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Election Day is a month away. And taxes are on the ballot. Many provisions in the 2017 Tax Cuts and Jobs Act legislation are slated to expire after 2025. These include lower income tax rates, higher standard deductions and child tax credits, the $10,000 limit on deducting state and local taxes, and the higher lifetime estate and gift tax exemption.
Donald Trump's tax plans include making the tax breaks in the 2017 law permanent, and he would take it even further with more tax cuts for individuals and businesses.
Kamala Harris, on the other hand, is sticking with President Joe Biden's oft-repeated pledge that people making less than $400,000 a year won't pay more in federal taxes. We take this to mean that she would give her support to extending the tax breaks in the 2017 law to people earning less than $400,000 — which are most taxpayers.
Let's look at other tax ideas that Harris supports. Some of these are new, while others are retreads, taken from proposals set forth by the Biden administration.
Harris's tax plans for high-income individuals
High-income individuals would see tax hikes, paying more in federal taxes if Harris gets elected.
She’d bring back the top 39.6% income tax rate for people making $400,000 or more and hike the 3.8% net investment income (NII) surtax to 5% for these taxpayers.
She would increase the long-term capital gains tax rate for the wealthy. Long-term capital gains would be taxed at 28% (33% with the 5% NII surtax added in) to the extent taxable income exceeds $1 million. Currently, as a general rule, the highest long-term capital gains rate is 20% (23.8% with the current 3.8% NII surtax).
Similar to Biden, she may want to tax unrealized gains upon death. This proposal treats death as a realization event for income tax purposes, essentially a deemed taxable sale at fair market value, with capital gains and losses reported on the decedent’s final income tax return. The heirs would continue to get a fair-market-value basis in assets they receive. Gifts would also be treated as a realization event for income tax purposes.
Unlike current law, the donees would take a fair market value in gifted property. There would be a $5 million lifetime gain exclusion plus a host of exceptions and complex rules.
Her most controversial "unrealized gains tax" proposal is one that would affect the fewest taxpayers. She backs a 25% minimum income tax on the ultrarich, people with at least $100 million in wealth. The tax would apply to taxable income plus unrealized capital gains, meaning the gain on appreciated assets not yet sold or disposed of. If this provision is ever adopted, expect opponents to sue quickly. Some Supreme Court justices don’t look favorably on taxing unrealized gains.
Harris's tax plans for other individuals
Families, first-time homebuyers, tipped workers in the service and hospitality industry, and other individuals would get breaks under Kamala Harris's tax plan.
She is promising to bring back the 2021 expansions to the child tax credit. Those expansions included hiking the amount from $2,000 per child to $3,600, with monthly payments and full refundability. And she’d make the child credit even bigger, by giving taxpayers a one-time child credit of $6,000, to be claimed on the parent’s tax return for the first year of the child’s life.
Among her other proposals:
- Give eligible first-time home buyers a tax credit of up to $10,000.
- Extend the expansions to Obamacare subsidies, allowing more people without affordable workplace health coverage to get credits for buying health insurance through the marketplace. The expansions are slated to end after 2025.
- Let childless workers claim a higher earned income tax credit (EITC)
- She's taken up Trump's mantra of making tipped income tax-free, but she would target the break only to workers in the hospitality and service industries.
There is radio silence on what Harris would do with the state and local tax deduction that itemizers claim on Schedule A of the 1040. Some Capitol Hill lawmakers from high-tax states are pressuring leadership to get rid of the current $10,000 cap on SALT write-offs or to increase it.
However, doing this would disproportionately benefit higher-income taxpayers and cost the federal government a lot of money that Harris would want to use for her other proposed tax cuts.
Harris's estate tax plans
So far, Harris has stayed silent on the campaign trail when it comes to estate taxes. The 2017 Tax Cuts and Jobs Act nearly doubled the lifetime estate and gift tax exemption. The exemption for people who die this year is $13.61 million. After 2025, this figure will drop, reverting to the 2017 amount, adjusted for inflation. That's about $7 million. The 40% top estate tax rate wasn't changed in the 2017 law.
We have seen stories that Harris endorses the American Housing and Economic Mobility Act, a bill introduced in the Senate by Elizabeth Warren (D-MA) and in the House by Emanuel Cleaver (D-MO). The bill sets forth a slew of affordable housing proposals. It also calls for changes to estate and gift taxes to offset the provisions.
For example, the bill would lower the exemption to $3.5 million and replace the current 40% estate tax rate with a series of progressive rates, ranging from 55% to 75%.
Despite what some of the online stories say, our research finds no concrete evidence that Harris has endorsed the estate tax reforms in Sen. Warren's bill.
Harris's business tax plans
Harris has proposed tax increases for some businesses:
- She wants to raise the current 21% corporate tax rate to 28%.
- She would increase the 15% alternative minimum tax on very big corporations to 21%.
- She would quadruple to 4% the existing 1% excise tax on stock buybacks by publicly held corporations.
- And she proposes to do away with various business deductions that she and other Democrats say are tax loopholes for the rich.
But she also supports some tax cuts for businesses:
- She has proposed a new tax credit for home builders who sell starter homes to first-time homebuyers.
- She would increase the existing tax incentive for builders of affordable rental units.
- She would let start-up businesses deduct up to $50,000 of their pre-opening costs in the year they commence business. (Presently, the cap for this write-off is $5,000.)
- She calls for a simplified standard deduction for small firms in lieu of deducting specific expenditures, but there are no specifics yet on the amount.
- She wants to create a new tax credit to spur investment and job creation in key strategic industries.
- And she would work hard to keep Republican lawmakers from slashing the green-energy tax subsidies for individuals and businesses that were enacted in the 2022 Inflation Reduction Act.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe
