One of the staples of an election year is the release of each presidential candidate’s tax proposals. 2020 is no different – at least in that regard.

While the news media and most voters are more focused on the impact Covid-19 is having on the nation, with less than two months before the November 3 Election Day, we thought it a good time to take a look at the major party candidates’ tax plans and provide some insights for how you can prepare for any changes that may be on the horizon.

Vice President Joseph R. Biden Jr.’s Tax Plan

The key points of the Biden tax plan and brief comments on each proposal are outlined below:

Business Taxes

• Corporate income tax rates would increase from 21% to 28%.
• Creates a minimum tax on corporations with book profits of $100 million or higher. The minimum tax would be structured as an alternative minimum tax — corporations would pay the greater of their regular corporate income tax or the 15% minimum tax while still allowing for net operating loss (NOL) and foreign tax credits.
• Doubles the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of U.S. firms from 10.5% to 21%.
• Establishes a Manufacturing Communities Tax Credit to reduce the tax liability of businesses that experience workforce layoffs or a major government institution closure.
• Expands the New Markets Tax Credit and makes it permanent.
• Offers tax credits to small business for adopting workplace retirement savings plans.
• Expands several renewable-energy-related tax credits and deductions and ends subsidies for fossil fuels.

Individual Taxes

• The new top marginal rate for individuals would return to 39.6% and the lower rate of 37% put into place with the 2017 Tax Cuts and Jobs Act (TCJA) would no longer be applicable. Under current law, the 37% rate is set to expire in 2026. Biden’s plan will restore that rate immediately for individuals making over $400,000.
• The ordinary income tax rate of 39.6% would apply to capital gains and dividends for households earning more than $1 million of income. This tax rate also would apply to qualified dividends. Currently, capital gains and qualified dividends are subject to a maximum 23.8% tax rate at this income level.
• The “Pease Limitation,” suspended through 2025 under the TCJA, would be reinstated for taxpayers with incomes above $400,000. The Pease Limitation capped the value of itemized deductions for high-income taxpayers. Designed originally to increase taxes paid by the wealthy without raising tax rates, Pease reduced the deduction taxpayers could take for charitable donations, among other write-offs. The reduction was generally 3 percent of AGI above the applicable threshold. Certain taxpayers were instead limited to 80 percent of the amount of itemized deductions if this 80 percent was less than the AGI-calculated amount.
• The Qualified Business Income (QBI – Sec. 199A) rules created by the TCJA would be phased out for taxpayers with taxable income over $400,000. Currently, the QBI deduction can lower the impact of flow-through entity income from 37% to potentially 29.6%, and there is no income limit in place for this deduction.
• The “step-up in cost basis” would be repealed. Under current law, when one generation inherits assets from another at death, assets owned by the decedent generally are “stepped up” to fair market value (FMV) at the date of death. As a result, when the beneficiaries sell these assets, the gain or loss that is calculated is the fair market value on

the date of sale less the fair market value basis that the asset was “stepped up” to on the date of the decedent’s death. The step-up permitted under current law often results in little to no capital gains tax and the unrealized gain on these assets escapes taxation permanently.

. The estate tax exemption would be lowered from the current $11.58 million to $5 million per individual. Taxable estates would be subject to a progressive structure with rates of 45% ($3.5 million to $10 million), 50% ($10 million to $50 million), 55% ($50 million to $1 billion) and 77% (over $1 billion). The IRS has stated gifts made under current law would not be “rolled back” if the exemption amount is lowered.

. Payroll taxes of 12.4% would apply to wages more than $400,000. Under current law, the taxable maximum is $137,700 in 2020. This is intended to raise revenue and close the Social Security solvency gap. The proposal appears to create a “donut hole” in the Social Security payroll tax, where wages between $137,700 and $400,000 would not be taxed.

In addition to the measures above, the Biden tax plan includes the following:

• Raises the child tax credit to $8,000 for one child and $1,600 for two or more children for taxpayers with income up to $125,000 per year. The credit phases out for income between $125,000 and $400,000 per year.
• Expands the Earned Income Tax Credit to workers older than 65 who do not have a qualifying child.
• Enacts a $5,000 tax credit for family caregivers of people who have certain physical and cognitive needs.
• Enacts a refundable, advanceable tax credit of up to $15,000 for first-time homebuyers.
• Enacts a renter’s tax credit, designed to reduce rent and utility costs to 30 percent of income for low-income individuals and families who make too much money to qualify for a Section 8 voucher.

President Donald J. Trump’s Tax Plan

President Trump’s tax proposals for this election year are brief and, in some cases, not detailed. It is fair to say that his major tax priorities already were enacted as part of the Tax Cuts and Jobs Act of 2017. The few tax priorities he has discussed during the 2020 campaign focus mainly on extending or modifying provisions of the TCJA and reducing or eliminating payroll taxes that fund the Social Security system.

Following is a summary of the tax proposals Trump has discussed. It should be noted that the Trump campaign does not have a formal tax platform or proposal. The measures listed here have been discussed by the president in media interviews and in other settings.

Business Taxes

• Create a “made in America” tax credit.
• Establish tax credits for companies that bring jobs back to the U.S. from China.
• Allow businesses in essential industries to deduct 100% of certain expenses if they bring their manufacturing back to the U.S.
• Expand the Qualified Opportunity Zones created by the TCJA.

Individual Taxes

• Trump has discussed modifying the TCJA’s individual tax rates with a 10% middle-class tax cut, which reportedly could include lowering the 22% marginal tax rate to 15%. For 2020, the 22% marginal tax rate applies to income over $40,125 for individuals and $80,250 for married couples filing jointly.
• Extend or make permanent the individual rates enacted by the TCJA that are scheduled to expire after 2025. Many provisions of the TCJA are scheduled to expire after 2025, and conventional wisdom holds that the more popular provisions – such as lower individual tax rates – will likely be extended by Congress.
• Extend the higher standard deduction and other deductions enacted by the TCJA that are scheduled to expire after 2025.
• Extend the current $2,000 child tax credit beyond the TCJA expiration date of 2026.
• Extend the higher estate and gift tax exemptions enacted by the TCJA that are scheduled to expire after 2025.
• Require a dependent to have a Social Security number to be eligible to be claimed for the $500 other dependent credit. Additionally, the Trump proposal would require a taxpayer to have a Social Security number to claim either the child tax credit or the $500 other dependent credit.
• Trump has discussed several changes to the treatment of capital gains taxation, including 1) indexing capital gains for inflation; 2) reducing the capital gains tax rate, and 3) enacting a capital gains tax holiday that eliminates capital gains taxes for an as yet undefined period of time. Under current law, the top tax rate for capital gains and qualified dividends is 20% for income over $441,450 for individuals and $496,600 for married couples filing jointly.
• The Trump tax proposal would enact a new Education Freedom Scholarship Tax Credit, which would provide up to $5 billion worth of income tax credits annually for individual and corporate donations to state-identified not-for-profit scholarship-granting organizations.
• Though there is no specific proposal along these lines, Trump has discussed payroll tax cuts for both employers and workers, most recently as a relief measure during the Covid-19 crisis, but also as a permanent policy once the pandemic ends.

The details of both major candidates’ tax proposal are subject to change.

Regardless of who is elected president, the success of these tax proposals will depend in large part on the results of this year’s Congressional elections. We will keep you informed of any further tax proposals that may emerge in the coming weeks.