The next US president must tackle taxes: Here’s why

VaselineSeptember 4, 2024

0 6 minutes read

The next US president must tackle taxes: Here’s why

Whether Vice President Kamala Harris or former President Donald Trump make it to the Oval Office, either will have to address the looming “tax hole” related to the Tax Cuts and Jobs Act (TCJA) — as many provisions are slated to languish at the end the year 2025.

Without action from Congress, the impact could be widespread — ending tax cuts from low- and middle-income families to the ultra-wealthy. With the 2024 election fast approaching and swing states still up for grabs, all eyes will be on Harris and Trump’s developing tax agendas.

Here’s a look at where both candidates stand on key TCJA expiration issues.

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TCJA expiry: income tax rate

The TCJA, also known by some as the “Trump tax cuts,” temporarily reduced marginal rates for most individual feds. tax brackets. The top federal income tax rate has been cut to 37% until 2025, after which it will return to 39.6%.

What candidates say:

Harris sticks to Biden’s FY25 tax proposal.

Vice President Harris committed to President Biden’s position of not raising taxes on those making less than $400,000 a year. The Democratic presidential nominee would also likely let the top marginal income tax rate for the top 1 percent of earners return from the current rate of 37 percent to 39.6 percent.

At the same time, while the TCJA did not directly change the Medicare tax rate, Biden’s FY25 budget proposal, which Harris generally supports, calls for raising the rate from 3.8% to 5% for higher earners of 400,000 dollars per year.

Harris could support taxing investment income for those who earn $1 million or more annually as ordinary income, rather than at a lower level. capital gains tax rates.

Trump has not committed to a plan, but has proposed replacing the federal income tax with tariffs.

Former President Trump wants to raise tariffs on all foreign goods. The Republican presidential candidate has proposed a blanket 20 percent tariff on all imported goods entering the U.S. and a 60 percent tariff on goods imported from China.

But he took these propositions a step further. A CNBC report disclosure that Trump discussed replacing the federal income tax with an “all-tariff policy” during a meeting with congressional Republicans in June.

For more information, see the Kiplinger Report: Fees: What They Are and How They Impact Your Wallet.

Trump has previously suggested expanding the tax cuts passed by the TCJA.

If Trump expands the TCJA’s income tax provision, the federal tax brackets would remain where they currently are, at a top rate of 37 percent.

Potential impact:

Former President Trump has floated several ideas on the federal income tax, but some tax policy experts say replacing the income tax with tariffs it wouldn’t add up.

Peterson Institute for International Economics RECORDED that tariffs would not be able to replace income tax revenue, and the attempt would be “regressive and harmful to economic growth.”

Profit tax rate

Even though Trump’s tax provision on the corporate tax rate is not scheduled to expire as part of the TCJA, the current 21% rate has been debated by both sides of the campaign.

What candidates say:

Trump would further cut the corporate income tax rate.

The TCJA reduced the corporate tax rate from 35% to 21% – marking the lowest top rate in 80 years. According to the Fiscal Foundation, the move brought the US share “in line with other industrialized countries, after years of being the highest.”

Former President Donald Trump recently pledged to cut the rate to 15 percent.

Harris proposes to raise the corporate tax rate.

Meanwhile, current Vice President Kamala Harris has proposed raising the corporate tax rate to 28 percent.

Potential impact:

Harris’ plan to raise corporate taxes could reduce the deficit by 1 trillion dollars over the next decade, according to the Committee for a Responsible Federal Budget (CRFB). Similarly, the White House Office of Management and Budget estimated that the proposal would raise $1.4 trillion from fiscal years 2024 to 2034.

On the other hand, the Tax Foundation found that Trump’s argument to cut the corporate income tax to 15% would reduce federal revenues by 673 billion dollars from 2025 to 2034.

Child tax credit

Trump’s tax cuts brought some key changes to the tax credit for children (CTC), specifically by temporarily doubling the maximum CTC from $1,000 to $2,000 per child under 17. It also changed the income thresholds at which the child tax credit starts to phase out.

Previously, the elimination started at $75,000 for single parents ($110,000 for married couples). The TCJA raised these thresholds to $200,000 and $400,000, respectively. Other changes included reducing the phase-in rate for the refundable CTC to $2,500 and establishing a credit for other dependents.

What candidates say:

JD Vance recently launched a new extension to the child tax credit.

Republican Vice Presidential Candidate JD Vance has promised to increase the child tax credit at $5,000 per child. The measure would increase the credit by 150 percent from the current $2,000.

Harris proposes to restore the American Rescue Plan’s (ARPA) pandemic-era child tax credit expansion and make it permanent.

Kamala Harris’ Tax Plan for CTC would increase the credit from $2,000 to $3,600 per child. The loan would also be fully repayable, meaning those with little or no income could qualify.

The expanded CTC would provide a newborn tax credit of up to $6,000 for a child’s first year of life, $3,600 for children ages two to five, and $3,000 for children ages six and older.

Potential impact:

Harris’ expansion of the child tax credit would cost about $1.6 trillion over the next decade, according to the calculations by the Fiscal Foundation.

Meanwhile, JD Vance’s plan to raise the CTC to $5,000 could amount to $2 to $3 trillion in additional borrowing over the next decade, according to the Committee for a Responsible Federal Budget.

If the TCJA’s changes to the CTC were extended from 2025 to 2034, the Congressional Budget Office estimates that it could cost about $735 billion.

Property tax exemption

The TCJA increased the gift, estate and skip generation (GST) tax exemption to $11.18 million from $5.6 million when it was passed. Adjusted for inflation, the current exemption is $13.61 million for single individuals and $27.22 million for couples filing jointly.

Once the lifetime and gift tax exemptions drop, bipartisan economists say that amount could drop by nearly half. That would be around $7 million for individuals and $14 million for married couples, with estates valued above those exemption levels being taxed at rates of up to 40 percent.

What candidates say:

Harris apparently APPROVED a bill proposed by Sen. Elizabeth Warren (D-Mass.) that seeks to further reduce the exemption to $3.5 million.

The measure would tax amounts over $3.5 million at rates starting at 55 percent to 65 percent, depending on the amount transferred.

The proposal supported by Harris would also reduce the annual gift tax exclusion to $10,000 per person, down from the current $18,000. It would also cap the amount an individual can give tax-free at $20,000 (currently there is no limit). Finally, Harris would introduce an additional 10 percent tax on properties valued at more than $1 billion.

It remains unclear whether Trump will expand estate tax exemptions or whether he wants to eliminate all estate, gift and GST taxes.

Potential impact:

Repealing the estate and gift taxes would come at a price. Estimates from the Office of Management and Budget show that estate and gift taxes are expected to raise $466 billion over the next decade.

Fiscal Policy Center RECORDED that eliminating these taxes would be “regressive” because the benefits go almost entirely to people at the top of the income spectrum. Additionally, gifts from an estate to charity currently qualify for a full estate tax deduction.

Eliminating property taxes could also reduce charitable giving by 6 to 12 percent.

Why TCJA sunset matters

Taxes are at the forefront of this election cycle as many provisions from The Tax Cuts and Jobs Act faces a “fiscal gap” at the end of 2025. Some major fiscal policies set to expire include:

Federal income tax rates have been reduced
Doubled child tax credit
Federal estate and gift tax breaks doubled
State and local tax (SALT) deductions limited to $10,000
Double standard deduction

The outcome of the 2024 election will decide whether Democrats seize the opportunity to rewrite key tax provisions or whether Republicans choose to extend Trump’s tax cuts or let them expire and go back to the drawing board.

As both campaigns continue to shape their fiscal policies, more details will emerge in the days leading up to the election. Many of these proposed tax changes could impact your wallet in the future, so stay tuned.

VaselineSeptember 4, 2024

0 6 minutes read

Vaseline

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