Many Americans have a general and clear sense of where each candidate stands on specific issues and policies. Tax policy, however, is much more intricate and nebulous. Some provisions of the existing tax law have not been discussed at all during this campaign, while others have been discussed only vaguely and others ad nauseam.

Election Day is quickly approaching. Whoever wins the presidency, the Constitution makes it crystal clear that Congress holds the power and authority “to lay and collect taxes.” Irrespective of the tax policy of the presidential election winner, Congress will have the final say. However, past presidential candidates as well as the current ones―Democrat Vice President Kamala Harris and former Republican President Donald Trump―have made tax policy proposals a significant portion of their campaign platforms. While Congress has that power, the president often sets the tone and shapes tax policy.

This Alert is designed to describe in a nonpartisan and unbiased manner the current (and latest) tax policies of the candidates, including new ideas introduced recently during their campaigns as well as their positions on tax provisions scheduled to expire. Time will tell how close the campaign tax positions come to final enacted tax which Congress will need to address when many of the 2017 Tax Cuts and Jobs Act are scheduled to expire at the end of 2025.

Below we summarize in narrative form many of the candidates’ tax policies and we include a quick-reference chart.

The Upcoming Sunset of Tax Cuts and Jobs Act

During the Trump administration, the Tax Cuts and Jobs Act of 2017 (TCJA) was the biggest change made to the federal tax law in decades. The legislation created the 20% qualified business income deduction, lowered the highest tax bracket to 37 percent, increased the child tax credit to $2,000 per child, doubled the standard deduction, capped the itemized deduction for state and local taxes (SALT) to $10,000, and doubled the estate tax exclusion to approximately $26 million, among other provisions. All of these aforementioned provisions of the TCJA are set to expire on January 1, 2026. If Trump is elected, he has indicated that he will try to either extend or make these provisions permanent, with the exception of the SALT limitation, which he has stated he wants to eliminate. If Harris is elected, her administration will almost certainly allow these provisions to expire, with the exception of the child tax credit. If Congress does absolutely nothing, on January 1, 2026, at a minimum, the estate tax exemption would be halved from the 2025 $27.98 million level to approximately $14 million for a married couple, individual tax rates would revert to 2017 levels with a highest income tax rate of 39.6%, and the 20% qualified small business income deduction and the SALT deduction limitation would end.

Child Tax Credit

As a response to the COVID-19 pandemic, the American Rescue Plan Act of 2021 was enacted, which among other things increased the child tax credit to $3,600 for children ages five years old and younger, and $3,000 for children ages six to 17 years old. These credits were completely refundable, which means they could lower one’s tax liability below zero, allowing taxpayers to receive larger refunds than the taxes they actually paid in. Harris has stated that she wants to make these provisions permanent, while adding a $6,000 credit for newborns. The Trump campaign has indicated it wants to increase the child tax credit to $5,000 per child, but has not provided specific details.

Harris Adopts Biden Tax Proposals

On March 11, 2024, the Biden administration released their annual blueprint for the 2025 budget, entitled “General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals,” which includes several proposed changes to the tax law. This document was released prior to President Joe Biden’s announcement that he was dropping out of the presidential race. The Harris campaign has indicated they plan to keep and/or follow closely the majority of the proposals set forth in this document. Some relevant provisions of this document pertaining to the tax code are as follows:

• Increase the C corporation tax rate to 35 percent. Harris has since revised the proposal to increase the corporate tax rate to 28 percent. It is currently 21 percent.
• Increase the net investment tax to 5 percent on investment income over $400,000. Current law imposes a 3.8 percent tax on investment income for high income taxpayers. The current 3.8 percent tax would remain in effect, and an additional 1.2 percent tax would be imposed on investment income over $400,000.
• Recognize gain on the appreciation of tradable and non-tradable assets held by a taxpayer as taxable income for taxpayers with a net worth of over $100 million.
• Tax long-term capital gains and qualified dividends at ordinary income rates for taxpayers with taxable income in excess of $1 million. While these two items are currently taxed at preferential rates, with the highest rate at 20 percent, Harris has adopted a plan to tax these items at 28 percent rather than the ordinary rates Biden proposed.
• Tax unrealized appreciation of property as a capital gain at the time of a decedent’s death for single taxpayers with over $5 million in appreciated unrealized gains and married taxpayers with more than $10 million in appreciated unrealized gains. Currently, unrealized capital gains (appreciation in the value of assets that are held by the taxpayer) are not taxable; a gain is only recognized when/if the asset is sold. This is commonly referred to as a deferral of the tax liability. Additionally, when a taxpayer dies, the heir who inherits an asset receives a step-up in basis of the asset to its fair market value at the time of death. This step-up means that the unrealized gain during the decedent’s life will never be recognized as taxable income. This proposal would essentially eliminate this loophole.
• Enact a 25 percent minimum tax on total income (including unrealized capital gains as previously mentioned) for taxpayers with a net worth of greater than $100 million. Due to preferential tax rates for capital gains and qualified dividends, high-net-worth individuals can end up paying a much lower effective rate on their income.
• Limit IRC 1031 (like-kind exchange) gain deferral to $1 million for married filing joint taxpayers. Currently, there is no limit as to how much capital gain can be deferred, as long as all other 1031 exchange requirements are met.

Other Tax Proposals Made by the Candidates

While the majority of the candidates’ tax platforms center around the renewal/sunset of the TCJA and, for Harris, adopting the Biden administration’s 2025 revenue proposals, other proposed tax policies have been brought forward by each candidate, including:

• Tip income: Both candidates have stated that they will eliminate the requirement to recognize tips as taxable income.
• Social Security tax: Harris has indicated that she wants to raise the Social Security wage base limit to $400,000. For 2025, the limit is $176,100 and is indexed for inflation to increase each year. Since Social Security is withheld at a flat rate of 6.2 percent up to the wage base limit that means that a maximum of $10,918.20 will be withheld in 2025 from an individual’s wages. If this policy is implemented, this would increase to a maximum of $24,800 per year. Accordingly, this also means that for self-employed individuals, the Social Security component of self-employment tax will increase from $21,836 to a maximum of $49,600. Trump has spoken in the past about eliminating FICA taxes completely, but has kept quiet on the matter during the 2024 campaign.
• Tax on Social Security benefits: Trump has proposed eliminating the tax on Social Security benefits. Currently, for Social Security recipients with other income greater than $34,000 (or $44,000 if filing jointly), 85 percent of their Social Security benefits received are included in taxable income. Harris has not addressed this issue.
• Deduction for car loan interest: Trump has proposed allowing a deduction for car loan interest, but has not provided specific details on how this proposal would work. Presumably, this would be another itemized deduction, which means that not everyone with a car loan would benefit from this provision―only people with more itemized deductions than the standard deduction would benefit. If Trump is also able to eliminate the $10,000 SALT deduction cap as stated above, or if the TCJA sunsets and the standard deductions revert back to approximately half the amounts that they currently are, more people will itemize their deductions and would therefore benefit from this provision. While less likely, it is also possible that the car loan interest deduction would be an above-the-line deduction, which means it would not be an itemized deduction and therefore one would not need to itemize their deductions in order to benefit from it.
• Tax-exempt overtime pay: Trump has stated he would like to make overtime pay tax-exempt, though no further details have been provided. This position could lead to manipulation in which salaried employees will request to be reclassified as hourly so they can also reap the benefit. Alternatively, this position could be manipulated by decreasing one’s hourly pay rate and inflating their overtime hours to make up the difference. This way, more of worker’s pay would be allocated to overtime while still making the same amount of money.
• Income tax on American citizens living abroad: Currently, American citizens living abroad are taxed in the United States on their worldwide income. This means that all American citizens with taxable income, regardless of where they live, are required to file a tax return and potentially might be liable for tax on that income. There is currently an exclusion for certain workers that live and work overseas of the first $126,500 of foreign earned income in 2024. If an American citizen living abroad has earned income that is below the exclusion and they do not have any taxable investment income, they are still required to file a tax return, but their taxable income as well as their tax liability will be zero dollars. Trump has stated that he wants to eliminate this double taxation for Americans living abroad. It is unclear what exactly he would change to eliminate double taxation by these taxpayers, since a foreign tax credit for tax paid to other countries is already in place to address the issue of double taxation with foreign countries. The spirit of the proposal might be better served by easing the administrative burden on these taxpayers having to file a United States income tax return in addition to any other foreign income tax returns they may be required to file. This proposal is in line with a broader policy that was brought about by the TCJA of 2017, in which multinational businesses headquartered in the United States are no longer taxed on their worldwide income. It seems that Trump now wants this to apply to individuals as well. Currently the only way for an American citizen to get around tax on their worldwide income is for them to renounce their United States citizenship, in which case they might be liable for the expatriation tax.

• Estate tax: Prior to the TCJA, the estate tax exemption amount was $5.49 million. The TCJA essentially doubled it to $11.18 million beginning in 2018 and is indexed for inflation to increase each year until January 1, 2026 when many provisions of the TCJA sunset, at which point it will revert back to approximately $7 million, also subject to inflation adjustments. Estates over this exemption amount are subject to the federal estate tax, with the highest rate currently at 40 percent. Harris has proposed decreasing the exemption to $3.5 million, and increasing the top rate to 65 percent on estates valued at $96.5 million or more. Trump has indicated he wished to extend the provisions of the TCJA, which would include keeping the exemption amount where it is, subject to inflation adjustments, and leaving the top rate at 40 percent. The estate tax exemption for 2025 will be $13.99 million and may be a “use it or lose it” opportunity. 

TAG’s Perspective

Many Americans have a general and clear sense of where each candidate stands on specific issues and policies. Tax policy, however, is much more intricate and nebulous. Some provisions of the existing tax law have not been discussed at all during this campaign, while others have been discussed only vaguely and others ad nauseam. No matter who is elected to the White House and Congress this November, 2025 will be a year ripe with tax policy discussions and implications. The last major tax legislation passed by Congress, the TCJA is largely set to expire on December 31, 2025, so regardless of the 2024 election results, there will be a bipartisan push to extend certain provisions beneficial to each party’s constituencies. As neither party is likely to gain large enough majorities to pass legislation without compromise, major deal making is expected, as both parties seek to please voters.

Should you panic? No. Predict? Maybe. Plan? Absolutely. It is important to stay informed, stay engaged, stay agile and stay in touch with us as legislation advances. Eventually, individuals, estates, trusts and businesses should model any new provisions to better understand the potential tax implications and to discuss tax-planning strategies.

For More Information

If you would like more information about this topic or your own unique situation, please contact John I. Frederick, Michael A. Gillen, any of the practitioners in the Tax Accounting Group, trust and estate attorneys David S. Kovsky and Erin E. McQuiggan of the firm’s Private Client Services Practice Group or the practitioner in the firm with whom you are regularly in contact. For information about other pertinent tax topics, please visit our publications page.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.