Comparing Tax Plans Ahead of the 2024 Presidential Election

Jim Martin, CPA
Henrietta and G.W. Snyder Jr. Professor of Business
Washburn University School of Business

As the 2024 presidential race developed, the two lead candidates, Presidents Biden and Trump, presented radically different views for the future of the federal income tax. With President Biden’s July 21 decision to withdraw as a candidate, the Democratic candidate, Vice President Harris, had not (as of the time this article was written) proffered a tax plan radically different from President Biden’s proposal.

In the past, Harris has proposed tax increases for higher earners, similar to other Democratic platforms and the Biden tax plan. Given that Harris has not put forth a platform different from the Biden plan, and factoring in that she was not the actual Democratic presidential candidate at the time of writing, this article will refer to the Biden tax plan as the Democratic plan (and likely largely the Harris plan) with the understanding that some details will change, but not the overall recommended direction.

Presidential campaigns are fertile ground for candidates to plant seeds of hope for taxpayers expecting the next president will grant them that special tax break. In reality, tax laws enacted after a presidential election must travel the same legislative gauntlet that any tax law change would travel.

Campaign tax promises often go unfulfilled, as in the case of many of President Biden’s 2020 campaign tax promises, when a president lacks sufficient congressional support.

Tax historians point to the 1980 campaign and presidency of Ronald Reagan as one of the more recent times in which post-election tax law changes included considerable campaign promises.

The following is a summary, for comparative purposes, of the Democratic and Trump tax plans.

Information for this article was collected from sources such as campaign speeches and published platforms, news sources, proposed federal budgets and research completed by the international research think tank the Tax Foundation. Space will not allow inclusion of all candidate tax proposals and candidate proposals often change during and after the campaign. As such, this is a summary of the plans at this point in time for comparison purposes.

INDIVIDUAL INCOME TAX

Democratic Plan
Under the Democratic plan, individual income tax rates would be increased from a maximum rate of 37% today to 39.6% for single filers with taxable income over $400,000 and joint filers with income over $450,000. The Net Investment Income Tax (NIIT) would be increased from 3.8% to 5% and the tax base increased to include nonpassive business income for taxpayers with income above $400,000.

There are a number of tax breaks/limitations associated with the 2017 Tax Cuts and Jobs Act (TCJA) that are currently in effect, but which will soon expire or phase out. TCJA changes scheduled to be phased out include prior tax bracket rate reductions, prior increases to the standard deduction and prior increases in the Child Tax Credit.

The TCJA also temporarily eliminated personal exemptions and capped the itemized deduction for state and local taxes at $10,000. On a temporary basis, miscellaneous itemized deductions were essentially eliminated by the TCJA, while the casualty loss deduction was significantly tightened and the amount of debt for which taxpayers could deduct home mortgage interest was reduced. The Democratic plan would continue these TCJA tax breaks/limitations and not phase them out for taxpayers earning $400,000 or less.

The Democratic plan would install a minimum tax of 25% for individuals with wealth of over $100 billion. Although not fully defined, the taxable minimum base for this new tax in some Democratic proposals includes unrealized capital gains. Long-term capital gains and qualified dividends would be taxed at the top ordinary income rates (39.6%) for taxpayers with income above $1 million instead of the current 20% rate for those taxpayers.

Unrealized capital gains at death would be subject to income tax if they exceed a $5 million exemption for single filers and $10 million for joint filers.

The Democratic plan would also increase and make fully refundable the Child Tax Credit. The Earned Income Tax Credit would be expanded, and the Health Insurance Premium Tax Credit set to expire would be made permanent. Finally, the Democratic plan includes a pledge to increase Internal Revenue Service funding.

Trump Plan
Compared to the Democratic proposed changes, the Trump changes are narrower in scope and fewer in number. That is because the tax components most commonly changed after a change of party in the White House had largely been put into place during the previous Trump administration following the passage of the Tax Cuts and Jobs Act (TCJA).

In a nutshell, the Biden administration has been living with much of Trump’s tax policies for four years and if Trump wins again, his tax wish list will likely be short.

Despite not being a fan of much of the TCJA, Biden has been unable to make significant tax law changes during his years as president because Democrats controlled only one house of Congress. As such, the Democratic tax wish list is longer today and contains many tax law changes proposed by candidate Biden four years ago, but which have not been enacted.

As mentioned above, significant provisions of the TCJA — which was put in place during the Trump administration — are set to expire. Under the Trump plan, these tax breaks and limitations would be made permanent.

The Trump plan also gives consideration to replacing the current individual income tax system with a tariff on imports system. This tariff plan would place at least a 60% tariff on Chinese imported goods and at least a 10% tariff on all other imports.

The Trump plan would also exempt employee tips earned, which are currently taxable, from taxation.

Finally, the increase in the estate tax exemption that was put in place during the first Trump presidency, which is set to expire (and which currently allows an estate of $14.61 million to go untaxed at the federal level) would be made permanent.

BUSINESS INCOME TAX

Democratic Plan
Under the Democratic plan, the corporate income tax would increase from 21% to 28%. For companies operating internationally, the Global Intangible Low-Taxed Income tax rate would be increased from 10.5% to 21%. '

International companies would also lose the Foreign-Derived Intangible Income deduction. Global companies would be taxed on undertaxed profits consistent with the Organization for Economic Co-operation and Development global minimum tax model rules.

The Democratic plan would increase the stock buyback tax from 1% to 4%. The fossil fuel industry would be affected as current tax code provisions, which allow for the rapid deduction of costs related to exploration and drilling, would be replaced with rules requiring deduction of these expenses over longer amortization periods.

The real estate industry would also be affected as Section 1031 like-kind exchange deferrals would be limited to $500,000 annually for single filers and $1 million for those filing jointly.

Trump Plan
President Trump’s plan would be to further lower the corporate income tax from 21% to 20%. Until the corporate tax rate was lowered in 2017, it had been 35%.

Trump also favors the taxation of large university endowments, although details are not yet available.

As mentioned previously, Trump was president when the TCJA was passed. The TCJA included provisions such as 100% bonus depreciation, a $250,000 single/$500,000 joint limitation on business losses, rules which limit deductions of research and development amortization and limitations on deducting business interest.

As of today, all of these TCJA tax provisions will be phased out or eliminated in 2025 or thereafter unless Congress and the president take actions to extend them. The Trump plan would stop the phase out or elimination of these tax components and make them permanent.

CONCLUSION

The two candidates (parties) are proposing drastically different visions for the tax policy of the United States going forward. Neither will likely get everything proposed on the campaign trail and clearly no tax law changes will occur without first going through Congress.

This article does not cover all tax proposals made by the candidates and certainly there are many nontax proposals one must consider when choosing who to vote for in the presidential election (and congressional elections).

Regardless of one’s party affiliation, becoming a well-informed electorate (be it on the matter of taxes or any other relevant matter) is a goal we can all embrace.