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It’s hard to say whether President Donald Trump and former Vice President Joe Biden will talk taxes at tonight’s second and final presidential debate. Left-leaning outlets have latched onto the New York Times’ report published at the end of September claiming, “Trump paid $750 in federal income taxes the year he won the presidency.” For their part, right-leaning outlets have amplified CNBC’s study showing, “Biden’s tax plan could create a tax rate of as much as 62% for New Yorkers and Californians.” This leaves the American public with headlines and not much substance. In reality, each candidate has more specific ideas about taxes, and our tax system, that will impact Americans’ wallets. Without oversimplifying, Trump’s tax approach will likely expand on his 2017 Tax Cuts and Jobs Act, while a Biden administration would likely raise taxes on corporations, investments, and estates. We’re switching up the usual format slightly today to look at distinct types of taxes and what each candidate would change come 2021.
First, a caveat: American presidents don’t get to make tax laws on their own. For Biden’s tax changes to go into effect, Democrats would need to both take control of the Senate and maintain control of the House. Trump’s plans hinge on maintaining Republican Senate control and taking back the House. So think of the below as guiding principles, not certainties.
Income Taxes: An income tax is a tax imposed on individuals or entities that varies with respective income or profits.
- Trump’s priorities for a second term include “[cutting] taxes to boost take-home pay and keep jobs in America,” according to his website. However, analysts say they haven’t quite been able to figure out what those cuts will look like and the Tax Policy Center is in the middle of analyzing the proposed policies. One theory: Trump could try to lower the 22% marginal rate on income taxes to 15%, which a Tax Foundation analysis suggests could cut taxes by $770 billion through 2025. This “wouldn’t do much to cut taxes for the middle class,” said Daniel Bunn, director of global projects for the Tax Foundation, an independent tax policy research group, since most taxpayers in the middle class aren’t taxed at 22% anyway.
- Biden’s campaign aims to raise income taxes for those in the top tax bracket ($518,401 and up for single taxpayers and $622,051 for married couples, currently). Those households would be taxed at 39.6% instead of the current 37% rate. Biden’s plans would add tax credits for those in the lowest income brackets, including an expansion of the child tax credit.
Payroll Taxes: A payroll tax is a tax employers withhold from an employee’s salary and pays on behalf of their employees. Both sides’ proposals here center on who is subject to the Social Security tax. Right now, those who earn up to $137,700 per year share a 12.4% tax with their employers.
- Under a Biden administration, that tax could also apply to taxpayers who earn over $400,000.
- Meanwhile, the Trump administration has hit pause on employees’ 6.2% share of the payroll tax for those who earn less than $104,000 per year. That tax holiday is temporary and voluntary in response to the coronavirus pandemic. If re-elected, however, Trump “plans to forgive these taxes and make permanent cuts to the payroll tax,” he said.
Taxes on Estates and Investments: An estate, in common law, is the net worth of a person at any point in time alive or dead. It is the sum of a person’s assets – legal rights, interests, and entitlements to property of any kind – less all liabilities at that time.
- Trump has already made moves on estate taxes, as the Tax Cuts and Jobs Act made it possible to inherit up to $11.58 million tax-free with a gift and estate tax exclusion.
- Biden is aiming to dial back those inheritances, according to the Tax Policy Center. He could limit tax-free inheritances to $3.5 million.
- As for investments, taxpayers with investment portfolios currently pay capital gains taxes at 0%, 15%, or 20% rates, depending on income levels. Under a Biden administration, the Tax Policy Center says those who make more than $1 million per year could pay 39.6% capital gains taxes.
- Trump, meanwhile, said in August that he’s thinking about cutting back on capital gains taxes. “We’re also looking at expanding the tax cuts we’ve already done, but specifically for middle-income families,” he said.
Real Estate: President Trump has championed expanding opportunity zones, or investments that channel money to low-income neighborhoods and reward investors with a tax break. Joe Biden, on the other hand, has “proposed eliminating 1031 ‘like-kind’ exchanges for investors with annual incomes greater than $400,000, as part of his plan to finance $775 billion in government spending over the next 10 years on child care and care for the elderly,” The Real Deal notes.
Flag This: Benjamin Franklin once claimed “In this world, nothing can be said to be certain, except death and taxes.” Taxes might be certain, but they’re also sure to be a subject of heavy debate. Remember, it was taxes that lit the spark of the Revolutionary War, and the first draft of the Constitution initially forbade direct taxation. According to research from Gallup, just three percent of Americans think their income taxes are “too low,” and the rest of the country is undecided about whether those taxes are too high or just right. In the Republican Party, 46% of taxpayers say they currently pay too much, while 40% of Democrats feel the same.