2020 Presidential Candidates’ Tax Plans

Washington DC Capitol

Philosophical Wish Lists or Likely Tax Policies?

By Susan Day, CPA, CGMA

During a presidential election year – even one marked by a pandemic – candidates can be counted on to issue proposals to reshape America’s tax code. This year is no different.

While President Trump’s campaign has issued no formal plan, he has mentioned several items related to extending provisions of the 2017 Tax Cuts and Jobs Act (TCJA) beyond their 2025 expiration dates.

The Democratic candidate, former Vice President Joseph R. Biden, has issued a more detailed tax plan that would undo parts of the TCJA and introduce some tax measures to benefit middle-class and working-class taxpayers.

The Libertarian Party and Green Party candidates have issued limited tax plans that reflect their political philosophies.

Whatever the next president does in terms of taxes will undoubtedly be shaped by the nation’s economic and fiscal needs as we emerge from the COVID-19 pandemic. So, the tax proposals listed below might be viewed as philosophical wish lists as opposed to likely new policies. But they do give a sense of where the country may be heading, depending on who gets the most votes on election day.

The candidates are identified below – in alphabetical order by last name – with highlights of their respective tax plans.

 

Joseph R. Biden, Democratic candidate

  • The new top marginal rate for individuals would return to 39.6% and the lower rate of 37% put into place with the TCJA would no longer be applicable. Under current law, the 37% rate was set to expire in 2026. Biden’s plan would restore that rate immediately for individuals making over $400,000.
  • Ordinary income tax rate of 39.6% would apply to capital gains and dividends for households earning more than $1 million of income. This same tax rate also would apply to qualified dividends. Currently, capital gains and qualified dividends are subject to a maximum 23.8% tax rate at this income level.
  • The “Pease Limitation,” suspended through 2025 under the TCJA, would be reinstated for taxpayers with incomes above $400,000. The Pease Limitation would cap the amount certain taxpayers could claim in itemized deductions if their incomes are above certain thresholds.
  • The Qualified Business Income (QBI – Sec. 199A) rules created by the TCJA would be phased out for taxpayers with taxable income over $400,000.
  • Corporate income tax rates would increase from 21% to 28%. Corporations with profits more than $100 million would be subject to a new Alternative Minimum Tax. This new Alternative Minimum Tax would institute a 15% minimum tax on “book” profits or reported financial statement income for corporations.
  • The “step-up in cost basis” would be repealed. Under current law, when one generation inherits assets from another at death, assets owned by the decedent generally are “stepped up” to fair market value (FMV) at the date of death. As a result, when the beneficiaries sell these assets, the gain or loss that is calculated is the fair market value on the date of sale less the fair market value basis that the asset was “stepped up” to on the date of the decedent’s death. The step-up permitted under current law often results in little to no capital gains tax and the unrealized gain on these assets escapes taxation permanently.
  • The estate tax exemption would be lowered from the current $11.58 million to $5 million per individual.
  • Payroll taxes of 12.4% would apply to wages more than $400,000. Under current law, the taxable maximum is $137,700 in 2020. This is intended to raise revenue and close the Social Security solvency gap.
  • Biden’s plan would expand and make permanent the New Markets Tax Credit; establish a Manufacturing Communities Tax Credit; and offer tax credits to small businesses for adopting workplace savings plans.
  • An $8,000 tax credit would be created for individuals with children in childcare.
  • The Earned Income Tax Credit would be expanded to older workers.

Howard G. Hawkins, Green Party candidate

While Hawkins’ campaign has released few specifics, it has broadly described his tax approach as promoting a “steeply progressive” individual income tax program, including:

  • Graduated wealth tax
  • Graduated estate tax
  • Higher corporate income taxes
  • Eco-taxes
  • Progressive carbon tax with rebates to low-to-moderate income taxpayers
  • A land value tax on unearned appreciation of land site values due to social investments

Joanne M. Jorgensen, Libertarian candidate

  • Jorgensen would allow American workers to opt out of the Social Security payroll tax and divert 6.2% of their wages to an individual retirement account. Individuals who did this would not be eligible to receive Social Security benefits at retirement.
  • Other than this proposal, Jorgensen has released no specific tax proposals.

Donald J. Trump, Republican candidate

  • Trump has discussed modifying the TCJA’s individual tax rates with a 10% middle-class tax cut, which reportedly could include lowering the 22% marginal tax rate to 15%. For 2020, the 22% marginal tax rate applies to income over $40,125 for individuals and $80,250 for married couples filing jointly.
  • Extend the individual rates enacted by the TCJA that are scheduled to expire after 2025. In 2026, the individual changes under the TCJA will revert to prior law if no action is taken by Congress. 
  • Extend the higher standard deduction and other deductions enacted by the TCJA that are scheduled to expire after 2025.
  • Extend the current $2,000 child tax credit beyond the TCJA expiration date of 2026.
  • Extend the higher estate and gift tax exemptions enacted by the TCJA that are scheduled to expire after 2025.
  • Require a dependent to have a Social Security number to be eligible to be claimed for the $500 other dependent credit. Additionally, the Trump proposal would require a taxpayer to have a Social Security number to claim either the child tax credit or the $500 other dependent credit.
  • Trump has discussed several changes to the treatment of capital gains taxation, including 1) indexing capital gains for inflation; 2) reducing the top capital gains tax rate from 20% to 15%, and 3) enacting a capital gains tax holiday that eliminates capital gains taxes for an as yet undefined period of time. Under current law, the top tax rate for capital gains and qualified dividends is 20% for income over $441,450 for individuals and $496,600 for married couples filing jointly.
  • The Trump tax proposal would enact a new Education Freedom Scholarship Tax Credit, which would provide up to $5 billion worth of income tax credits annually for individual and corporate donations to state-identified not-for-profit scholarship-granting organizations.