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Kelly Creed, CPA, Tax Stockholder in the Oakland office.
Kelly CreedCPA / Tax Partner / Co-Managing Director of Taxview bio

Brenda Colburn Jemmott, CPA, Stockholder and Oakland Office Head
Brenda Colburn JemmottCPA / Partner / Oakland Office Head/ Co-Managing Director of Taxview bio

A Comparison of the Candidates' Tax Policies

Joe Biden and Donald Trump face off on tax issues

10/28/2020

RINA Alert --  October 28, 2020 | Volume 18, Issue 31 

Almost 80% of registered voters told the Pew Research Center that the economy was a very important issue in the upcoming election. How this factor will play out in this year’s election is anyone’s guess – but the emphasis on finances does provide the perfect segue to discuss the two candidate’s tax policies.

Please note that this comparison is NOT an endorsement of either candidate, their tax policies, or their positions on any other political issues.  
We simply believe in the importance of planning ahead for potential changes in tax laws that will affect our clients.

President Donald J. Trump’s Tax Policy

Tax policy under the current administration can essentially be summed up in the 2017 Tax Cuts and Jobs Act (TCJA) which RINA Tax Partner Ray Evans provided an overview of the Act in a RINA alert.
 
If reelected, President Trump suggested he would:

  • Extend the TCJA provisions beyond 2025
  • Broaden the “opportunity zones” created in the TCJA
  • Make the 100% bonus depreciation deduction permanent
  • Decrease the capital gains tax rate from 20% to 15%
  • Enact other tax cuts including middle-class tax rates and lowering payroll (the administration has not yet offered specifics)
  • Index capital gains for inflation – this adjusts a gain for inflation so that a taxpayer is only paying tax on appreciated value
  • Create incentives for savings and investment accounts – the president has already enacted the SECURE Act which allows more employers provide annuities as a 401(k) investment option. The law also pushes the required minimum distribution age from age 70.5 to age 72 and gives tax credits to businesses that automatically enroll workers in their retirement plan.

Joe Biden’s Tax Policy

Below is a recap of what businesses and individuals can expect from the proposed Biden tax plan:

Tax credits and incentives

Biden’s plan recommends multiple tax credits and incentives primarily focused on U.S. manufacturing, clean energy, and promoting homeownership. These include:

  • Expanding the new markets tax credit program to provide $5 billion in support each year and making the program permanent
  • Reinstating and making permanent the Energy Investment Tax Credit, Residential Energy Efficiency Credits, and the Electric Vehicle Tax Credit
  • Enhancing tax incentives for carbon recapture, use, and storage
  • Enacting a manufacturing community tax credit as part of the “Made in America” initiative
  • Expanding the Earned Income Tax Credit to older workers and the dependent care credit to $8,000 (funded by the repeal of like-kind exchanges)
  • Creating a new refundable, advanceable tax credit of up to $15,000 to assist first-time homebuyers
  • Extending tax credits to renovate distressed properties in distressed communities
  • Establishing a renter’s tax credit
  • Adopting the ABC test for worker classification purposes (like California’s AB 5)

Businesses

  • Increase corporate tax rate from 21% to 28%
  • Establish a minimum corporate tax of 15% that would apply to book income for companies with net income greater than $100 million
  • Introduce a 10% penalty surtax for companies that offshore production jobs
  • Repeal the use of like-kind exchanges (i.e., 1031) – the Biden plan proposes ending the use of 1031 exchanges and real estate losses to reduce tax liability to focus on improvements for childcare
  • Reform Opportunity Zone tax incentives
  • Double the tax rate on foreign subsidiary income – the Biden plan would restructure the global intangible low-taxed income (GILTI) keeping the current rate of 21% but disallowing C corporation U.S. shareholders to deduct 50% of their GILTI

Individuals

  • Increase taxes on those earning more than $400,000 by:
    • Reinstating pre-TCJA tax rate of 39.6%
    • Subjecting wages above $400,000 to the 12.4% Social Security payroll tax
    • Phasing out of the Section 199A qualified business income deduction for families with income greater than $400,000
    • Placing a cap of 28% on itemized deductions for high earners
    • Bringing back the “Pease Limitation” (suspended through 2026 under the TCJA), which effectively reduces the amount taxpayers can deduct above a certain threshold. Under Biden’s plan, this would be $400,000
  • Revise capital gain taxation – currently, a gain from the sale of assets held longer than a year and related dividends is taxed at a rate of 20%, Biden proposes to instead tax capital gains as ordinary income at a rate of 39.6% for taxpayers with income exceeding $1 million
  • Eliminate the stepped-up basis for capital gains at death

Please reach out to your RINA tax professional with any questions or concerns.

The chart below provides a recap of the comparison between the two plans. 

TAX ISSUEBIDENTRUMP
Top Individual Tax Rate39.6%Preserve current 37% and make it permanent
Corporate Tax Rate28% with 15% minimum book
tax on companies reporting
more than $100 million
TCJA lowered the corporate rate
to 21%. No change anticipated
Estate TaxesRemove stepped-up basis rule that allows people to pass capital gains to heirs without tax after deathMaintain current step-up asset value and make it permanent
Capital Gain Tax Rate for Top Earners >$1 million of income39.6%Decrease the capital gains rate
from 20% to 15%
International Tax• GILTI rate of 21% and restructuring GILTI to apply on a jurisdictional basis
• Introduce a 10% penalty surtax for companies that offshore production jobs
Extend TCJA international
provisions past 2025
Itemized Deductions• Cap deductions at a 28% tax rate for households with income over $400,000
• Reduce deductions for higher-income earners
Maintain current law
Retirement Savings Tax IncentivesCreate an automatic 401 (k) for
workers without access
Create a universal tax-free
savings account
Section 199A Qualified Business
Income Deduction
Limit deduction for taxpayers making
more than $400,000
No planned changes
Social Security Payroll TaxExtend 12.4% on wages
above $400,000
Maintain current law - Social Security taxes not collected on
wages above $137,700
Real Estate• Repeal like-kind exchange rules and use of real estate losses to reduce tax liability
• Create refundable, advanceable tax credit of up to $15,000 to assist in buying first home
• Establish renter’s tax credit
• Tax credits to renovate distressed properties in distressed communities
Extend TCJA provisions past
2025
Tax Credits & Incentives• Manufacturing tax credit
• Reinstate and make permanent Energy, Residential and Electric Vehicle tax credits
• Enhance tax incentives for carbon recapture, use, and storage
• Expand the Earned Income Tax Credit
• Create an incentive to assist first-time homebuyers
• Extend tax credits to renovate distressed properties in distressed communities
• Establish a renter’s tax credit
• Adopt the ABC test for worker classification purposes (like California’s AB 5)
No specific plan
 

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