Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…
As you go to the polls this election season, tax and fiscal policy are big issues to consider. Much of the 2017 tax reform law (the Tax Cuts and Jobs Act) is expiring after 2025, including lower federal income tax rates for individual taxpayers, higher standard deductions, bigger lifetime estate and gift tax exemptions, and more. Unless lawmakers act to extend the provisions, they’ll revert to the rules that were in effect for 2017.
The next president will have to confront this. And the winner will need Congress’s help. It will be easier to pass big tax changes desired by a candidate if, after the election, one party controls the presidency and both houses of Congress. More compromise will be needed if, on the other hand, there is divided government next January.
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The next president will also have to deal with the huge federal debt. Decades of deficit spending have added up to a national debt of nearly $36 trillion. Politicians might consider using the upcoming 2025 tax debate to lower the debt. But this won’t be easy. The cost of extending all or some of the expiring tax breaks will be expensive. And that doesn’t include the cost of new, proposed tax cuts.
Let’s see what Donald Trump and Kamala Harris have on their tax wish lists. So that readers can more easily understand the candidates' tax proposals, we chose to cover Trump and Harris's tax plans on several key topics: Individual income tax rates, capital gains, state and local tax deductions, child tax credits, other individual income tax breaks, estate tax, corporate tax rate and business taxes.
Harris vs Trump on individual income tax rates
Unless lawmakers act, the individual income tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37% will return to 10%, 15%, 25%, 28%, 33%, 35% and 39.6% after 2025, with different income-level break points than now.
Trump wants the 2017 tax law made permanent and desires even lower income tax rates for individuals. We don’t have any details from his campaign, such as whether he’d reduce the current top 37% tax rate.
Harris is sticking with President Biden’s pledge that people making less than $400,000 in a year won’t pay more in federal taxes. We take this to mean that she would support extending the tax breaks in the 2017 law to people earning less than $400,000, which are most taxpayers.
However, upper-incomers would pay more in taxes, if Harris gets her way. She proposes to bring back the 39.6% top income tax rate and hike the 3.8% net investment income tax to 5% for taxpayers making $400,000 or more. This $400,000 figure is likely the same for single filers, joint filers and head-of-household filers.
Trump vs Harris on capital gains
Long-term capital gains currently get favorable tax rates. Profits from the sale or exchange of capital assets held for over a year are generally taxed at 0%, 15% or 20%, depending on income thresholds that are adjusted annually for inflation. For 2024, the 0% rate applies to taxpayers with taxable income up to $47,025 on single returns, $63,000 on head-of-household returns and $94,050 on joint returns. The 20% rate begins at $518,901 for single filers, $551,351 for head-of-household filers and $583,751 for joint filers. The 15% rate is for filers with taxable incomes between the 0% and 20% break points.
Rumors abound that Trump supports a 15% top tax rate on long-term capital gains, down from 20% now, but he hasn’t confirmed this. However, Project 2025, the policy blueprint, which was designed for the next Republican administration and spearheaded by the Heritage Foundation, calls for a 15% long-term capital gains tax rate.
Harris, on the other hand, would raise the 20% long-term capital gains tax rate to 28% to the extent taxable income exceeds $1 million. Similar to Biden, she may want to treat death as a realization event for income tax purposes…a deemed taxable sale of the decedent’s capital assets at fair market value, with capital gains and losses reported on the final income tax return…with a $5 million lifetime gain exclusion.
Harris’s most controversial "unrealized gains tax" proposal is one that would affect the fewest taxpayers. She backs a 25% minimum tax on people with at least $100 million in wealth. The tax would hit taxable income plus unrealized capital gains, meaning the gain on appreciated assets that the individual has not yet sold or disposed of. If Harris is elected president, and if this provision is ever enacted, expect opponents to quickly sue. Some Supreme Court justices don't look favorably on taxing unrealized gains.
Harris vs Trump on state and local tax deductions
Presently, taxpayers who itemize on Schedule A of Form 1040 can deduct their state and local taxes, up to a $10,000 cap. After 2025, unless lawmakers act, taxpayers would again be able to write off the full amount of state and local taxes that they pay, as they had generally prior to 2018.
Trump’s economic policy advisers oppose any increase to the $10,000 cap and want him to lower the cap or to end the state and local tax deduction altogether. Instead, Trump floated the idea of eliminating the $10,000 cap, which would allow itemizers to again fully deduct state and local taxes. Trump’s move came as a surprise to many, and we don't know how serious this idea is, considering he is the one who signed the legislation in 2017 that put in place the $10,000 limit.
Harris has stayed silent so far on the state and local tax deduction. But it’s more than likely that she will get lots of pressure from congressional Democrats from high-tax states, who are clamoring for full deductibility of state and local taxes or, alternatively, a higher cap.
Trump vs Harris on the child tax credit
The current $2,000-per-child credit for taxpayers with children under age 17 will drop to $1,000 after 2025 if lawmakers don't act.
Trump supports J.D. Vance’s idea to give parents a higher child tax credit of $5,000 per child.
Harris also wants more tax breaks for parents. She promises to bring back the 2021 expansions to the child credit, including increasing the credit amount to $3,600 per child, with monthly payments and full refundability. And she wants to give new parents a one-time child credit of $6,000, to be claimed on the parent’s tax return for the first year of the child’s life.
Other individual income tax breaks
On the campaign trail and social media, Trump has promised lots of tax breaks for specific groups of people. Experts agree that most of these would be too costly and thus nonstarters in Congress. Here are some of Trump's proposed tax giveaways:
- He wants tipped income, Social Security benefits and overtime pay to be tax-free
- He has floated a temporary tax credit for people in disaster areas who buy generators
- At a campaign rally in Detroit, he called for a Schedule A itemized tax deduction for interest that people pay on their car loans
- He wants tax changes for Americans living overseas
- And in a recent podcast, he said he would think about tax breaks for the military, police officers and firefighters
Harris vows to extend the expansions to the Obamacare subsidies, allowing more people without affordable workplace health coverage to get premium tax credits for buying insurance through a marketplace. Absent any action, the Obamacare expansions end after 2025. She’s taken up Trump’s mantra of tax-free tip income, but would target the tax break to only service and hospitality workers. Additionally, she would let childless workers claim a higher earned income tax credit, as they had been able to do in 2021.
Harris vs Trump on the estate tax
The federal lifetime estate and gift tax exemption for people who die in 2024 is $13,610,000, and the highest estate tax rate is 40%. However, after 2025, the $13,610,000 figure will be much lower. That's because the 2017 tax reform law raised the exemption amount, but only temporarily. Unless lawmakers act, the figure will drop, reverting to the 2017 amount, adjusted for inflation. That's about $7 million or so. The 40% top tax rate isn't set to expire, as it wasn't changed in the 2017 law.
Trump likely wants to keep the higher lifetime exemption. Whether he wants more easings remains to be seen. The authors of Project 2025 call for a federal estate tax rate of no higher than 20%. And some Republican lawmakers want an exemption amount that is even greater than the current figure.
Harris has stayed mum on what she would do with estate taxes. However, it wouldn't surprise us if she eventually supports a lower exemption amount of about $7 million.
Trump vs Harris on corporate tax rate
Prior to 2018, the top federal income tax rate on C corporations was 35%. The 2017 tax reform law reduced the corporate tax rate to 21%. It's important to note that the 21% tax rate on C corps is not one of the provisions that is scheduled to expire after 2025. But the presidential candidates are still talking about it.
Trump supports cutting the 21% rate to 20% and would lower it to 15% for C corps that make their products in the U.S. Trump hasn't yet laid out exactly how a corporation would qualify for the 15% rate.
Harris wants to raise the corporate tax rate to 28%.
Harris vs Trump on business taxes
Trump proposes to bring back 100% first-year bonus depreciation and would allow more business asset expensing. He would let businesses claim research & development tax breaks in the year the expenses are incurred, rather than making businesses amortize R&D costs over five (or 15) years. He backs 10% or 20% across-the-board tariffs on imported goods and a 60% tariff on goods from China. And he would trash most of the clean-energy tax breaks in the Inflation Reduction Act.
Harris wants to quadruple the existing 1% excise tax on stock buybacks by publicly held corporations and nix deductions that Democrats say are tax loopholes for the rich. She would let start-up firms deduct up to $50,000 of preopening costs (the cap is now $5,000) and give small firms a standard deduction. She wants a new credit for builders who sell starter homes to first-time home buyers, and she’d increase the existing tax incentive for builders of affordable rental units.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
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