This special briefing describes the current tax policies of the candidates of the two major parties: President Donald Trump, the incumbent candidate for the Republican Party and former Vice President Joe Biden, the Democratic candidate for president.
INDIVIDUAL TAXATION
Income Tax Rates
Under current law, there are seven tax brackets : 10, 12, 22, 24, 32, 35, and 37 percent, which are applicable from 2018 through 2025 under the TCJA.
Trump
No current proposals or changes.
Biden
Biden has proposed increasing the top rate back to 39.6 percent, where it sat prior to the TCJA.
Capital Gains/Dividends
Under current law, a capital gains rate of 0 percent, 75 percent, or 20 percent applies to capital gains and qualified dividends received by individuals, depending upon the amount of the individual's taxable income. For 2020, the 20 percent rate applies to joint filers with taxable incomes over $496,600 ($469,050 for heads of households, $441,450 for single filers, and $248,300 for married taxpayers filing separately).
Trump
No current proposals.
Biden
Biden's proposal would increase the top marginal income tax rate on long-term capital gains to 39.6 percent for taxpayers earning more than $1 million annually and eliminate the step-up basis tax expenditure that allows decedents to pass capital gains to heirs without tax. The top rate on long -term gains would nearly double from 23.8 percent to 43.4 percent, according to the Tax Foundation.
INDIVIDUAL TAX INCENTIVES
Child Tax Incentives
Trump
Trump has no currently proposed expansions to child tax incentives. Trump's FY 2021 Budget proposal would extend applicable TCJA provisions beyond 2025.
Biden
Biden has proposed expanding the earned income tax credit (EITC) and dependent care credit. Further, Biden has proposed a refundable $8,000 child care tax credit for a qualifying child or up to $76,000 for two or more children. The maximum Child Tax Credit is $2,000 through 2025 under the TCJA.
Additionally, Biden proposes a new $5,000 tax credit for caregivers of individuals with certain physical and cognitive needs.
Limitation on Itemized Deductions
Prior to the TCJA, a limitation on itemized deductions (the so-called "Pease limitation") took effect at higher income levels (in 2017, $318,700 for joint filers, $287,650 for heads of households, $261,500 for single filers, $156,900 for married taxpayers filing separately). The TCJ A eliminated the limitation through the 2025 tax year.
Trump
Trump proposes a permanent repeal of the limitation.
Biden
Biden proposes restoring the Pease limitation on itemized deductions for taxable incomes above $400,000.
Carried Interest
Generally, income that flows to a partner from a private investment fund is taxed at the lower capital gains rates with a three -year holding period requirement for certain long-term capital gain and loss.
Trump
Trump proposes eliminating carried interest.
Biden
Biden proposes eliminating carried interest.
Payroll Tax
Currently, the FICA tax of 12.4 percent is split between employer and employee.
Trump
No current official proposals.
Biden
Biden has proposed eliminating the wage base cap on taxpayers with income above $400,000.
BUSINESS TAXATION
Corporate Tax Rates
Under current law, the corporate tax rate is 21 percent.
Trump
Trump has no currently proposed changes.
Biden
Biden proposes increasing the corporate tax rate to 28 percent. Additionally, Biden proposes a minimum tax on corporations with book profits of $100 million or more.
Qualified Business Income Deduction
Under current law, the Section 199A deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business in come (OBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income through. The deduction is scheduled to expire after 2025 under the TCJA.
Trump
Trump supports extending the applicable TCJA provision beyond 2025.
Biden
Biden has proposed phasing out the qualified business income deduction for incomes above $400,000.
Energy Tax Incentives
Various credits are available under current law for oil production, electric vehicles, as well as for the production of solar, wind and other "green" energy.
Trump
Trump has no currently proposed energy tax incentives.
Biden
Biden proposes ending subsidies for fossil fuels, restoring the full electric vehicle tax credit and various credits and deductions to incentivize both residential and commercial energy efficiency.
INTERNATIONAL TAXATION
Repatriation
Under current law, U.S. corporations can defer payment of U.S. income tax on profit s from offshore subsidiaries until they are repatriated.
Trump
Trump has no currently proposed changes.
Biden
Biden proposes ending TCJA incentives for multinationals. Additionally, according to Biden's website, he would establish a "claw-back" provision to "force" a return of public investments and tax benefits when it closes employment locations in the U.S. and sends jobs overseas. Additionally, Biden proposes "tighten ing " anti-inversion laws.
GILTI
Generally, Global Intangible Low Tax Income (GILTI) was enacted under the TCJA as an anti-base erosion provision. GILTI is a tax on earnings that exceed a 10 percent return on a company's invested foreign assets.
Trump
Trump has no currently proposed changes.
Biden
Biden proposes doubling the tax rate on GILTI earned by foreign subsidiaries of U.S. firms from 10.5 percent to 21 percent.
TAXES AND HEALTH CARE
Since passage of the ACA, taxes and health care have become more intertwined than in previous years. The ACA created a number of new taxes and fees. However, the ACA's individual mandate was effectively repealed by the TCJA.
Trump
Trump largely supports repealing the Affordable Care Act.
Biden
Biden proposes strengthening the Affordable Care Act (ACA) by eliminating the 400 percent income cap on tax credit eligibility and lowering the limit on the cost of coverage from 9.86 percent of income to 8.5. Additionally, he would propose expanding a variety of family tax credits to increase coverage and lower premiums.
TAX LEGISLATION ON THE HORIZON
Before the ink was even dry on the TCJA, several GOP members of Congress, as well as President Trump, were already getting ready for "Tax Reform 2.0." Promises of further tax cuts were a rallying cry during the 2018 mid -term elections. However, the steam went out of the prospects for such a tax bill once the GOP lost the majority in the House. However, there are still many GOP members of Congress who support such a measure. Whether there is a "Tax Reform 2.0" will largely depend on the outcomes of the elections in November.
Of a much more immediate matter, a bill providing further stimulus in response to the COVID-19 pandemic ("CARES 2") seems much more likely. Both parties, and President Trump, feel that there is a need for further legislative action, however, there is a wide gulf between them all with regard to the size and scope of such a bill. The last pandemic stimulus/relief bill (the CARES Act), delayed many provisions of the TCJA to take effect after 2020 in order to promote business growth and survival. Whether a CARES 2 bill would further impact the provisions of the TCJA remains to be seen.
Please contact us with any questions.
