Whether Vice President Kamala Harris or former President Donald Trump makes it to the Oval Office, either one will have to address the looming "tax cliff" tied to the Tax Cuts and Jobs Act (TCJA) — as many provisions are slated to sunset at the end of 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.
TCJA expiration: Income tax rate
The TCJA, also known by some as the “Trump tax cuts,” temporarily lowered marginal rates for most individual federal tax brackets. The highest federal income tax rate was reduced to 37% until 2025, after which it will revert to 39.6%.
What candidates are saying:
- Harris sticks to Biden’s FY25 tax proposal.
Vice President Harris has committed to President Biden’s position not to raise taxes on those earning less than $400,000 a year. The Democratic presidential nominee would also likely let the highest marginal income tax rate for the top 1% of earners revert from its current 37% rate to 39.6%.
At the same time, though the TCJA did not directly change the Medicare tax rate, Biden's FY25 budget proposal, which Harris generally supports, calls for increasing the rate from 3.8% to 5% for those earning more than $400,000 a year.
Harris could potentially support taxing investment earnings for those earning $1 million or more annually as regular income rather than at lower capital gains tax rates.
- Trump hasn’t committed to a plan but floated replacing federal income tax with tariffs.
Former President Trump wants to raise tariffs on all foreign goods. The Republican presidential nominee has pitched a blanket 20% tax on all imported goods entering the U.S., and a 60% tax on goods imported from China.
But he’s taken those proposals a step further. A CNBC report revealed 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 Kiplinger’s report: Tariffs: What They Are and How They Impact Your Wallet.
- Trump has previously suggested extending the tax cuts enacted by the TCJA.
If Trump extends the income tax provision of the TCJA, the federal tax brackets would remain where they currently are, with a top rate of 37%.
Potential impact:
Former President Trump has floated several ideas regarding federal income tax, but some tax policy experts argue that replacing the income tax with tariffs wouldn’t add up.
The Peterson Institute for International Economics noted that tariffs wouldn’t be able to replace revenue gathered by income tax, and trying would be “regressive and harm economic growth.”
Corporate tax rate
Even though Trump’s tax provision on the corporate tax rate is not set to expire as part of the TCJA, the current rate of 21% has been debated on both sides of the campaign trail.
What the candidates are saying:
- Trump would lower the corporate income tax rate even further.
The TCJA lowered the corporate tax rate from 35% to 21% — marking the lowest top rate in 80 years. According to the Tax Foundation, the move brought the US rate “in line with other industrialized countries after years of being the highest.”
Former president Donald Trump recently pledged to lower the rate to 15%.
- Harris aims to raise the corporate tax rate.
Meanwhile, current Vice President Kamala Harris has pitched raising the corporate income tax rate to 28%.
Potential impact:
Harris’ plan to raise corporate taxes could reduce the deficit by $1 trillion over the next decade, according to the Committee for a Responsible Federal Budget (CRFB). Similarly, the White House’s Office of Management and Budget estimated that the proposal would raise $1.4 trillion from fiscal year 2024 to 2034.
On the other hand, the Tax Foundation found Trump’s pitch to cut the corporate income tax down to 15% would reduce federal revenue by $673 billion from 2025 to 2034.
Child tax credit
Trump’s tax cuts made several key changes to the child tax credit (CTC), most notably by temporarily doubling the maximum CTC from $1,000 to $2,000 per child under 17 years old. It also modified the income thresholds at which the child tax credit begins to phase out.
Previously, the phase-out began 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 lowering the phase-in rate for the refundable CTC to $2,500 and establishing a Credit for Other Dependents.
What candidates are saying:
- JD Vance recently floated a new child tax credit expansion.
Republican vice presidential candidate JD Vance pledged that he would like to enhance the child tax credit to $5,000 per child. The measure would increase the credit by 150% from its current $2,000 amount.
- Harris aims to restore the pandemic-era American Rescue Plan’s (ARPA) child tax credit expansion and make it permanent.
Kamala Harris’ tax plan for the CTC would increase the credit from $2,000 to as high as $3,600 per child. The credit would also be fully refundable, meaning those with little to no income could qualify.
The expanded CTC would provide up to a $6,000 newborn tax credit for the first year of a child’s life, $3,600 for children two through five, and $3,000 for children six and older.
Potential impact:
Harris’ child tax credit expansion would cost about $1.6 trillion over the next decade, according to calculations by the Tax Foundation.
Meanwhile, JD Vance’s plan to increase 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 to be extended from 2025 to 2034, the Congressional Budget Office estimates it could cost about $735 billion.
Estate tax exemption
The TCJA increased the gift, estate, and generation-skipping tax (GST) exemption to $11.18 million from $5.6 million when enacted. Adjusted for inflation, the current exemption is $13.61 million for single people and $27.22 million for couples filing jointly.
Once the lifetime estate and gift tax exemption sunsets, bipartisan economists say that amount could fall nearly by half. That would be around $7 million for individuals and $14 million for married couples, estates valued above those exemption levels would be taxed at rates as high as 40%.
What candidates are saying:
- Harris reportedly endorsed a bill proposed by Sen. Elizabeth Warren (D-Mass.), that aims to further reduce the exemption to $3.5 million.
The measure would tax amounts over $3.5 million at rates beginning at 55% to as much as 65%, depending on the amount transferred.
The proposal would also reduce the annual gift tax exclusion to $10,000 per person, down from its current $18,000. It would also set a cap on the amount a person could gift tax-free at $20,000 (there is currently no limit). Harris could potentially introduce a surtax on estates valued over $1 billion.
- It remains unclear if Trump would extend exemptions on estate taxes or if he wishes to eliminate all estate, gift and GST taxes.
Potential impact:
Repealing the estate and gift taxes would come at a price. Calculations from the Office of Management and Budget, show that estate and gift taxes are projected to raise $466 billion over the next decade.
The Tax Policy Center noted that eliminating these taxes would be “regressive” as the benefits almost entirely go to people at the top of the income spectrum. Additionally, gifts from an estate to charity currently qualify for a full deduction from the taxable estate.
Eliminating estate taxes could also reduce charitable donations by 6 to 12%.
Why the TCJA sunset matters
Taxes are front and center this election cycle as many provisions from the Tax Cuts and Jobs Act face a "tax cliff" at the end of 2025. Some major tax policies due to expire include:
- Reduced top federal income tax rates
- Doubled child tax credit
- Doubled federal estate and gift tax exemptions
- State and local tax (SALT) deductions capped at $10,000
- Doubled standard deduction
The outcome of the 2024 election will decide whether Democrats will seize the opportunity to rewrite key tax provisions, or if Republicans opt to extend the Trump tax cuts or let them expire and go back to the drawing board.
As both campaigns continue to shape their tax policies, more details will come in the days leading to the election. Many of these proposed tax changes could impact your wallet in the future, so stay tuned.
