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Election 2024: Key Tax Proposals

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Jane G. Ditelberg, Director of Tax Planning

Though it's still early days for the November 2024 election, the information available now can help taxpayers evaluate each party's positions on an array of important tax issues. In recent years, the U.S. has experienced divided government, where no party has controlled the White House and both houses of Congress. In addition, since 2020 the margins of control by either party in the House and the Senate have been quite narrow. As a result, neither of the two major parties has been able to enact their platform of proposals without significant compromise.

In this environment, it is harder to anticipate what the tax landscape will be, even knowing who the nominees are likely to be and with some information about the leading candidates’ positions. It is also important to note that each party’s proposals are essentially a wish list of changes they would like to make and do not necessarily reflect what is feasible to enact or which particular grouping of proposals will meet the procedural rules around budgets. For example, the current administration’s “Green Book” tax proposals for 2025 contain concepts that have been advocated for a decade or more without even making it into proposed legislation.

With those caveats in mind, below we discuss some of the key tax proposals from the two major partiesi. Their potential passage into law is contingent on an array of factors, including the outcome of the election and shape of government thereafter, and each proposal will be subject to vigorous debate and changes before being voted upon.

What We Know Now

There is less information available currently than is typical at this point in a presidential election year. We are likely to see more specifics when the presumptive nominees are actually nominated this summer. However, given that we have the legislative history and past proposals of both the current president and former president, we have some insight into where they stand on various tax issues. And given that voters will be selecting one-third of the senators and all of the representatives in this election as well as the president, we may see additional tax proposals from candidates for those offices. It does appear at this point in time, however, that neither candidate is proposing individual income tax rates that will be lower than they are right now.

2017 Tax Cuts and Jobs Act

Both sides seem focused on keeping parts of the 2017 Tax Cuts and Jobs Act (TCJA) reduction in tax rates in effect and making them permanent. However, the Democratic Party’s proposals include:

  • Increasing tax rates for income, capital gains, Medicare and net investment income tax (NIIT) for taxpayers with income in excess of $400,000.
  • Raising the corporate tax rate to 28% (the pre-TCJA level).
  • Taxing a portion of the unrealized gains of households worth more than $100 million.
  • Limiting 1031 tax-free like-kind exchanges.

The Republican Party’s proposals would:

  • Keep the reduced corporate tax rate of 21% from the TCJA.
  • Impose tariffs on imports, including a 60% tariff on imports from China.
  • Tax the endowments of large private universities.

It is not clear what impact all of these proposals would have on the budget or the deficit yet because not all have been scored by the Congressional Budget Office.

Estate, Gift and Related Taxes

The Democratic Party’s proposal would make the following changes to the estate, gift and generation skipping transfer (GST) taxes and related income taxes:

  • Impose capital gain tax on unrealized appreciation upon transfer at death or by lifetime gift, with a $5 million exemption for individuals ($10 million for married couples), in addition to estate and gift tax.
  • Allow the currently scheduled drop in the gift, estate and GST tax exemptions in 2026 to go into effect, which would reduce the exemption by roughly half.
  • Cap an individual donor’s aggregate annual gift tax exclusions to $50,000 per donor.
  • Limit GST exemption protection to transfers to beneficiaries (or trusts for beneficiaries) who are either no more than two generations below the grantor or who are more than two generations younger but are alive at the time of the grantor’s death.
  • Eliminate discounts in the valuation of fractional or partial interests transferred to family members.
  • Require annual filing of value information for all trusts.
  • Limit the use of defined value clauses for gifts.
  • Require minimum grantor retained annuity trust (GRAT) remainder of 25% or $500,000.
  • Require recognition of gain on transactions with grantor trusts that are not revocable trusts.
  • Make unreimbursed payment of tax on grantor trust a gift and subject to GST tax.
  • Require redetermination of trust’s GST status after it purchases assets from another trust.
  • Ignore the interest of a charitable organization in determining whether a transfer to a trust is a generation-skipping transfer.
  • Treat a trust loan to a beneficiary as a distribution for income and GST purposes.
  • Treat the repayment of a loan to a GST trust by the grantor or the grantor’s spouse as a new contribution for GST purposes.

The Republican Party’s proposal would:

  • Make the 2017 rules permanent. This would continue the current estate, gift and GST tax exemption, including scheduled inflation adjustments ($13.61 million for 2024), and eliminate the decrease currently scheduled for 2026.

Individual Income Taxes

The Republican Party’s proposal would:

  • Make the 2017 rate cuts permanent. This would leave 37% as the highest federal tax bracket and retain the cap on deductions for state and local taxes.
  • Retain the higher standard deduction enacted in 2017.
  • Note that the “Project 2025” plan calls for eventually restructuring the tax code completely to a flat tax (with no deductions or credits) at 30%.

The Democratic Party’s proposal would:

  • Raise the Medicare and NIIT rates to 5% (from 3.8%) on income over $400,000.
  • Raise the top bracket to 39.6% (from 37%) on income over $400,000 for single filers and $450,000 for married filing jointly.
  • Extend the 2017 tax rate cuts for taxpayers earning less than $400,000. This includes the higher standard deduction as well as the rate cut.
  • Add a minimum 20% tax on an expanded definition of income, including unrealized gains, on households with a net worth over $100 million.ii
  • Require distribution of 50% of the excess accumulation (over $10 million) in a vested retirement plan annually for individuals with income in excess of $400,000.
  • Eliminate “back door” Roth IRA conversions.
  • Add new tax credits for certain first-time home buyers.
  • Deny life insurance contract tax treatment to most private placement life insurance.

Taxes on Capital Gains and Qualified Dividends

The Democratic Party is advocating:

  • Taxing long-term capital gains and qualified dividends at ordinary income tax rates for taxpayers with income in excess of $1 million.
  • Limiting like-kind exchanges to $500,000 in gain. Also known as 1031 exchanges, these transactions allow the owner of some types of appreciated property, such as investment real estate, to defer the capital gain by purchasing replacement property of the same class and carrying over their basis from the original asset. Under this proposal, gain in excess of the $500,000 limit would not be eligible for deferral.

The Republican Partyiii is proposing to decrease the top capital gains tax rate and the rate applicable to qualified dividends to 15%.

Business Taxes

The Republican Party’s proposal includes:

  • Reducing the corporate income tax rate to 18%.
  • Imposing a new minimum 10% tariff on all imports to the U.S., and a 60% tariff on all imports from China.
  • Repeal tax provisions from the American Rescue Plan (ARP) and the Inflation Reduction Act (IRA), including green energy credits, excise tax on drug manufacturers, and stock buyback tax.
  • Reduce the tax rate on global intangible low-taxed income (GILTI) to 12.5%.

The Democratic Party has made the following business tax proposals:

  • Increasing the corporate income tax rate to 28% from 21%.
  • Raising the tax rate on GILTI to 21%.
  • Raising the corporate minimum tax from 15% to 21%.
  • Limiting income tax deductions for fossil fuel production.
  • Imposing a new 30% tax on energy used to mine cryptocurrency.
  • Raising the tax on corporate stock buybacks from 1% to 4% and extending it to apply to buyback of shares in certain foreign affiliated companies.
  • Eliminate deduction for employee pay over $1 million for the 10 highest paid employees (instead of five).
  • Eliminate deductions for corporate jets.

Taxes on Business Owners

Both parties have expressed support for extending the 20% pass through business income deduction.

The Democratic Party also proposes:

  • Expanding the NIIT to cover non-passive business income.
  • Taxing carried interest as ordinary income for taxpayers with income above $400,000.
  • Making the excess business loss limitation for pass through entities permanent.
  • Eliminate the ability to shift partnership basis among related parties.

The Republican Party has proposed: Increasing the business loss limitation to $500,000

Education and exempt organization related taxes.

Republicans have proposed a new tax on the investment income of the endowments of large private universities.

Democrats have proposed making the income exclusion for forgiven student debt permanent. In addition, under their proposal if a required distribution from a private foundation is made to a donor advised fund (DAF), it would only qualify as a distribution to a qualified charity if the amount received by the DAF is distributed from the DAF by the end of the following year.

What comes next?

As the focus shifts from the primaries to the general election, the candidates are likely to reveal additional proposals and more details. As noted, it does appear at this point in time that neither candidateiv is proposing individual income tax rates that will be lower than they are right now.

Taxpayers concerned about rising rates may want to consider accelerating taxable transactions generating ordinary income (Roth IRA conversions, and the timing of deferred compensation payments) into 2024 over 2025, and similarly deferring deductible expenses to future years when the rates may be higher. Taxpayers will want to consult with their tax return preparers to determine how these proposals will impact their own tax situation. As always, goals not taxes should drive the plan, but the time to start evaluating your options is now.

Taxes

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  1. The policies attributed to Democrats are based on the FY 2025 Budget proposal released by the White House on March 11, 2024. https://home.treasury.gov/system/files/131/General-Explanations-FY2025.pdf and comments ahead of the State of the Union address. The policies attributed to Republicans are based on public statements from former President Trump as the presumptive presidential nominee. Trump vs. Biden Tax Plans: Election 2024 | Tax Foundation.
  2. The constitutionality of a federal tax on unrealized gains is the subject of a pending U.S. Supreme Court in Moore v. United States, which will likely be decided by the end of June.
  3. This plan is called The Mandate for Leadership released by Project 2025. https://thf_media.s3.amazonaws.com/project2025/2025_MandateForLeadership_FULL.pdf
    In addition to the reduction in capital gain tax rates, it proposes going beyond extension of the 2017 Tax Cuts and Jobs Act provisions to include a transition phase with significant cuts to tax rates for both individuals and corporations, repeal of the net investment income tax, cutting the estate tax rate from 40% to 20% and other measures, followed by the replacement of the income tax with a consumption tax. https://www.taxpolicycenter.org/taxvox/conservatives-lay-out-their-second-term-trump-tax-policy
  4. The only proposal for lower individual income tax rates is in the Mandate for Leadership proposals from Project 2025

Disclosure

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.

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