2020 Presidential Candidate Tax Visions

The 2020 presidential election is seven weeks away, and the country is still grappling with the fallout from COVID-19. While the U.S. continues to find its way out of the pandemic through extended unemployment payments, low-interest loan programs, and new incentives for businesses, the upcoming election has taken on new importance. Many are interested in understanding the difference between each candidate’s tax plan and the potential impact.

The proposals provide essential insight into what changes would be forthcoming should a candidate be elected. This year is an important one because of the tax incentives scheduled to expire at the end of 2020, 2021, and 2022. Also, high net worth individuals will want to pay specific attention to estates’ tax treatment and trusts and investments under each plan. To help clients, prospects, and others, Klatzkin has provided a summary of each plan below.

Joe Biden’s Tax Proposals

The main pillars of Democratic candidate Joe Biden’s tax proposals are increasing taxes for certain corporations, Americans making more than $400,000 per year, and introducing a series of tax incentives for low- and middle-income earners.

Business Taxes

• Raise the corporate income tax rate to 28%.
• 15% minimum book tax on corporations with $100 M or more in revenue.
• Double the GILTI tax rate from 10.5% to 21%.
• Phase-out Section 199A deduction for taxpayers earning more than $400,000.

Individual Taxes

• Restore the top marginal income tax rate (to 39.6%) and the Pease limitation on itemized deductions for taxpayers earning more than $400,000.
• Tax capital gains at the ordinary income rate for taxpayers earning $1M or more.
• Eliminate the step-up in basis for inherited assets with capital gains (versus taxing the gains at death).
• Cap the value of itemized deductions to 28% for high-income taxpayers.
• Extend the 12.4% Social Security payroll tax on wages and self-employment income above $400,000.

Tax Incentives 

• Restore electric vehicle tax credit and solar investment tax credit.
• Introduce a special tax exclusion for student loan forgiveness.
• Extend or make permanent New Markets Tax Credit and Low-Income Housing Tax Credit.
• Expand Earned Income Tax Credit for taxpayers older than 65.
• Increase the Child Tax Credit to $8,000 ($16,000 for two or more children).
• Introduce tax credits for residential energy efficiency, carbon capture, manufacturing, renters (to reduce rent and utilities to 30% of income), informal caregivers, childcare facilities built by businesses, and first-time homebuyers.

Views on the Tax Cuts and Jobs Act (TCJA)

It is unclear whether Biden would want to try to repeal all TCJA or just the portions that extend tax benefits to high-income taxpayers. He will likely target two areas: the increased estate tax exemption for $11.56M and restoring the top marginal income tax rate to 39.6% (from its current 37%). It is also suspected the higher cap on federal estate tax would revert to pre-TCJA levels of $5M for joint filers.

President Trump’s Tax Proposals

Like other presidential incumbents, President Trump has not released specific tax policies before the 2020 election. However, there have been enough hints at his tax philosophies over the months to form an overview of the themes likely to play a role in a second term.

Business Taxes

• Expand Opportunity Zone tax credits.
• Provide a tax credit for companies that bring back jobs from China (unspecified).
• Expand business expensing to 100% for certain industries, including pharmaceuticals and robotics.

Individual Taxes 

• Maintain the top 37% tax rate and introduce a 10% tax cut for middle-income earners.
• Forgive the amount of payroll tax currently being deferred under his Executive Order from early August 2020.
• Reduce the capital gains tax rate to 15% and introduce a capital gains tax holiday temporarily.
• Extend the TCJA changes to itemized deductions beyond 2025 and seek to make them permanent.
• Modify individual tax rates, which could include lowering the 22 % marginal tax rate to 15%.

Tax Incentives

• Introduce a ‘Made in America’ tax credit to encourage re-shoring American manufacturing businesses.

Views on the Tax Cuts and Jobs Act (TCJA)

Trump’s primary tax legislation during his first term, the TCJA was the most extensive overhaul to the U.S. tax code in more than 30 years. It is unlikely he would seek to repeal any of it; however, there may be incentives to extend or make certain permanent provisions. The White House has previously expressed support for extending individual provisions after 2025, but so far has not commented on expiring business provisions.

Contact Us

Both Joe Biden and President Trump’s tax proposals provide an interesting insight into what changes could be forthcoming post-election. Regardless of the politics, it is vital for Princeton and Mercer County businesses to carefully review 2020 tax planning opportunities now as new changes are likely to come. If you have questions about the information outlined above or need assistance with tax planning, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.