With the presidential election only weeks away, many people are beginning to pay closer attention to each candidate’s positions on such issues as the COVID-19 pandemic, health care, the environment and taxes.
Among their many differences, President Donald Trump and former Vice President Joe Biden have widely divergent tax proposals. Their stances could have a major impact on the amount of taxes you’ll owe in the future. Here’s an overview of each candidate’s tax proposals for both individuals and businesses.
The GOP-backed Tax Cuts and Jobs Act (TCJA) was signed into law in December 2017. It included a number of temporary federal tax cuts and breaks for individuals and families for 2018 through 2025. President Trump has indicated support for preserving tax reforms under the TCJA — and possibly providing additional breaks for individuals and families.
The White House budget document for the government’s 2021 fiscal year (which starts on October 1, 2020) indicates support for extending these TCJA individual tax provisions beyond 2025:
In August, Trump promised that, if reelected, he’ll find a way to forgive federal payroll taxes that were temporarily deferred for certain employees from September 1, 2020, through December 31, 2020, by an executive action issued on August 8.
He has also mentioned permanent federal payroll tax cuts, without providing details. However, forgiving or cutting payroll taxes would need to be part of a bill passed by Congress and that type of relief hasn’t received much support from Democrats or Republicans.
Unless the Republicans regain control of the House and retain control of the Senate, any tax cut proposals are likely to face strong opposition from congressional Democrats. And if reelected, Trump is unlikely to sign any legislation that calls for major federal tax increases for individuals.
If former Vice President Joe Biden is elected, he has expressed support for major federal tax law changes. The Biden plan would raise the top individual rate on ordinary income and net short-term capital gains back to 39.6%, the top rate that was in effect before the TCJA lowered it to 37% (for 2018 through 2025). Biden has also promised not to increase taxes for those who make under $400,000. However, it’s unclear whether that limit refers to taxable income, gross income or adjusted gross income — or whether it would apply equally to singles, heads of households and married joint-filing couples.
Other elements of Biden’s plan that would affect individual taxpayers include:
President Trump has indicated support for preserving business-focused tax reforms under the TCJA if he’s elected for a second term. The TCJA includes many federal tax cuts and breaks for businesses, such as:
Without providing specifics, Trump has said he would push for the following tax law changes if reelected:
Trump’s tax proposals leave many unanswered questions. For example:
Unless Republicans regain control of the House and retain control of the Senate, any tax cut proposals would likely face strong opposition from congressional Democrats. And if reelected, Trump is unlikely to sign legislation that calls for major federal business tax increases.
Former Vice President Biden’s plans include rollbacks or revisions of several TCJA provisions, which would be necessary to pay for his plan to rebuild the U.S. economy under the moniker of “Rebuilding America Through Investment.”
Notably, the Biden plan would increase the corporate federal income tax rate from 21% to 28%. The change would raise an estimated $1.1 trillion over 10 years. This rate is significantly lower than the 35% maximum effective rate for profitable corporations that was in place before the TCJA was enacted. But Biden’s proposed tax rate would be a flat rate, not based on a graduated schedule.
In addition, if elected, Biden would support a new 15% minimum tax on corporations with at least $100 million in annual income that pay little or no federal income tax under the “regular rules.” An affected corporation would pay the greater of the regular federal income tax bill or 15% of reported book net income. This new tax would raise an estimated $160 billion to $320 billion over 10 years.
Biden also supports “green energy” tax changes. Specifically, if elected, Biden would support reinstating or expanding tax incentives intended to reduce carbon emissions, including:
Biden would also like to eliminate federal income tax deductions for oil and gas drilling costs and depletion.
More details regarding the two candidates’ tax plans may be revealed during interviews, ads and debates in the coming weeks. No matter who wins the presidency, we can help you implement planning strategies to keep your tax bill as low as possible.
Get in touch today and find out how we can help you meet your objectives.