With the presidential election season in full swing, tax policy will be a critical point of differentiation in the 2024 presidential race between the Democratic and Republican party candidates– President Joseph Biden and former President Donald Trump. Below is an analysis of the candidates' key tax policy positions. Andersen will update this analysis throughout the election.

Tax policy is likely to emerge to the forefront for whomever is elected president as well as into Congress in 2025. The two candidates have markedly different positions on tax issues. In general, former President Trump, with the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017, lowered corporate and individual tax rates for all taxpayers by broadening the tax base by limiting certain deductions. President Biden has sought to lower taxes for low- and middle-income taxpayers while proposing tax increases aimed at making wealthy individual taxpayers (i.e., those with an annual income of $400,000 or more) and corporations pay what he says is their fair share.

A large part of the debate centers around the wholesale policy changes enacted during the Trump administration under the TCJA as well as President Biden's tax policies included in the proposed Build Back Better Act, the enacted Inflation Reduction Act of 2022, and proposed budgets.

After being elected to office, the prospects for either candidate's tax proposals becoming law will depend on the extent to which each party controls Congress.

Expiring TCJA Provisions

The TCJA was hailed by the Trump administration and the Republican party as a major achievement but was unanimously opposed by the Democratic party. A major focus of the 2024 campaign will likely center around the fate of several of the TCJA's tax provisions. Key individual tax provisions such as lower income tax rates, the state and local tax (SALT) deduction cap, and higher estate and gift tax exemption amounts are set to expire at the end of 2025. Important business tax provisions such as the 20% pass-through deduction will sunset after 2025, and permanent provisions, such as the historically low 21% corporate tax rate will likely be revisited by whichever candidate wins.

During the 2024 campaign so far, former President Trump has yet to reveal any concrete tax plans beyond extending the TCJA's provisions and ending the tax on tip income in the restaurant and hospitality industries. However, President Biden has made his tax policies abundantly clear throughout his presidency.

President Biden's Record on Taxes

President Biden's proposed Build Back Better (BBB) Act, generally aimed to raise taxes on wealthy individuals (i.e., those with an annual income of $400,000 or more) as well as large corporations, and lower taxes for low-and-middle income taxpayers. After the BBB was narrowly defeated in 2022, similar types of tax proposals included in President Biden's proposed budgets have failed to gain traction in a closely divided Congress. Many of these tax proposals are included in President Biden's 2025 proposed budget and are summarized in the U.S. Department of Treasury's General Explanations of the Administration's Fiscal Year 2025 Revenue Proposals.

However, President Biden succeeded in enacting the Inflation Reduction Act of 2022, which provided $80 billion in additional funding to IRS, with much of it dedicated to enforcement. The legislation imposed a 15% corporate alternative minimum tax as well as a 1% corporate stock buyback excise tax. The Inflation Reduction Act also implemented an array of tax credits for clean energy projects.

If former President Donald Trump is elected, the future of the tax policies included in the Inflation Reduction Act may be in doubt. The Republican party has successfully scaled back some of IRS's funding in recent budget negotiations. As a long-time advocate of reducing corporate taxes, former President Trump may seek to repeal the corporate alternative minimum tax and stock buyback excise tax. The continuation of the clean energy tax credits could also be opposed by former President Trump.

Below is a summary of the key tax law changes each candidate is suggesting.

Tax Rates on Top Earners

Under the TCJA, individual income tax rates range from 10% to 37%. Trump supports making the top 37% tax rate permanent. President Biden would return the top rate to the pre-TCJA 39.6% for taxable income over $450,000 for married individuals filing a joint return and $400,000 for unmarried individuals, with these thresholds being raised annually for inflation. President Biden would presumably aim to restore the state and local tax deduction for amounts above the $10,000 cap. Top earners in high-tax states may see a net income tax reduction. However, President Biden's payroll tax proposals would result in a significant tax increase for high earners and their employers.

President Biden seeks to eliminate the Social Security tax exemption for wages and self-employment earnings above $400,000 (wages and earnings between $168,600 (for 2024) and $400,000 would still not be taxed, creating a donut-hole structure). The 12.4% Social Security tax is split evenly between the employer and the employee. Thus, this proposal would increase payroll taxes for high-income wage earners and their employers.

Investment Income

Long-term capital gains are subject to a tax rate ranging from 0% to 20% depending on the taxpayer's income. During his term as president, former President Trump supported further reducing the top long-term capital gains rate from its current 20% maximum by indexing capital gains for inflation.

President Biden has proposed raising the long-term capital gains rate for certain taxpayers. Capital gains, under President Biden's plan, would be taxed at ordinary income rates for taxpayers with income over $1 million, thereby eliminating the rate preference for these taxpayers. Such income would also be subject to the 3.8% net investment income tax as it was enacted as part of the Affordable Care Act (proposed to increase to 5%). The impact of this would be significant for high-income investors as well as founders and entrepreneurs who may experience a liquidity event after building value over a number of years.

President Biden's 2025 proposed budget does not include changes to the qualified small business stock exclusion (QSBS). However, one iteration of the proposed Build Back Better Act would have eliminated the 75% and 100% exclusions for any taxpayer (1) whose adjusted gross income (AGI) equals or exceeds $400,000; or (2) that is a trust or estate. Under the proposal, these taxpayers would still be eligible for the 50% QSBS gain exclusion that applied to QSBS issued prior to February 18, 2009.

In addition, so-called carried interest received by partners that are currently subject to long-term capital gains rates under present law would be taxed as ordinary income to the extent it exceeds $400,000, under a proposal included in President Biden's 2025 proposed budget.

Estate and Gift Taxes

Under present law, heirs receive an increased basis or so-called stepped-up basis in inherited assets equal to the current fair market value at death. As a result, capital gains tax is based on the value of the asset at the time it is inherited. President Biden's 2025 proposed budget would treat transfers of appreciated property by gift or on death as realization events for gains in excess of $5 million per person.

The TCJA significantly raised the estate tax exemption levels for tax years 2018 through 2025, with the exemption amount set at $13.61 million for the 2024 tax year. However, the higher exemption amounts are scheduled to sunset at the end of 2025. As of January 1, 2026, the exemptions will revert to about $6 million. While former President Trump has advocated making the TCJA's expiring provisions permanent, President Biden has indicated that he would prefer returning the exemption levels to their historical norms.

Corporate Tax Rates

The TCJA lowered the corporate tax rate to a flat 21%, down from a top tax rate of 35%. President Biden's plan would increase the corporate tax rate to 28%. In addition, President Biden signed into law the Inflation Reduction Act of 2022, which implemented a Corporate Alternative Minimum Tax equal to 15% of a company's global financial statement profits. The tax applies to any company with net book income in excess of $1 billion in the United States that otherwise would pay zero or negative federal income taxes for the year. The amount of any minimum book tax due could be reduced by foreign tax credits or the carryover of prior year losses.

The Inflation Reduction Act also imposes a 1% excise tax surcharge on corporate stock buybacks in the aggregate above $1 million for a taxable year.

President Biden's 2025 proposed budget would raise the corporate alternative minimum tax to 21% from 15%. It would also raise the stock buyback excise tax to 4% from 1%.

For companies operating in the U.S. and abroad, President Biden has proposed doubling the tax rate on Global Intangible Low-Taxed Income (GILTI) to 21% (currently 10.5%).

The increases in corporate taxation could be quite significant as the TCJA contained base-broadening measures that would presumably stay in place while rates rise, and further global minimum taxes are imposed. Investors should be mindful of the impact these changes would have on the value of their investments.

Limitation on Tax Benefit for Real Estate Investments

The TCJA repealed like-kind exchange treatment (Sec. 1031) for personal property. The like-kind provision, after modification by the TCJA, allows investors to defer tax only on gains from sales of real property by rolling the sales proceeds over into a subsequent real property purchase.

Former President Trump has not come out with a proposal to further limit the tax deferral of gain on like-kind exchanges.

President Biden's 2025 budget proposal would further limit the deferral of gain to an aggregate amount of $500,000 for each taxpayer ($1 million in the case of married individuals filing a joint return) each year for real property exchanges that are like-kind. Any gains from like-kind exchanges in excess of those amounts would be recognized by the taxpayer in the year the taxpayer transfers the real property subject to the exchange.

25% Minimum Income Tax on Taxpayers With Wealth Greater Than $100 Million

Former President Trump and the Republican party oppose any form of wealth tax.

President Biden's 2025 proposed budget would impose a minimum income tax on individuals with greater than $100 million in wealth. Specifically, the proposal would impose a minimum tax of 25% on total income, generally inclusive of unrealized capital gains, for all taxpayers with wealth (that is, the difference obtained by subtracting liabilities from assets) greater than $100 million. A taxpayer's minimum tax liability would equal 25% times the sum of taxable income and unrealized gains (including on ordinary assets) of the taxpayer, less the sum of the taxpayer's unrefunded, uncredited prepayments and regular tax. Payments of the minimum tax would be treated as a prepayment available to be credited against subsequent taxes on realized capital gains to avoid taxing the same amount of gain more than once.

Tradable assets (for example, publicly traded stock) would be valued using end-of-year market prices. Non-tradable assets would be valued using the greater of the original or adjusted cost basis, the last valuation event from investment, borrowing, or financial statements, or other methods approved by IRS. Valuations of non-tradable assets would increase by an assumed annual return in between valuations to avoid the need for annual valuations.

Taxpayers who are treated as illiquid (tradeable assets are less than 20% of the taxpayer's wealth) may elect to include only unrealized gain in tradeable assets in the calculation of their minimum tax liability. However, taxpayers making this election would be subject to a deferral charge upon, and to the extent of, the realization of gains on any non-tradeable assets. The deferral charge would not exceed 10% of unrealized gains. Estimated tax payments would not be required for minimum tax liability.

No Support for Global Wealth Tax Plan

The Biden administration indicated it does not support a global wealth tax aimed at redistributing wealth. Under one proposal pending consideration by the G-20 countries, billionaires (those with a total net worth of at least $1 billion in equities, real estate, and other assets) would be required to pay 2% of their wealth in taxes each year. The tax would only be imposed to the extent the 2% minimum was not already being met through governments' imposition of income taxes, wealth taxes, or other methods. To bolster enforcement under the proposal, participating countries could take measures such as raising exit taxes and continuing to impose the tax on individuals who move to non-participating nations.

The Takeaway

It is difficult to predict what policy initiatives the winner of the 2024 presidential election is likely to pursue. However, given the backdrop of the expiring provisions in the highly partisan TCJA tax reform measure in 2017 as well as the new taxes imposed and clean energy incentives created under the Inflation Reduction Act of 2022, it seems certain that tax policy will take center stage. After gaining office, success in implementing tax policies will depend on the extent to which each party controls Congress. In any event, the tax changes on the table are sweeping in nature and it is never too early to prepare. Andersen can help you analyze your tax positions and consider options for mitigating the risk of increased tax exposure as a result of major policy changes.