10/10/24
Kamala Harris vs. Donald Trump
Taking Off the Boxing Gloves With Their Tax Plans
With the presidential election coming up November 5th and early voting polls opening up, we at WBL CPAs + Advisors thought it might be a good time to review the tax plans of Vice President Harris and former President Trump based on published reports. Admittedly, there is not a lot of detail available, and it is unknown what Congress will actually pass once the election is over. We present this information without our endorsement for either candidate, but with the hope you will find it helpful when evaluating the candidate's overall economic plan and other platform issues.
Arguably, the key tax issue will be the 2017 Tax Cuts and Jobs Act (TCJA) that has many provisions set to expire at the end of 2025. Generally speaking, Trump has stated that he wants to extend these provisions and make some of them permanent, while Harris would propose a different plan. If Congress does not act at all, the tax law will automatically revert back to 2017 law in 2026 for many of these provisions.
Individual Tax Rates:Trump would retain the current income tax rates where the top rate is 37%. The Harris plan on the other hand would raise the top rate to 39.6%. Harris has pledged not to raise taxes on those making less than $400,000.
Individual Capital Gains Rates: Trump has not proposed any changes to the current structure that ranges from 0% to 15% to 20%, depending on income levels. The 20% rate currently kicks in for joint filers with income over $583,750. The Harris plan is to raise the top federal rate to 28% for those earning more than $1 million. In addition, Harris endorses an earlier proposal by President Biden to tax unrealized capital gains for taxpayers with total wealth exceeding $100 million. Lastly, there has been discussion in the Harris camp to limit Section 1031 like-kind exchanges to $500,000 in gains.
Net Investment Income Tax:Trump has not proposed any changes to the current 3.8% supplemental tax on certain investment income for taxpayers with income in excess of a certain threshold ($250,000 for joint filers). Harris has proposed raising this to 5% for those with income in excess of $400,000. Under Harris, there would be a corresponding increase to 5% for the additional Medicare tax currently set at 3.8%.
Child Tax Credits: Harris would increase the child tax credit from the current $2,000 per dependent to $3,600, while giving $6,000 for newborns. Trump's running mate, JD Vance has floated the idea of expanding the credit to $5,000. Phaseouts for upper income taxpayers would presumably continue under both plans.
SALT Deduction: Currently there is a $10,000 cap on state and local tax deductions for individuals. That cap would go away with the sunsetting of TCJA at the end of 2025. Harris and Trump both seem to be poised to allow the cap to be removed. For those paying Alternative Minimum Tax (AMT), the deduction could still be significantly limited.
Tax on Social Security: Currently, up to 85% of social security income is taxed at ordinary income rates. Trump would eliminate this from taxable income. Harris does not have a similar proposal.
Housing Tax Credit: Harris has indicated that she favors a $25,000 tax credit to assist homebuyers. Trump does not have a similar proposal.
Tax on Tips: Both Harris and Trump have floated the idea of eliminating tax on tips. We presume this provision will apply only to restaurant and hospitality workers. Otherwise, you may see other professionals, like accountants, start charging less base fees and add a tip on top.
Estate and Gift Taxes: Harris has not made any specific proposals relating to estate and gift taxes, but presumably would allow TCJA to sunset. The result of that would be the current $13.61 million per person lifetime exemption would be halved for transfers occurring after 2025. As noted above, Trump plans to extend or make permanent most TCJA provisions and therefore the current $13.61 million lifetime exemption would continue onward, indexed for inflation.
Corporate Tax Rates: The TCJA reduced federal corporate tax rates to their current 21%, which Trump would retain or possibly reduce to as low as 15%. Harris has suggested raising that rate to 28%.
Business Start-up Expenses: Currently, most start-up expenses have to be capitalized and amortized/deducted over 15 years. Harris' plan is to allow up to $50,000 of such expenses to be currently deductible with the excess capitalized. There is not a similar proposal under the Trump plan.
International Provisions: The TCJA introduced significant changes to many tax provisions that impact international businesses. The so-called GILTI (global intangible low-taxed income) tax introduced a tax rate of 10.5% on applicable income. Harris would double that rate to 21%. Trump has not indicated any changes to the current law which will result in the rate increasing from 10.5% to 13.125% in 2026.
Trump has also indicated in a recent speech that he would eliminate double taxation that some Americans living abroad might incur. Apparently this proposal would go beyond the foreign income exclusion and foreign tax credits currently available to such Americans. Harris has not proposed a similar idea yet.
There have been other proposals, suggestions, indicators and wish lists among the talking points by both candidates. Not to be overlooked are other issues that have been raised that relate to income taxes, such as changes to tariffs, business regulations, a national sales tax and overall fiscal management.
As always, taxes are just one issue to consider when deciding who to vote for. Have fun in the voting booth. In the meantime, feel free to reach out to your WBL professionals with any questions or comments.