With the 2024 election on the horizon, tax reform is a pivotal issue impacting high-net-worth individuals. Each candidate’s approach to tax policy carries distinct implications for investment strategies, wealth preservation, and estate planning. In this article, we explore the leading candidates’ tax proposals, focusing on potential changes to capital gains, estate tax exemptions, and income tax brackets for higher earners.
Federal Tax Law at Present
Our current tax structure was most recently revised by the 2017 Tax Cuts and Jobs Act (TCJA). This law lowered income tax rates across the board for individuals and corporations, introduced a limit on state and local (SALT) deductions, and doubled the standard deduction. The TCJA also introduced Qualified Business Income (QBI) deductions. All of these provisions are scheduled to sunset in at the end of 2025. Without any new legislation, the tax rates and deductions will revert to pre-TCJA laws, which would significantly impact many taxpayers. The top individual tax rate would increase from 37% to 39.6%, the corporate tax rate would go back to 28%, and the estate and gift tax exemption would drop from $13.61M currently to roughly half, estimated to be about $7M. Additionally, the standard deduction would be reduced, the QBI deduction would be eliminated, and the limit on the SALT deduction would be removed.
With an ever-increasing US annual federal budget deficit, we expect that there will likely be changes to the US tax system in the future regardless of election outcome.
Tax Proposal – Donald Trump (R)
Donald Trump was instrumental in passing the 2017 TCJA during his presidency. Now that he is running for reelection, he is advocating for the permanent extension of the tax cuts he passed during his first term. In other words, the provisions mentioned above would not sunset at the end of 2025. One of Trump’s main proposals for raising needed Federal tax revenue is to impose tariffs on imports into the United States.
During his campaign, Donald Trump has distanced himself from “Project 2025,” a tax plan formulated by a group of Republican leaders at the Heritage Foundation. It is difficult to know if Trump will support or oppose any of these proposals should he win the presidency.
Tax Proposal – Kamala Harris (D)
Kamala Harris’ tax strategy inherits most of President Joe Biden’s proposals and focuses on increasing revenue and addressing economic inequality. She aims to provide further relief for middle- and low-income tax families by expanding the Child Tax Credit to $3,600 per dependent and offering a one-time $6,000 credit for newborns. These credits would be fully refundable. Harris plans to maintain the current premium tax credits under the Affordable Care Act (ACA) and keep taxes steady for those earning less than $400,000 per year.
Comparison of Trump and Harris tax plans:
Donald Trump | Kamala Harris | |
---|---|---|
Top individual income tax rate | Maintaining TJCA top rate of 37% | Raising top individual rate to 39.6% |
Net investment income tax (NIIT) | Maintaining current rate of 3.8% | Increasing rate to 5% |
Corporate tax rate | Lowering to 15% to encourage business growth | Increasing to 28% so businesses pay their share of taxes |
Capital Gains | Possibly indexing capital gains for inflation per Project 2025 | Increasing long term capital gains rate for taxpayers with over $1 million of income to 28% (33% total with the 5% proposed NIIT tax). Some Democrats have proposed increasing to ordinary income tax rates, but Harris' team has not opined on this. |
Unrealized Gains | No taxation as per current law | President Biden's tax plan proposed a tax on unrealized capital gains. |
Carried Interest | No change to current rules allowing taxation over 3 year holding period at long term capital gains rates | President Biden's tax plan proposed taxing carried interest at ordinary income rates if income exceeds $400,000. |
Retirement Planning | No proposed change to current rules | Limiting the ability to make retirement account contributions for those taxpayers with larger account balances. In addition, limiting the ability of a taxpayer to engage in ROTH IRA conversions if income exceeds $400,000 |
1031 Exchanges | No proposed change to current rules | Limiting the ability to engage in 1031 exchanges if income exceeds $400,000 or gain exceeds $500,000. |
State and Local Tax Deduction Limitation currently capped at $10,000 (SALT deduction) | Trump has expressed some interest in eliminating or increasing the cap on the SALT deduction. | Harris has expressed some interest in eliminating or increasing the cap on the SALT deduction. |
Energy Efficient Credits and Incentives | Trump has expressed some desire to eliminate these subsidies | No proposed change to current rules |
Business Incentives | Restoring bonus depreciation to the original TJCA level of 100%. | No proposed change to current rules |
Estate Planning | Making the TJCA estate tax changes permanent | Tighten rules related to estate tax |
As discussions on tax policies unfold over the next few weeks and beyond the election with Congress, we expect there will be further updates to the candidates’ proposals. We will keep you informed of any changes that may affect your personal tax situation. If you have any questions about the current tax proposals or how they might impact your tax liability, please feel free to reach out. We’re here to help and would be happy to discuss any questions you may have.
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