Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Corporations
    5. Family Offices
    6. Financial Advisors
    7. Financial Institutions
    8. Individuals & Families
    9. Insurance Companies
    10. Investment Managers
    11. Nonprofits
    12. Pension Funds
    13. Sovereign Entities
  1. Contact Us
  2. Search
Election 2024

2024 Election Update - Taxes Take Center Stage

Share

Share this article on FacebookShare this article on XShare this article on LinkedinShare this article via EmailPrint this article
Jane G. Ditelberg

Jane G. Ditelberg

Director of Tax Planning, The Northern Trust Institute

Going into the 2024 election, tax proposals present a clear distinction between the two major political parties. The Tax Cuts and Jobs Act (TCJA), which passed in 2017, made the rate cuts for businesses permanent, but the cuts for individuals are scheduled to sunset at the end of 2025. Current Republican proposals would make the tax rate cuts for individuals permanent as well.1 Democrats, on the other hand, plan to raise taxes for individuals making more than $400,000 while keeping tax rates the same for those under the $400,000 threshold, and raising the taxes on businesses.2 While Democrats would seek to expand upon the clean energy tax incentives they enacted in the Inflation Reduction Act and other legislation, former President Trump would repeal them.

Top Marginal Rates on Individual Taxpayers

The following chart compares the top marginal federal income tax rates under current law and under the party platforms for President Biden and former President Trump. The Democrats have proposed higher rates for those making more than $400,000 (single filers) or $450,000 (married filing jointly). For taxpayers in those brackets, accelerating income into 2024 and deferring deductions into 2025 (or later) could reduce overall taxes if these changes are enacted. Decisions about accelerating gains may be easier to make after the election but before the new Congress is sworn in as Republicans are advocating a lower rate, while Democrats are proposing an increase.

Comparing the Top Tax Rates for Each Proposal

Repealing the Federal Income Tax on Service Industry Tips

One recent proposal, on the individual income tax side, is former President Trump’s June announcement that he wants to eliminate federal income tax on tips. There are few details available about this proposal, as it was a comment made at a campaign rally rather than a written platform plank. This plan, if pursued, would likely face opposition in Congress because of its cost, and would present significant legislative and enforcement complexities if enacted.

Corporate Tax Rates

The Democrats are proposing an increase in the corporate tax rate from 21% to 28%. Several current and former Biden administration officials have focused on what they describe as “tax fairness,” as well as the rising budget deficit since the TCJA was enacted, as justifications. Some Democrats also argue that businesses are partially responsible for rising inflation and that more corporate tax cuts would increase a drive toward greater profits. To counter that trend, they are proposing increased taxes on capital gains, qualified dividends and corporations. To garner voter support for their proposed higher rates, the Democrats have focused on how the revenue generated by higher taxes would be spent. For example, the proposed increase in the corporate tax rate is tied to proposals for funding universal pre-kindergarten, 12 weeks of paid family leave and tax breaks for first time homebuyers.

Republicans argued at the time of the TCJA that cutting taxes would generate a larger tax base and ultimately pay for itself, and that has been their argument for their tax policy, rather than the Democrats’ focus on increased spending.Republican lawmakers and policy advisors also have focused recently on opposing the global effort to reach a minimum tax rate of 15% on corporations in all international jurisdictions to reduce “tax haven shopping” by businesses. In their view, the U.S. tax rate on corporations should be lower than 15% in order to keep and attract more businesses in the U.S. (the TCJA reduced the rate from 28% to 21%, so this would be an additional 6% or more cut in the top marginal rate).

Clean Energy Tax Breaks

Another area currently generating significant debate and media coverage is clean energy. The Biden administration enacted numerous tax breaks designed to encourage the use of clean energy and soften the blow of higher costs for energy-efficient technologies. These were part of both the Inflation Reduction Act and the CHIPS and Science Act. While former President Trump has campaigned in favor of repealing these statutes, some Republicans are acknowledging the benefits of this recent legislation and are publicly commenting that not all clean energy provisions of the Inflation Reduction Act should be repealed.

What about cryptocurrency?

Third party candidate Robert Kennedy Jr. has proposed repealing the capital gains tax incurred when payments are made with cryptocurrency. Current law treats cryptocurrency like an investment asset (e.g., a stock or bond) rather than a currency, and when payments are made via cryptocurrency, a gain is recognized on the difference between the taxpayer’s cost basis and the transaction price. Changing this tax rule will reduce the burden of conducting transactions in cryptocurrency, but the increase in market value (which does not occur with cash) will escape taxation. Kennedy is not currently polling high enough to win the election, but another candidate looking to recruit his supporters might adopt some of his policy proposals.

Democrats are concerned about the environmental impact of mining for cryptocurrency, which uses significant amounts of electricity. President Biden’s budget proposal included a 30% tax on the energy used to mine cryptocurrency. This proposal will encourage crypto mining operations to search for ways to save energy, but will make it more expensive for them to do business in the meantime.

What do the polls tell us about the Congressional races?

The data in the chart below is taken from the Cook Political Report as of June 12, 2024. The charts below for the House and Senate reflect the projections for the outcome of individual races for these seats.4

In the House of Representatives, there are 435 seats and a party needs 218 to control. As shown below, there are 22 seats in the “toss-up” column, including two in Arizona, four in California, one in Colorado, one in Maine, one in New Jersey, one in New Mexico, three in New York, two in Ohio, one in Oregon, two in Pennsylvania and one in Washington. Interestingly, there are 11 seats in the toss-up column that are currently held by each party.

House of Representatives

In the Senate there are 100 seats, with 51 needed for a majority. Cook Political Report has not rated any of the seats toss-ups. They are projecting 49 Republicans and a combination of 51 “blue” seats, consisting of Democrats and Independents who individually have historically caucused with the Democrats, such as Bernie Sanders and Angus King. This will continue to give a lot of power to the Independents. When the Senate splits evenly, the Vice-President is called upon to break the tie, so ultimately the outcome of the presidential election also impacts the balance in the Senate.

Senate

How is the presidential election shaping up?

To understand the data on the presidential election, it is useful to look at how many electoral college votes still have an uncertain outcome, rather than the gross number of voters who are expected to vote for each candidate. As shown below, Cook Political Report currently reflects 77 electoral college votes in the “toss-up” column. These are from familiar battleground states, Arizona, Georgia, Michigan, Nevada, Pennsylvania, and Wisconsin. To win the presidency, President Biden would need to capture 44 of the electoral college votes that are up for grabs, while former President Trump would need to capture 35.

Electoral College

What comes next?

The national conventions take place later this summer — first, the Republican National Convention, July 15-18 in Milwaukee, Wisconsin, followed by the Democratic National Convention, August 19-22 in Chicago, Illinois. The speeches at the conventions, as well as media interviews with the candidates and delegates, should give us more insights into the policies each party wishes to pursue as well as what kind of support the National Parties will provide to candidates in the swing seats. As always, we will be following the election and reporting back with additional insights.

Taxes

Prepare for Change

We can help optimize plans for an evolving tax landscape.

Disclosures

© 2024 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

The information contained herein, including any information regarding specific investment products or strategies, is provided for informational and/or illustrative purposes only, and is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any investment transaction, product or strategy. Past performance is no guarantee of future results. All material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed.

Related Articles

Check
Navigate to undefined
Trends & Strategies

Can Impact Investing Further Your Organization’s Mission?

Drive positive social outcomes through impact investing.

Check
Navigate to undefined
Trends & Strategies

2024 Wealth Planning Outlook

Rethink tomorrow’s most pressing wealth planning issues.

Check
Navigate to undefined
Trends & Strategies

Debt Ceiling Deal: Key Takeaways

Key takeaways and implications for the proposed debt ceiling agreement

Check
Navigate to undefined
Trends & Strategies

Three Considerations to Optimize Your Cash Management

An individually tailored plan for liquidity as well as yield

Explore Specialized Advice