With the presidential election race heading down the final stretch, the candidates are explaining how their tax policies will spur economic growth and reshape America. The Republican candidate, former President Trump, says he will seek to continue several of the tax policies under the Tax Cuts and Jobs Act of 2017 (TCJA), such as maintaining lower tax rates for corporations and individuals. He is proposing to cut the corporate tax rate to 20% (from 21%) and to 15% for companies that make products in the United States.

The Democratic candidate, Vice President Kamala Harris, calls for wealthy individuals (i.e., those with annual income over $400,000 (single filers)/$450,000 (joint filers)) and corporations to pay their fair share of taxes by rolling back most of the TCJA and raising the corporate tax rate to 28%. She is also proposing an increase to the long-term capital gains rate to 28% on certain taxpayers.

Below is a summary and analysis of each candidate's position on key tax issues. Andersen will update this analysis throughout the election.

On the campaign trail, each candidate's position on important tax issues is becoming clearer as they continue to share more details about their plans for economic growth. Former President Trump's tax proposals include:

• Making permanent expiring provisions in the Tax Cuts and Jobs Act (TCJA) of 2017, which include a top marginal individual income tax rate of 37% (set to rise to 39.6% upon expiration of TCJA at the end of 2025), a higher exemption amount for estate and gift tax, and a 20% deduction for certain sole proprietorships and pass-through entities,
• Reducing the corporate tax rate to 20% (from 21%), and 15% for companies that manufacture products in the United States,
• Giving U.S.-based manufacturers a first-year tax deduction for all research and development expenses, reversing a key limitation from the TCJA,
• Reinstating the SALT deduction,
• Exempting tips of restaurant and hospitality workers from income tax, and
• Exempting Social Security benefits from income tax.

Vice President Harris's tax proposals include:

• Raising the long-term capital gains rate to 28% from 20% for taxpayers with more than $1 million in annual income,
• Raising the corporate tax rate to 28% from 21%,
• Imposing a so-called billionaire minimum tax of 25%on total income, including unrealized gains or asset growth, exceeding $100 million,
• Expanding the child tax credit to $6,000 for children under one year of age, $3,600 for children 2-5 years of age, and $3,000 for older children,
• Expanding housing credits, including the low-income housing tax credit, a $10,000 credit for first-time home buyers, and a credit for building starter homes,
• Increasing the income tax deduction for startup expenditures from $5,000 to $50,000 and allowing new businesses the flexibility to use the deduction immediately or in a future year to offset taxes when they start making a profit,
• Introducing a simplified tax compliance system for small businesses akin to offering the standard deduction to individual taxpayers in lieu of itemizing expenses,
• Instituting a new America Forward tax credit aimed at boosting the U.S.'s strategic edge in industries such as biotechnology, information technology, and clean energy,
• Raising the excise tax on corporate stock buybacks to 4% from 1%, and
• Denying deductions for depreciation and interest to investors in residential rental real estate that meet certain criteria.

After being elected to office, the prospects for any of the president-elect's tax proposals becoming law will depend on the extent to which each party controls Congress. Recent history has shown that a closely divided Congress is a major obstacle to enacting a president's tax proposals.

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. 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 may be revisited by whichever party's candidate wins.

Summary of the Candidates' Positions

Below is a summary of the key tax law changes proposed by Vice President Harris, the Biden-Harris administration, and former President Trump.

Analysis of Key Aspects of the Candidates' Proposals

Vice-President Harris has indicated that she intends to continue her support for several of the Biden-Harris administration's tax proposals. Many of these tax proposals are included in the Biden-Harris administration's proposed 2025 budget and are summarized in the U.S. Department of Treasury's General Explanations of the Administration's Fiscal Year 2025 Revenue Proposals.

The Biden-Harris administration 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 some 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. The continuation of the clean energy tax credits could also be opposed by former President Trump.

Tax Rates on Top Earners

Under the TCJA, individual income tax rates range from 10% to 37%. Former President Trump supports making all the rate reductions, including the top 37% tax rate, permanent. He has also proposed reinstating the state and local tax deduction (SALT) in some form.

The Biden-Harris administration's budget proposals would extend lower tax rates for most taxpayers but 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. The SALT deductionmay be restored for amounts above the $10,000 cap. Top earners in high-tax states may see a net income tax reduction. However, some Democratic payroll tax proposals would result in a significant tax increase for high earners and their employers.

The Biden-Harris administration proposed 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.

Vice President Harris is proposing to raise the long-term capital gains rate to 28% for taxpayers who earn $1 million or more during the tax year. She would have Americans making less than $100,000 pay a 0% capital gains rate, with those earning up to $1 million to pay 20%. The net investment income tax (NIIT), which is currently set at 3.8% and would increase to 5% under the Biden-Harris administration's 2025 proposed budget, creating a total top rate of 33%.

The Vice President's proposed long-term capital gains rate is a change from the Biden-Harris administration's proposed 2025 budget, which calls for long-term capital gains to be taxed at ordinary income rates for taxpayers with income over $1 million (39.6%), thereby eliminating the rate preference for these taxpayers. With the proposed NIIT, the top rate could be 44.6%.

Vice President Harris's proposed long-term capital gains tax increase is a more realistic policy goal than the Biden proposal and is in line with the version of Build Back Better (BBB) Act that passed the House of Representatives but died in the Senate.

The Biden-Harris administration's proposed 2025 budget does not include changes to the qualified small business stock (QSBS) exclusion. However, one iteration of the proposed BBB 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. The Vice President has yet to address QSBS on the campaign trail.

In addition, so-called carried interest received by partners that is 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 the Biden-Harris administration's proposed 2025 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. The Biden-Harris administration's proposed 2025 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 back to the statutory $5 million, estimated to be between $6 and $7 million adjusted for inflation. Former President Trump has advocated making the TCJA's expiring provisions permanent.

Corporate Tax Rates

The TCJA lowered the corporate tax rate to a flat 21%, down from a top tax rate of 35%. Vice President Harris has proposed to increase the corporate tax rate to 28%.

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.

Vice President Harris is seeking to raise the stock buyback excise tax to 4% from 1%.

Former President Trump is proposing to further reduce the corporate tax rate to 20% (from 21%), and 15% for businesses with domestic manufacturing.

Under the Biden-Harris administration, the Inflation Reduction Act of 2022 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 Biden-Harris administration's proposed 2025 budget would raise the corporate alternative minimum tax to 21% from 15%.

For companies operating in the U.S. and abroad, the budget proposal outlines doubling the tax rate on GILTI to 21% (currently 10.5%).

Any increases in the corporate tax rate 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.

Real Estate Investments

Vice President Harris's tax proposals pose both opportunities and exposures for real estate investors. She is seeking to create investment opportunities by:

• Offering a new tax incentive for builders of starter homes sold to first-time homebuyers to complement the Neighborhood Homes Tax Credit (S. 657), which would encourage investment in homes that would otherwise be too costly or difficult to develop or rehabilitate,
• Expanding existing tax incentives for builders of affordable rental housing, and
• Providing a $25,000 down payment assistance for renters to buy their first home and a $10,000 tax credit for eligible first-time homebuyers.

However, Vice President Harris supports some proposals that could negatively impact real estate investors. Investors claiming low-income housing credits could be adversely affected by the Vice President's support of the Stop Predatory Investing Act. The measure (S. 2224) would deny any tax deduction for interest paid or accrued in connection with any single-family residential rental property for anyone owning 50 or more single residential rental properties unless sold in a year. The proposal would also disallow depreciation of residential rental property owned by such taxpayers.

Also impacting real estate investments is the tax treatment of like-kind exchanges of investment property. 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.

The Biden-Harris administration's proposed 2025 budget 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.

Vice President Harris is endorsing a provision in the Biden-Harris administration's proposed 2025 budget that 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, including 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 to be credited against subsequent taxes on realized capital gains to avoid double taxing the same amount of gain.

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-Harris administration indicated it does not support a global wealth tax aimed at redistributing wealth. Vice President Harris has not specifically addressed this during her candidacy thus far. 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 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.