With so much uncertainty swirling in America, an election coming up in November might seem like too much. The last thing anyone wants to be worried about is how their taxes might change when they’re already sweating bullets over the basics as the pandemic continues to ravage America.
But it’s important to know what might happen to your future finances. To help you get a better grasp on how the 2020 election could impact your paycheck, here’s a closer look at what the major party candidates for president have proposed as part of their tax plans for the upcoming four years, should they win.
Joe Biden’s Tax Plan
Here’s a look at the tax plan proposed by Democratic candidate Joe Biden.
Higher Taxes on the Rich
Joe Biden is definitely planning on raising taxes, but he’s limiting that only to the superrich. One clear move he has called for has been to roll back the tax cuts carved out for the rich in the Tax Cuts and Jobs Act of 2017. That would mean the basic income tax rate for those earning $400,000 or more would jump from 37% to 39.6% — the rate that existed prior to the 2017 tax cut.
Higher Taxes on Corporations
Another part of the Tax Cuts and Jobs Act that Biden is taking aim at is the tax cut offered to major corporations. The tax rate there was cut to 21%, a huge and costly move that did not produce the reinvestment that Republicans claimed it would. Biden sees the tax break as primarily being shunted to stock buybacks that benefited the wealthy. Biden intends to raise the rate to 28%.
Payroll Taxes for High Earners
Any income you make over $137,700 isn’t taxed as part of the Social Security payroll tax. Biden’s plan would include a 12.4% Social Security payroll tax on incomes over $400,000 a year. That would leave an interesting gap from $137,700 a year to $400,000, but it would also funnel more money into the Social Security program by holding top earners accountable for that money even on money earned beyond the current cap.
Expansion of Child Tax Credits
Biden hopes to offer additional support to families in the form of his increase in the child tax credit — along with new ways to use that credit. The plan would increase the credit for children 17 and younger from $2,000 to $3,000 while also tacking on a $600 bonus for children under the age of 6. In addition, the credit is being made fully refundable so that even those low-income workers who don’t pay as much in taxes can still access the money to offer better care for their children.
Higher Taxes on Investments for the Rich
While taxes on income are all well and good, they miss the primary method used for building wealth in America: investment. When entrepreneurs like Jeff Bezos rake in over $100 billion, it’s because of stock deals — not money they earn in wages. Biden is proposing that those with an income over $1 million pay the normal income tax rate (which he plans to hike to 39.6%) on things like stock sales or flipping houses instead of the current 20% long-term capital gains rate.
Limits on Deductions for the Rich
The Pease Limitation was a cap on itemized deductions that kicked in for incomes over $400,000. It limited the ability of the superrich from being able to game their way out of taxes by piling up the deductions. It was axed as part of the Tax Cuts and Jobs Act, but Biden promises to bring it back as part of his quest to increase the tax burden on those earning about a half-million or more in a year.
Trump Tax Plan
Trump has talked on the campaign trail in vague terms about what he would change about the tax code in his second term.
Promises but No Plans
Trump’s campaign has failed to produce any sort of detailed plans surrounding their approach to taxes. While he is making the 2017 tax cut a major aspect of his reelection push, he hasn’t actually translated that into any clearly defined new ideas for his second term. As such, his positions on taxation must be gleaned as best is possible from his public statements on the issue.
Trump has, in typical fashion, promised that he’s going to make some major cuts to tax rates. He’s touting a reduction in tax rates for the middle class, though he has offered no specifics on what that would look like. Any rate cut would, by definition, primarily benefit those who already are paying taxes, meaning it might only provide indirect support for millions of Americans. However, with no specifics about what rates would be cut by how much, this is just likely a simple campaign ploy to drum up support without any real plans for change behind it.
Tax Hikes in the Form of Tariffs
One thing Trump has not talked about changing is the ongoing trade war, which has resulted in $80 billion worth of tax increases on the American people. And, with Trump trying to blame his own failings in handling the coronavirus on the Chinese, it seems unlikely that the major trade deal he’s been touting for years is likely to materialize in a second term. Again, Trump has made difficult to accurately project what sort of policies his administration might actually pursue, but the expansion of his trade war would translate to higher taxes at home.
Reducing Taxes on Investments
While Biden is pushing to dramatically increase how much the richest Americans pay on returns from their investments, Trump has touted going the other direction. He has spoken publicly about cutting the top tax rate for long-term capital gains from 20% to 15%. That would help plenty of people realize greater profits from any stock investments they have closed out or real estate deals, but the benefits of this would likely fall primarily on the superrich.
‘Full Expensing’ To Attract Manufacturers
One way that Trump hopes to attract more industry to the United States is by offering “full expensing” for those companies in specific industries that bring back manufacturing to the United States. This would essentially mean that companies in healthcare and robotics would be able to deduct 100% of their expenses from their tax burden, provided they’re willing to move manufacturing back home. By targeting specific industries, it’s clearly a play at attracting high-skill manufacturing jobs to the United States.
Payroll Tax Forgiveness
Among the policies that Trump has promoted is that of a payroll tax holiday that would run through the end of the year. He signed an executive order that allows employers to defer the employee portion of Social Security payroll taxes for certain individuals for the rest of 2020. However, this would mean people receiving the holiday would still owe the money eventually, something that has led many employers to opt out. Critics also observe that payroll tax forgiveness will specifically not benefit the millions of unemployed Americans who cannot safely work because of the pandemic.
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