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Tax Proposals of the Presidential Candidates – Highlights and Summary

Tax Proposals of the Presidential Candidates – Highlights and Summary

President Donald Trump and former Vice President Joe Biden have provided their 2020 election tax policy proposals. While each candidate offers a range of ideas, it is important to note that the enactment of tax legislation in 2021 will depend greatly on which party controls the U.S. House of Representatives and Senate. Below, a description of the highlights and a brief summary of each candidate’s tax proposals.

Highlights
President Trump plans to make the tax provisions enacted as part of the 2017 Tax Cuts and Jobs Act (TCJA) permanent, and possibly propose further tax cuts. Joe Biden proposes tax increases for businesses and high-income individuals, specifically those with income over $400,000.

Summary
While both candidates have expressed their proposals on a wide range of tax legislation, a few significant tax areas:

Individual Tax Rates
Individual tax rates are split into seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The individual tax rates were lowered as a result of TCJA and apply to tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026.

Donald Trump

Joe Biden

Extend TCJA provisions past 2025. Possible 10% middle class tax cut.

Increase top tax rate back to 39.6%. Increased taxes for taxpayers making more than $400,000.

Capital Gain Rates
Capital gains are currently taxed at 0%, 15% or 20%.

Donald Trump

Joe Biden

Cut capital gains rate to a maximum rate of 15%.

Tax capital gains at top ordinary income rate of 39.6% for taxpayers with income over $1 million.


Credits and Deductions
TCJA eliminated the Pease limitation, which capped the value of itemized deductions for taxpayers. The itemized deduction for state and local taxes (SALT) is capped at $10,000.

Donald Trump

Joe Biden

Extend TCJA provisions past 2025.

End SALT cap and restore Pease Limitation for incomes above $400,000. Cap itemized deductions at 28%, effectively reducing the value of itemized deductions by 28 cents for every dollar earned above the threshold.

Social Security Earnings
Wages are currently subject to a social security tax rate of 12.4%, half paid by employers and half paid by employees. Maximum income subject to social security tax is currently $137,700, which increases each year at the rate of wage growth.

Donald Trump

Joe Biden

No change.

Tax wages over $400,000 at the 12.4% rate. This creates a gap in wages taxed, which will close as the current taxable maximum increases with wages.

Corporate Tax Rates
TCJA eliminated the graduated corporate rate schedule and implemented a flat tax rate of 21%. This reduced the top corporate tax rate of 35% to 21%, bringing the U.S. rate below the average in the Organization for Economic Co-operation and Development (OECD).

Donald Trump

Joe Biden

No change.

Increase rate to 28%, making the US combined federal and state rate the highest in the OECD. Implement 15% minimum book tax on companies with more than $100 million profit on financial statements.

Qualified Business Income Deduction
TCJA implemented the Qualified Business Income (QBI) deduction, allowing taxpayers, other than C corporations, to deduct 20% of QBI from a partnership, S corporation, or sole proprietorship.

Donald Trump

Joe Biden

No change.

Allow deduction for taxpayers with income less than $400,000. Eliminate special qualifying rules, including those for real estate investors.

Special tax proposals from Joe Biden
Joe Biden has also proposed a variety of credits and incentives:

  • Expand the work opportunity credit to include military spouses.
    • Currently, business receive a nonrefundable tax credit for a portion of the wages paid to certain new employees who qualify as members of disadvantaged groups.
  • A new tax credit to encourage business to build childcare facilities in the workplace. Employers will receive a credit for 50% of the first $1 million of constructions costs per facility. 

In conclusion
President Trump plans to extend the life of the tax provisions implemented by TCJA if elected for a second term, along with possibly implementing more tax cuts. If Joe Biden wins the election, he plans to repeal the tax benefits of TCJA for high-income taxpayers and implement tax increases to fund various policies.

The election results, along with the economic condition of our country and control of the House and Senate, will play a significant role in the tax legislation changes we see in the coming years.

Look for future tax alerts from Herbein as we keep you updated on these important tax policy considerations.

For additional information contact us at info@herbein.com. Article contributed by Annika Naumann.