By John Drachman
One of the United States’ founding principles “No Taxation without Representation” also means there’s no time like a Presidential election year to think about how you would like to deploy or defer your tax dollars.
After passing The Tax Cuts and Jobs Act (TCJA) that effectively lowered taxes for about 80% of Americans, according to the Tax Policy Center, President Trump is urging additional tax reform in 2020. One idea is a proposal to defer the payment of a capital gains tax if the proceeds of a sale are reinvested into stocks. Consideration is also being given to cutting the 22% marginal income tax rate to 15%, which would affect households with income between $78,951 and $168,400. Finally, Trump has proposed indexing the cost basis on investments to inflation to further reduce the capital gains tax.
For Democrats, Bold Proposals Need Tax Revenue
On the other hand, paying for Democratic proposals like Medicare for All or The Green New Deal will take significant tax revenue. Here’s an overview of candidate tax policy preferences. For more details, see this comparative guide of the Democratic candidates’ tax positions from the consulting firm BakerTilly.
- Individual tax. With few exceptions, all Democratic candidates support returning the top individual tax rate to 39.6%. While Warren wants to repeal the lowest rates from Trump’s tax plan, Sanders is looking to add brackets progressing up to 66% on incomes above $10 million. Most candidates want to tax capital gains at ordinary income rates. Warren likes the idea of adding another 14.8% tax on the lesser of investment income or total income above certain thresholds.
- Tax credits. Many of the candidates would like to see increases in and expansions of the child tax credit and the earned income tax credit. Bloomberg and Steyer want to make the child tax credit refundable.
- Payroll taxes. Ideas extend from raising the wage cap to $250,000 or $400,000 to Biden’s idea of subjecting all income to the payroll tax. Sanders and Warren propose self-employment taxes for all pass-through business income.
- Wealth taxes. Sanders and Steyerare proposing a wealth tax ranging from 1% on net wealth greater than $32 million. Warren is looking at 2% on net wealth greater than $50 million. Under Sanders’ plan, the rates would incrementally increase so wealth over $10 billion would be taxed at an 8% rate.
- Estate taxes. Sanders would incrementally increase the estate tax rate to 77% for estates valued over $1 billion, while Bloomberg says he would lower the value threshold of the estate instead.
- Business taxes. All of the candidates advocate raising the corporate tax rate. Biden and Klobuchar would also like to reinstate the corporate alternative minimum tax on large corporations.
Other common democratic themes include expansion of wind and solar energy credits. Biden, Buttigieg, Klobuchar, Sanders, Steyer and Warren favor the removal of fossil fuel tax advantages. Bloomberg and Buttigieg want to impose a carbon tax. Taking aim at Wall Street, Buttigieg, Sanders and Warren hope to impose a financial transaction tax on all trades to help finance Democratic proposals.
As you compare candidates and tax policies this spring, chances are you’re knee deep in your own tax considerations. If you’re concerned about getting the current TCJA policy correct for your April 15 tax filing think about hiring a professional tax preparer. That way you won’t miss out on potentially valuable deductions while weighing the pros and cons of 2020’s crop of candidates.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor the premier matchmaker between investors and advisors .John is an IABC award-winning writer who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.