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Proposed Tax Policies of the Presidential Candidates: A Breakdown

Oct 27, 2020 | Tax

When it comes to tax policies, Donald Trump and Joe Biden have two vastly different strategies. Donald Trump and the Republicans would like to preserve the Tax Cuts and Jobs Act (TCJA), which lowered tax rates for most income levels and doubled the standard deduction. Conversely, Joe Biden and the Democrats believe that most of the TCJA’s tax benefits went to big businesses and the top one percent. Joe Biden proposes tax increases to big corporations and high-income households to help pay for his infrastructure, R&D, health, and education plans.[1] The following is what Donald Trump and Joe Biden plan to do in each category.

Individual & Corporate Tax Rates:

Trump’s Plan: Currently the top individual rate is at 37%. Trump intends to keep that rate but wants to lower the tax rate of middle-income taxpayers substantially. This will result in the 22% tax rate dropping to 15%. Regarding the corporate tax rate, Trump wants to keep the rate at a flat 21% and has no plans to reinstate a corporate Alternative Minimum Tax (AMT). [2]

Biden’s Plan: For individuals, Biden wants to restore the 39.6% rate for taxpayers with taxable income over $400,000. For the corporate tax rate, Biden has proposed raising the flat rate to 28% and reinstating the corporate AMT on profits of more than $100 million. 2

Capital Gains and Dividends:

Trump’s Plan: Currently the top capital gains tax rate is at 20%. Trump has indicated he would reduce tax rates for capital gains from 20% down to 15% and create a capital gains tax holiday for a limited time. 2

Biden’s Plan: Biden would increase the top rate to 39.6% and eliminate the tax-preferred treatment that comes from long-term appreciated securities and/or qualified dividends for taxpayers with incomes over $1 million.[3]

Itemized deductions:

Trump’s Plan: Maintain TCJA provisions, preventing expiration in 2025. 3 Provisions of the TCJA includes the $10,000 cap on the state and local tax deduction, charitable contributions limitation increased to 60 percent of Adjusted Gross Income , and the mortgage interest limitation to acquisition indebtedness of $750,000.

Biden’s Plan: Biden has not stated what he would do with the standard deduction, but he would cap itemized deduction at 28 percent for taxpayers with incomes over $400,000. 3

Individual tax credits:

Trump’s Plan: Currently under the TCJA, individuals can claim a $2,000 credit for each qualifying child and a $500 credit for other dependents, with each credit subject to income phaseouts. Trump hasn’t proposed any changes to the current law. 3

Biden’s Plan: Biden proposes increasing the credit to $8,000 for one child or $16,000 for two or more children. The dependent care credit would also allow a 50 percent reimbursement of expenses for taxpayers with income of $125,000 or less and a partial credit for those with income below $400,000. 3

Payroll Taxes (Social Security):

Trump’s Plan: The president recently issued an executive order that postpones Social Security tax for employees from September 1 through the end of 2020. He has said that this reprieve could turn into a permanent extension. 2

Biden’s Plan: Biden proposes tax increases to social security. In 2020 there is a 12.4% tax split between employer and employee up to the first $137,700 of social security earnings. Biden will continue that policy but will implement a 12.4% tax (split between employer and employee) on wages above $400,000. This creates a doughnut hole where taxpayers with wages between $137,700 and $400,000 will get taxed 12.4% on only the first $137,700.

Estate Taxes:

Trump’s Plan: Under the TCJA, the $5 million estate tax exemption went to $10 million ($11.58 million for 2020). Trump stated he would like to extend the estate tax exemption and make the step-up in basis permanent. Step-up in basis is the market value of assets at the time of death. This results in a smaller taxable gains when assets that were inherited are sold.

Biden’s Plan: Biden would like to reduce the estate and the Generation-Skipping Transfer (GST) exemption to $3.5 million and gift tax exemption to $1 million. He would also like to eliminate the basis step-up rule making capital gains subject to tax at death. 3

Depreciation:

Trump’s Plan: Currently under the TCJA, there is a 100 percent first-year deduction to fully depreciate an asset that was acquired and placed in service after September 27, 2017 and before January 1, 2023. Trump would like to extend the depreciation deduction at 100 percent. It is set to phase down from 100 to 20 percent in 2026. 3

Biden’s Plan: To repeal the TCJA depreciation provisions. This would result in no 100 percent depreciation, as 100% bonus depreciation is set to expire in 2023.3

 

[1] Tax Foundation, August 20 and 25, 2020

[2] CPA Practice Advisor: Comparing the Biden and Trump Tax Plans, September 16, 2020

[3] Lexology: The Trump and Biden Tax Plans Compared, October 22, 2020

 

This article submitted by Brian Dziobak, MBA.

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