Forward-thinking tax planners and informed voters who want to compare the tax plans of the 2020 presidential candidates will find details hard to come by. Neither Former Vice President Joe Biden nor President Donald J. Trump offers a specific tax plan on their campaign site—so with the help of nonpartisan tax policy centers, we’ve done the digging for you.
In a nutshell, Trump’s plan appears to be extending the 2017 tax cuts for individuals for a decade beyond the current 2025 expiration. Biden’s plan is to roll back tax cuts, with high earners bearing most of the brunt of increases. Those earning $400,000 or more would also now pay the Social Security payroll tax.
In February, the president released his 2021 budget that called for extending the lower individual tax rate cuts that took effect in 2018 under the Tax Cut and Jobs Act through 2035. (The single, lower 21% corporate tax rate that took effect in 2018 was not set to expire.) Keeping the individual tax rates in place will cost $1.4 trillion—an estimate that serves as a placeholder for the president’s “Tax Cuts 2.0,” a plan that was to be released in April.
The budget also proposed the repeal of five energy tax credits and offers tax credits for a federal Education Freedom Scholarship program, according to the Tax Foundation.
More recently, in the face of a pandemic-driven economic freefall, Trump has called for temporarily eliminating the payroll taxes that fund Social Security and Medicare. Employers already got a payroll tax holiday; a provision in a stimulus bill allowed businesses to postpone paying their half of the tax until 2021.
Eliminating the tax would greatly benefit the fully employed but offer no economic relief for the more than 25 million Americans out of work. According to estimates from the Committee for a Responsible Federal Budget, suspending the taxes could cost about $400 billion from August through the end of the year—and leave Social Security and Medicare in an even deeper fiscal hole.
An analysis of Joe Biden’s plan from the Tax Policy Center shows that his plan would raise taxes by nearly $4 trillion over the next decade.
The Biden plan would generate about half the money by raising taxes on households with incomes above $400,000. The lowest quintile and middle-income earners would face a tiny sliver of a tax increase that would lower their after-tax-income by an estimated $30 to $260. The top 1% of earners would pay nearly three-quarters of the hike.
The Biden plan would limit the benefit of itemized deductions to 28% of income. For those making $1 million, capital gains and dividends would be taxed at ordinary income tax rates, rather than the 15% rate.
The other half of the Biden tax hike would come from raising business taxes. The corporate rate would rise from 21% to 28%—still well under the top rate before the 2017 tax bill. The plan would increase taxes on US-based multinationals, doubling the minimum tax on profits earned by foreign subsidiaries of US firms and eliminating tax preferences for the real estate industry.
Biden recently announced an economic plan focused on revitalizing American manufacturing and innovation. It includes a Manufacturing Communities Tax Credit that promotes revitalizing, renovating, and modernizing existing or recently shuttered factories and clean energy tax credits to spur job-creating infrastructure investment.
Of course, we’re now living in a vastly different economic universe than when Trump proposed his budget in February, and the growth estimates underlying both plans are, most likely, quite unrealistic. The winning candidate will face urgent needs to stimulate demand and boost employment, so the ultimate shape of any tax changes remains to be seen.
—Toni L Shears
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