms that invest in the U.S. and bring jobs back from China

3. Make the 100% bonus depreciation permanent, plus enhance business asset expensing as well as the R&D tax credit
1. Provide a new manufacturing tax credit for businesses that revitalize recently closed plants and facilities

2. Increased credits for employers that hire disabled workers

3. Tax breaks to small firms that offer retirement plans to their employees.
Minimum Book TaxN/AN/AProposed a 15% minimum book tax on corporations with $100M or more in income
Global Intangible Low-Taxed Income (GILTI)Tax rate on GILTI is currently 10.5%N/AIncrease GILTI to 21%
Like-Kind Exchanges
Only available for real propertyN/AProposed eliminating 1031 Like-Kind exchanges for taxpayers with income over $400,000
Miscellaneous Tax Proposals1. Currently the maximum child tax credit is $2,000 and is scheduled to revert to the pre-TCJA amount of $1,000 after 2025

2. Currently there is no credit for long-term care to elderly or disabled relatives

3. Workers older than 65 who do not have a qualifying child are not eligible for the Earned Income Credit
1. Make permanent the $2,000 Child Tax Credit

2. Wants to expand Opportunity Zones

3. “Made in America” tax credit

4. Unspecified tax cut to boost take-home pay
1. Expanding the child and dependent care credit to $8,000 per child (up to $16,000)

2. Creating a new credit up to $5,000 for family members who provide long-term care to elderly or disabled relatives

3. Allowing workers age 65 and older to claim the earned income tax credit

 

In summary, Trump wants to see many of the provisions in the 2017 tax law changes made permanent.  The broad themes of the president’s agenda as noted above, favor providing tax relief to individuals and tax credits to businesses that engage in America first.  Biden’s tax vision is twofold: higher taxes on high-income earners and businesses, paired with more generous tax cuts for specific lower-income earners and households.

Have questions about how the election may impact your tax situation?  Talk to one of our Barnes Dennig tax professionals to ensure you’re ready for any situation.

 

Sources: Taxfoundation.org – Biden| Taxfoundation.org – TrumpCommittee for a Responsible Budget