Tomorrow, voters will elect either incumbent Republican Donald Trump or his Democratic challenger, former Vice President Joe Biden, as the next President of the United States.
The two men find little in common in their respective policies, and so do their tax proposals. As the discussion that follows will show, President Trump would like to add additional tax cuts to the $ 1.5 trillion he allocated under the Tax Cut and Employment Act (TCJA) of 2017, while Joe Biden would like to add taxes to the highest earners the country would increase significantly to pay for social programs.
Trump’s tax plan
The TCJA remains President Trump’s signature law from its first term. While the TCJA represented the most comprehensive revision of the tax law in 31 years, the vast majority of the individual tax cuts in the bill will expire on December 31, 2025. As a result, the President has made it a priority for the second term to make these temporary provisions permanent.
In his request for re-election, however, the President published few new tax proposals for a second term.
In the past few weeks, he has expressed a desire to have the wage tax completely eliminated, although administrative officials say such a move is not seriously considered. It’s much more likely that he would instead focus on eliminating the payroll tax deferred by employees under the President’s late summer ordinance.
In addition, the President proposed lowering the capital gains cap further from 20% to 15%. This is in stark contrast to an important proposal made by former Vice President Biden.
President Trump’s website also notes that the following proposals will become a central part of his tax policy, although details are not yet known:
- Made in America tax credits
- Extended opportunity zones
- Tax credits for companies bringing jobs back from China
- 100% cost deductions for major industries like pharmaceuticals and robotics that are bringing their manufacturing back to the US
- Lower Taxes to Increase Takeaway Pay and Preserve Jobs in America
Joe Biden’s tax plan
Former Vice President Biden has made no secret of his desire to generate nearly $ 4 trillion in additional tax revenue, despite repeated assurances to voters that those making less than $ 400,000 a year don’t Increase in their tax burdens will be experienced. The following discussion includes selected parts of Biden’s proposed changes to individual and corporate tax:
Return the highest ordinary individual income tax rate (39.6%):
- Prior to the adoption of the TCJA, the highest individual rate for ordinary income – items such as wages, interest, and business income – was 39.6%. The TCJA reduced the rate to 37%, but Biden would return it to 39.6%.
Additional 12.4% Social Security Tax for Employees Earning More than $ 400,000:
- Under applicable law, employees and self-employed pay a social security tax of 12.4% on the first $ 137,700 of self-employment wages or income evenly split between employer and employee (a self-employed taxpayer pays the full 12.4%). Biden’s plan is to add an additional 12.4% tax on wages or self-employed income over $ 400,000, which in turn will be shared between employer and employee.
39.6% capital gains and dividend rates on income over $ 1M:
- For those with incomes greater than $ 1 million, Biden would tax long-term capital gains and dividends at the same rate applied to ordinary income, or 39.6%.
Changes to single prints:
- Taxpayers will deduct the higher amount from the standard deduction and the sum of their itemized deductions. After the TCJA had doubled the standard print and at the same time limited or eliminated many individual prints, the number of individual prints fell from almost 30% to less than 10%. Biden’s plan would further restrict individual deductions in two ways. First, Biden would reintroduce the “pease restriction,” which would reduce a taxpayer’s itemized total withholding when income exceeds $ 400,000. Additionally, Biden would limit the overall benefit of individual prints to 28%. For a high-income taxpayer, the final dollar of income would be taxed at 39.6% while the final dollar of expenses would only result in a deduction of 28%.
Eliminating the 20% Qualified Business Income (QBI) deduction for income over $ 400,000:
- The TCJA allows taxpayers who run businesses as S-corporations, partnerships or sole proprietorships to deduct 20% of the qualifying income generated in the business. Biden would eliminate the deduction for taxpayers with taxable income greater than $ 400,000.
Increase the corporate tax rate to 28%:
- The hallmark of the TCJA was to reduce the company’s rate from 35% to 21%. Biden would increase the rate to 28%.
Corporate minimum tax on book income:
- In the most unconventional proposal of the Biden Plan, the former vice president would create a new “minimum tax” for companies that would require companies with annual accounts of more than $ 100 million to pay most of their regular corporate income tax, or 15% tax on their annual income .
Changes in estate tax:
- Biden would eliminate the tax-free base increase that occurs after death under applicable law. In addition, Biden would reduce the inheritance tax exemption to $ 3.5 million and increase the inheritance tax rate from 40% to 45%.
- Along with a variety of other loans, Biden would increase the childcare tax credit, expand the earned income tax credit for childless workers over 65, and create a $ 15,000 tax credit for first-time buyers.
President Trump and Joe Biden are offering diametrically opposed tax plans. While the proverbial tax tail shouldn’t always wag the dog, voters should consider each candidate’s suggestions to see how well each is aligned for their vision for America.
This column does not necessarily reflect the opinion of the Bureau of National Affairs Inc. or its owners.
Information about the author
Tony Nitti, CPA, MST, is the national tax partner at RubinBrown and Charlie Forsyth is a tax advisor in RubinBrown’s Denver office.