In Summary
- Biden’s tax proposals focus on increasing taxes for high-earning individuals, corporations (raising the rate to 28%), and capital gains above $1 million. The plans also include expanding family tax credits, increasing the GILTI rate to 21%, and eliminating fossil fuel tax preferences.
- Trump’s platform emphasizes maintaining the existing 21% corporate tax rate and making individual and estate tax cuts from the TCJA permanent. Both candidates plan significant increases in tariffs on Chinese goods, with Trump proposing a 60% tariff on all imports from China.
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Many things can change during a Presidential election year depending on the outcome. With the 2024 election quickly approaching, it is important for Denver families and businesses to become familiar with the proposed tax policies of the major party candidates. Both former President Donald Trump and President Biden have published a comprehensive tax policy with significant and important differences. Each has outlined very different visions for the future. Trump favors maintaining the 21% tax rate for businesses and the current estate tax lifetime exclusion limits while imposing tariffs on Chinese products. Biden favors increasing taxes on individual, business and capital gains taxes while expanding tax credits for families. To help clients, prospects, and others, Hanson & Co. has provided a summary of the key details below.
Business Taxes
The Tax Cuts and Jobs Act (TCJA) passed in 2017 significantly cut the corporate income tax rate from 35% to 21%. While Trump plans to keep the 21% tax rate consistent, Biden proposed an increase to 28%. Currently, Trump has not outlined any additional business tax measures.
The global intangible low-taxed income (GILTI) rate stands at 10.5%. This rate is designed to target income that is earned by U.S. corporations from foreign subsidiaries. The GILTI rate is lower than the regular US corporate tax rate and considers what the foreign subsidiary’s income is after subtracting a return on their tangible assets, including buildings. Biden plans to increase the GILTI tax rate to 21%, and also wants to take back the reduced rate for foreign-derived intangible income (FDII). This tax incentive program encourages U.S. businesses to hold intellectual property in the country for exported goods and services. Currently, FDII is set at 13.125%.
The Biden administration has also proposed increased taxes for the fossil fuel industry, with a potential of $97 billion in tax increases over the next decade. Thirteen provisions in the current law, per the Treasury Department’s Green Book under “eliminate fossil fuel tax preferences,” would be replaced or repealed, accounting for $31 billion over 10 years. The document also includes tax increases for foreign income for U.S. oil and gas companies that would amount to an additional $66 billion.
The 2025 FY budget proposes that net investment income tax (NIIT) would expand to nonpassive business income and that the rate would increase to 5% for incomes above $400,000. The NIIT is currently at 3.8% tax placed on a portion of investment income for certain taxpayers, determined by net investment income and modified adjusted gross income levels.
Capital Gains and Dividend Taxes
Trump has not announced any potential policies for capital gains and dividend taxes. The Biden administration has announced plans via the 2024 budget to tax long-term capital gains, as well as qualified dividends, for taxable income above $1 million, at ordinary income tax rates. The budget also includes taxation on unrealized capital gains at death at amounts above $5 million, or $10 million for taxpayers who file jointly. For households that carry a net worth above $100 million, the Fiscal Year 2025 Green Book has proposed a 25% minimum effective tax rate.
Estate and Wealth Tax
While Biden has proposed more stringent rules around estate tax in upcoming budgetary planning, Trump wants to make the estate tax cuts enacted in the TCJA permanent.
Individual Income Taxes
Trump also wants to make the tax cuts for individual income taxes, brought about by the TCJA, permanent. The Biden administration wants to extend individual income tax changes from the TCJA that are set to expire for taxpayers who make less than $400,000, but for earners above this threshold, there is a plan to increase net investment income tax and Medicare tax, as well as increase the top tax rate for individual income tax to 39.6% (the threshold for this is $450,000 for joint filers).
Tariffs and Trade
Both candidates plan on increasing tariffs on goods from China. Biden is looking to maintain current tariffs on approximately $360 billion in goods, while adding new ones to $18 billion in other items, such as steel and medical goods. Trump wants to place a 60% tariff on all imports from China, as well as impose a universal baseline for all U.S. imports.
Credits, Exemptions, and Deductions
The Child Tax Credit was implemented through the American Rescue Plan Act (ARPA). Biden wants to extend it through the end of 2025 and make it permanently refundable. The administration also wants to permanently extend the Earned Income Tax Credit (EITC) under the ARPA for workers without qualifying children and extend the premium tax credit expansions. Trump has not stated any explicit policies in this area.
Contact Us
There are significant differences between the candidates on their vision of the future and how taxes will be impacted to support future policies. While these updates are simply proposed they do provide important insight into the potential changes coming in the future. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Hanson & Co can help. For additional information, call 303-388-1010 or complete the form below. We look forward to speaking with you soon.