With the political conventions just ended, we thought it might be helpful to offer some information on the candidates’ proposed tax plans that cover general tax changes. While these proposals do not provide specific details, they do offer insight into the candidates’ goals and platforms.
Proposed Tax Changes from former Vice President, Joe Biden:
- Individual Tax Rates Raised. The top rate moves from 37% to 39.6%. Applies to income over $400,000.
- Capital Gains Tax Rate Increased. Lower tax bracket of 20% for long-term capital gains (LTCG) and qualified dividends removed for those with income over $1,000,000.
- Payroll Tax Hike. Tax hike for those with income over $400,000; however, we aren’t sure if this applies to all income or only on earned income.
- Retirement Savings. Provide additional incentives for lower income workers to receive the same tax benefits that higher income taxpayers receive for their contributions to retirement accounts.
- Limitation on Itemized Deductions. Tax rate on itemized deductions will be capped at 28% instead of 39.6% (noted above).
- Real Estate. Like-kind exchanges would not be permitted for taxpayers with incomes over $400,000. We are not sure how this would be applied to pass-through entities.
- Small Business. Biden indicated taxes would not be raised on small businesses, but we are uncertain what he classifies as a small business and how this would apply to the above individual tax hikes.
Proposed Tax Changes from President Donald Trump:
- Individual Tax Changes from TCJA. This was a key part of the President’s first term. He would keep these TCJA changes in place, including making tax rate changes permanent. President Trump is proposing additional “middle class tax cuts,” but has not provided details.
- Capital Gains Cut. We are not sure of the specifics of this cut, but it would lower the rate from the top current rate of 20% to 15%.
- Payroll Tax Cut. Reduction in payroll taxes on individuals. It could perhaps be similar to the Executive Order issued on August 8, 2020 with a focus on those making less than $100,000.
Proposed Tax Changes from Biden:
- Corporate Tax Rates. The tax rate is now at 21%, and Biden proposes raising it to 28%. The Vice President Candidate and U.S. Senator, Kamala Harris, has proposed pushing this rate to 35%.
- Minimum Tax. Corporate minimum tax of 15% on book income proposed for large corporations. We are uncertain how this will be determined.
- Business Losses. Biden would repeal recent CARES Act changes for 2018-2020 with: (1) excess losses for individuals adopted with TCJA; and (2) NOL enhancements.
- Manufacturing Incentives. Induce demand for U.S. products, but unsure what this would cover. Also, proposal to revitalize manufacturing facilities and expand R&D credit and incentives.
- GILTI Tax. Proposal to raise the Global Intangible Low-Taxed Income (GILTI) to 21%. GILTI is a tax on earnings that exceeds 10% of corporation’s foreign assets. GILTI imposes a worldwide minimum tax of between 10.50% -13.125%. The GILTI tax is designed to reduce the incentive of using intellectual property to shift profits out of the U.S.
- Foreign Taxes. Provision to lessen motivation for outsourcing jobs overseas. Uncertain what this would entail.
- Energy. Significant investments in clean energy programs and new infrastructure paid for with undefined tax increases.
- Childcare. Much higher childcare tax credit (up to $8,000 per child per year); and universal pre-school care. Also tax credit for employers to construct childcare facilities at work locations. Paid for by large corporations and higher income individuals, but specifics not provided.
Proposed Tax Changes from President Trump:
- TCJA. Make many of the TCJA business provisions permanent. This include the 100% bonus depreciation which, without changes, starts being phased-out in 2023.
- Meals and Entertainment. To boost the restaurant and hospitality sectors of the economy, President Trump proposes to remove the limitations on deducting meals and entertainment expenses.
- R&D Credit. Increased incentives for R&D credit.
- Energy. Further domestic energy incentives.
- Foreign Taxes. Tax credits for businesses to onshore their supply chain. We are unsure what this would involve.
- United States–Mexico–Canada Agreement (USMCA). Trump negotiated USMCA, a new agreement for trade with Mexico and Canada (replacing NAFTA). The USMCA took effect July 1, 2020, and Trump is monitoring the implementation of this trade agreement.
Estate and Transfer Taxes
Proposed Tax Changes from Biden:
- Step-up in Basis. The proposal would end the current rules permitting a step-up in basis to the value of property at the date of death. No specifics are provided. The removal of this basis step-up coupled with higher capital gains tax would significantly impact transfer taxes.
- TCJA Changes. Plan would scale back enhancements made by TCJA to estate and gift taxes.
- Wealth Tax. A wealth tax originated as a proposal by other party candidates, so we are unsure if Biden will introduce it. The VP nominee, Harris, also recommended implementing a transactions tax on stocks and other securities (0.2% on value of stocks).
Proposed Tax Changes from President Trump: There is no new estate tax proposal offered, but the President would likely want the TCJA estate and gift tax changes made permanent.
The above analysis is a general overview of possible tax changes. These are selected tax proposals and not all inclusive, as there can and likely will be other proposals. These are plans each candidate would like to see as President—but remember, Congress has a role in the process and may have other tax ideas that are not aligned with what the candidate proposes. Therefore, these tax proposals present a general idea of changes each candidate would like to implement so taxpayers can glean some idea of what may occur.
Be careful in jumping ahead with any strategies to address these tax proposals, as it is uncertain what changes might eventually be enacted and what the results of the election may be. Please contact your Sikich advisor for help analyzing your tax situation.