With the 2024 elections just around the corner this is a good time to examine the major parties’ candidates’ tax proposals. Neither candidate has presented a particularly detailed account of their tax proposals, so to the extent information is available I’ve tried to summarize it for you here.
Perhaps the most important aspect of each candidate’s plan concerns their approach to the 2017 Tax Cuts and Jobs Act (“TCJA”). Many provisions of the TCJA that apply to individual taxpayers are scheduled to expire after 2025. While Kamala Harris’ published plan doesn’t specifically address it, it’s believed that she would be in favor of allowing these provisions to expire except in the few areas in which she has proposed specific changes, while Donald Trump has publicly stated his desire to make these laws permanent. For this reason this article also highlights for you some of the most relevant provisions of the TCJA that are set to expire.
I’ve endeavored to leave politics out of this analysis and have tried to keep my own professional opinions out as well, unless I feel a strong need to say something. Also not addressed are the proposed economic impacts of any changes in the laws. I leave that for the economists to address, and there’s plenty of them scoring these tax proposals if you choose to search for them online.
As always, this is a broad summary only. It is not intended as a detailed and thorough analysis, so if you have more specific questions feel free to call or e-mail.
The Harris Tax Plan
Kamala Harris has provided some details of her tax plan on her campaign website and it is available here: https://kamalaharris.com/wp-content/uploads/2024/09/Policy_Book_Economic-Opportunity.pdf.
Child Tax Credit – Harris supports raising the child tax credit to $3,600 from $2,000 per dependent, and supports raising the credit to $6,000 for the first year of a child’s life.
Earned Income Tax Credit – The amount of this available credit is based upon a taxpayer’s earned income up to a threshold amount, and the number of qualifying dependent children. Harris proposes making the credit available to individuals and couples in lower-income jobs that are not raising a child in their home.
ACA Premium Credits – A tax credit is available to help pay for individual or family health coverage if a taxpayer or at least one family member is enrolled in an insurance plan through a “Marketplace Exchange.” Harris proposes making this tax credit permanent. The credit is scheduled to expire after 2025.
Tip Wages – Harris proposes exempting tips from taxable income for service and hospitality workers. There’s no details on how this would work and I could see this as an area for potential abuse.
Capital Gains Tax Rate – Capital gains are currently taxed at a maximum rate of 20% (not including the 3.8% net investment income tax rate). The Harris plan calls to raise this rate to 28% for taxpayers earning $1 million or more each year.
Corporate Tax Rate – The Harris plan calls for the corporate income tax rate to increase from 21% to 28%.
Business Start-Up Expenses – Taxpayers may currently elect to expense up to $5,000 of expenses associated with starting a trade or business. The deduction is reduced, dollar for dollar, if start-up expenses exceed $50,000, with the remaining expenses amortized (deducted) over a 180-month period. Harris proposes raising the electable portion of the deduction from $5,000 to $50,000. There are no details on any reduction of the allowable deduction if expenses exceed a threshold amount.
Net Investment Income Tax – The net investment income tax is an additional 3.8% tax imposed on the lesser of net investment income (e.g., passive types of income like interest, dividends, or the sale of property not held in an active trade or business like stocks), or a modified adjusted gross income (AGI) exceeding an amount (e.g., $250,000 for married taxpayers filing jointly). There is nothing in Harris’ published tax plan calling for an increase in this tax. However, because many of the above changes are called for in President Biden’s proposed budget, there is a possibility that she may desire seeing this tax increased to 5% for taxpayers earning over $400,000, as is the case in the Biden budget.
Tax on Unrealized Gains – This too is not included in Harris’ published proposal. However, it is getting some attention so we’ll briefly mention it. The concept of this tax, if ever enacted (highly unlikely in my opinion) and as reported, would only apply to taxpayers whose net worth is $100 million or more. Essentially the appreciation in value of certain assets like real estate, stocks, and bonds, would be taxed each year whether the assets are sold or not. Not only would this tax be a headache for the IRS to administer, but it runs afoul of several principals of our system of taxation. For example, it completely contradicts principals contained in our current foreign income tax credit system.
The Trump Tax Plan
There’s less information concerning Donald Trump’s tax plan as nothing formal has been prepared by his campaign and made available. It’s been made pretty clear that Trump would like to make permanent the Tax Cuts and Jobs Act provisions set to expire (see below). Most ideas seem to be thrown out randomly at rallies, interviews, etc., so I’ve only included the ones that seem to be taken most seriously.
Tax Cuts and Jobs Act – The Trump campaign has proposed making permanent the individual tax cuts set to expire after 2025. See below for more information.
Tip Wages – Trump proposes exempting tips from taxable income for service and hospitality workers. There’s no details on how this would work and I could see this as an area for potential abuse by taxpayers.
Social Security Payments – Trump proposes exempting Social Security payments from taxable income for service and hospitality workers.
Overtime Pay – Trump proposes exempting overtime pay from taxable income for service and hospitality workers. It’s interesting to consider how this would impact employers and employees. For example, this might mean fewer available jobs if people were willing to work longer hours for some tax-free income.
Tax Cuts and Jobs Act – Expiring Provisions
The following provisions are a sampling of some of the tax provisions scheduled to expire after 2025. Generally, the result of the expiring provisions is a return to pre-TCJA law. Unless Congress acts there’s no guarantee that any of these provisions will be extended or allowed to expire. Therefore, the outcome of the Presidency alone isn’t solely determinative about what will happen here.
Individual Income Tax Rates – The TCJA reduced the individual income tax rates. If allowed to expire the rates would return to pre-TCJA levels, including a top marginal rate of 39.6% (currently 37%).
Child Tax Credit – This credit will be reduced after 2025 to $1,000 (from $2,000) and threshold limitations will change to pre-TCJA levels.
Credit for Dependents – After 2025 this credit will disappear.
Credit for Paid Family and Medical Leave – After 2025 this credit for employers who provide up to 12 weeks of paid family leave per employee will disappear.
Standard Deduction – The TCJA greatly increased the standard deduction and as a result, reduced the number of people that need to itemize deductions on their income tax returns. After 2025 we will return to pre-TCJA levels for the deduction.
Personal Exemption – Before the TCJA individuals were entitled to a personal exemption on their tax return. The TCJA suspended the exemption, so after 2025 they’ll be back.
Itemized Deduction Limitations – The TCJA suspended limitations on deductions for miscellaneous expenses and overall itemized deductions. If allowed to expire, these limitations will return after 2025.
Home Mortgage Interest – The TCJA imposed a limitation on mortgage interest deductions. These limitations will go away post-2025.
State and Local Tax Deduction – This was pretty controversial when enacted. The TCJA limited the deduction for state and local taxes paid to $10,000, seemingly hurting those taxpayers in states with higher income tax rates than others (e.g., New York, California, etc.). After 2025 deductions for the payment of states and local taxes will have no limitation.
Qualified Business Income Deduction – Way back in 2017 I wrote in our Firm’s newsletter how complicated this new deduction was. I’m not sure how many clients benefited from it, but after 2025 it’s scheduled to go away.
Deduction for Moving Expenses – The TCJA eliminated this deduction, now scheduled to return after 2025.
Estate and Gift Tax Exemption – Possibly the one provision affecting our individual taxpayer clients more than any other. The TCJA doubled the exemption from estate and gift taxes, now at $13.61 million per person in 2024. After 2025 we return to pre-TCJA levels, and after indexing for inflation I’m estimating the exemption to be about $7 to $7.5 million beginning 2026.
