As we approach the November 2024 election, one thing is certain – the incumbent President will not seek re-election. This guarantees that a new, yet familiar figure will lead the nation, with former President Trump or Vice President Harris to be inaugurated in January. Just about as important, there will be elections for the House and Senate that will determine control of Congress. If Congress aligns with the elected President’s party, it could facilitate the passage of new policies. While we do not have a crystal ball to predict the outcome of the election, as trusted advisors, we are prepared to consult and guide our clients for any outcome.
With many provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) set to expire after 2025, a new tax plan is almost certain, regardless of which party members are elected. With TCJA being passed during the Trump administration, you will see either a Republican administration trying to make these provisions permanent or a Democratic administration letting these expire and introducing their own plan. In this blog, we will outline the current law and the potential proposals by tax category:
Individual Income Tax Rates
Current Law:
- 2025 tax brackets – The maximum rate is 37% for single filers earning more than $626,350 and joint filers earning over $751,600.
- 2026 tax brackets – The maximum rate will increase to 39.6% once the TCJA expires.
- 0.9% Additional Medicare tax applies to Medicare wages and self-employment income that exceed $200,000 for single filers and $250,000 for married filing jointly.
Republican Presidency:
- Make the TCJA tax brackets permanent with the maximum rate of 37%.
Democratic Presidency:
- Allow the TCJA rates to expire, raising the maximum rate to 39.6% but, lowering the income threshold to $400,000 for single filers and $450,000 for joint filers.
- Implement a 5% Medicare tax on wages above $400,000.
Capital Gains and Dividend Taxes
Current Law:
- The maximum rate for capital gains and qualified dividends is 20%.
Republican Presidency:
- Maintain current rates.
Democratic Presidency:
- Increase the tax rate to 28% for capital gains and qualified dividends for those whose taxable income is above $1 million.
Net Investment Income Tax (NIIT)
Current Law:
- 8% tax on net investment income when your MAGI is over $200,000 for single filers and over $250,000 for joint filers. Net investment income includes interest, dividends, capital gains, rent, royalty income and passive business income.
Republican Presidency:
- No changes are currently proposed.
Democratic Presidency:
- Expand the NIIT to include all business income (both active and passive).
- Increase the rate to 5% for any taxpayer earning more than $400,000.
Credits, Deductions and Exemptions
Current Law:
- Child Tax Credit – $2,000 per dependent child if your Modified Adjusted Gross Income (MAGI) is $400,000 or below for joint filers and $200,000 for all others.
- Standard Deduction –$14,600 for single filers, $21,900 for heads of household and $29,200 for joint filers.
- State and Local Tax (SALT) Cap – The deduction is generally limited to $10,000. This deduction mostly includes all of your property tax, sales tax, state income tax, and personal property tax.
- Exemption – $0
- Premium Tax Credit – Part of the Affordable Care Act, this is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the marketplace. It is set to expire after 2025.
Republican Presidency:
- With most items in this section being part of the TCJA, look for these to become permanent.
- One change from TCJA being considered is removing the SALT Cap on itemized deductions mentioned above.
- Exempt Social Security benefits from taxation.
Democratic Presidency:
- Child Tax Credit—Increase the credit to $6,000 for children under the age of one, $3,600 for young children (ages one to five) and $3,000 for older children. Make the credit fully refundable.
- Make the Premium Tax Credit permanent.
- Introduce a $25,000 credit for new homebuyers for down-payment assistance.
- Extend current credits and deductions for those earning under $400,000.
Corporate Income Tax Rates
Current Law:
- Corporate tax rate is 21%.
- A 15% corporate minimum tax rate applies to book income over $1 billion and there is a 1% excise tax on corporate stock buybacks in excess of $1 million.
Republican Presidency:
- While the 21% corporate rate was part of Trump’s TCJA, they want to lower it to at least 20% with a 15% rate if the corporation’s products are made in the U.S.
- The 15% minimum tax and 1% excise tax would be repealed, as they were part of Biden’s Inflation Reduction Act.
Democratic Presidency:
- Increase the corporate tax rate to 28%.
- Raise the minimum tax from 15% to 21% and increase the excise tax on buybacks from 1% to 4%.
- Limit deductions for compensation of over $1 million paid to C Corporation employees.
Estate and Gift Tax
Current Law:
- Marginal tax rates with a maximum of 40% for taxable estates over $1 million after the exemption amount.
- The 2024 exemption amount is $13.61 million per individual ($13,990,00 in 2025), an expiring TCJA amount. It will be reduced to $7 million (adjusted for inflation) in 2026.
- “Step-up” of basis – the cost basis on the assets owned by the decedent is adjusted to the fair market value on the date of death.
Republican Presidency:
- Make the higher TCJA exemption permanent.
Democratic Presidency:
- Allow the TCJA provisions to expire, meaning the $7 million exemption will be effective for 2026 and beyond.
- End the practice of “stepping-up” the basis in excess of $7 million per person and $14 million per married couple. The reform is designed to provide exemptions for family-owned businesses and farms.
New Tax Laws
Republican Presidency:
- Exempt tips and overtime from personal income taxes.
- Create an excise tax on income generated by large private university endowments.
- Impose a universal baseline tariff on all U.S. imports.
- Impose a 60% tariff on all U.S. imports from China.
Democratic Presidency:
- Exempt tips from personal income taxes.
- Individual Minimum Tax/Wealth Tax—For those with a net worth over $100 million, a 25% minimum income tax will be imposed, including unrealized gains in holdings.
- Limit or eliminate like-kind exchanges, which allow a taxpayer to avoid tax when proceeds from sales of property are reinvested in a like-kind asset, with a proposed limit of $500,000 per taxpayer.
- Increase the corporate startup cost deduction from $5,000 to $50,000.
In conclusion, it is difficult to predict which, if any, of these policies will be enacted. However, with many of the TCJA provisions expiring, tax reform will likely be a high priority for the new regime, even if it is just to keep the provisions into 2026 and delay larger legislative changes. What we can predict is that the team at Weinstein Spira will be following these developments closely and will help you analyze and plan for your specific situation.
