Harris and Trump Tax Proposals and What They Mean for You

Kamala Harris and Donald Trump present starkly different tax proposals for the 2024 election, reflecting their contrasting economic priorities. And while the exact outcomes of future tax policy are unknowable, you can better prepare by having a good understanding of the potential changes. In this episode, I address some of the major tax policies at play if either candidate takes office and how they might affect your situation.

Welcome to Retired-ish. In this episode, we are talking about how your taxes may change in the near future depending on the outcome of the upcoming election. I'm your host, Cameron Valadez, and my goal today is to summarize, in my opinion, the most important parts of the two different tax proposals from the current Vice President Harris and former President Trump and what it all means for you. And this isn't about who I or we think is better or how these policies might help or hurt certain sectors of the economy. We're simply breaking down the different tax policies that these two candidates are proposing and how they might affect individuals.

[00:01:37]:
And some or many of these may not even happen. We all know how politicians like to say one thing and then do another or not do anything, but we need to be prepared for the possible outcomes. Now, before diving into their individual proposals, I want to remind everybody of the current “deal” we have in place, which is the Tax Cuts and Jobs Act, or TCJA for short, that President Trump signed into law back at the end of 2017. This act introduced a lot of different changes in tax law, which are all currently in place today. The TCJA contained many different forms of tax cuts for individuals, small businesses, and even big corporations. But the key thing to know is that many of these provisions are set to go away beginning in 2026 and actually revert back to the way things were in 2017. And that's, of course, without any further political intervention before then, which can still happen. And some of the differing proposals from the two candidates aim to either reverse the decision to sunset some of these provisions, which would mean to keep them in place beyond 2026, and others want to possibly get rid of them sooner before they are scheduled to sunset in 2026.

[00:03:03]:
So, let's start with one of the more straightforward provisions of the Tax Cuts and Jobs Act that has the ability to affect nearly everybody, which is the sunsetting of the reduced individual tax rates and the expanded tax brackets. In summary, the current 12% marginal federal income tax bracket becomes 15%. The 22% bracket becomes 25%. The 24% bracket essentially becomes 28%. The 32% bracket goes up slightly to 33%, and the highest income tax bracket of 37% goes back up to 39.6%. If you didn't notice, the middle class feels the sting the most here because many of them will see a 4% jump in income taxes. But not only that, the actual range of income within that 24% bracket will shrink as well, causing some people to go from a 24% income tax rate to 33%.

Let me explain. The current 24% federal income tax bracket for a married couple starts at $201,051 in 2024. And you don't move into the next bracket of 32% until your next dollar is over $383,901. That's nearly another 183,000 you could earn before seeing a higher tax rate. Now under the old tax law, so before the Tax Cuts and Jobs Act, again, the 24% bracket is essentially a 28% bracket, and the bracket is smaller in dollar terms. It starts even earlier at around $190,000 and reaches the 33% bracket at around $290,000. That's nearly a $100,000 difference compared to 183,000 as it is currently. So, as I said, the upper middle class could get hit the hardest, and that includes many retirees. So remember, unless you are in the lowest income tax bracket, your income tax rate will likely increase come 2026 unless there are any changes beforehand. Who is likely to get hit the hardest? Well, I'd say it's a very specific subset of the middle class.

[00:05:43]:
Currently, if you happen to have a taxable income between $290,000 a year and around $385,000 a year, you may face a 9% federal income tax increase come 2026. And that's a 9% jump, marginally. So, not all of your dollars will be taxed at an additional 9%, just a portion of the money that you earn. And, again, that is, of course, if the Tax Cuts and Jobs Act sunsets as originally planned in 2026 and there is no intervention beforehand. Not to add insult to injury, but if you're in this group and you also own a small business, you may be hurt even more due to the qualified business income deduction, or what is also known as the QBI deduction, which is set to expire as well. And we will get into that a little bit more later on. Take a look at your most recent tax return. Look at the line that says taxable income on the page that is titled 1040. If that number is within the range I just mentioned, you might want to reach out to your financial and tax professionals now to see how you can prepare.

Now, that all relates to income taxes on what we call ordinary income. So income you earn from working, running a business, or receiving a pension, etcetera. When it comes to capital gains taxes, there is no direct change so far happening in 2026. So, there's no automatic change that's already in the law. Those capital gains tax brackets will stay and work the same unless one of the candidates decides to make changes, which there has been some talk about already on the Biden-Harris side, which we will also talk about a little more in-depth coming up. And remember, there are many other components of the TCJA that either are set to go away in 2026 or that were actually made permanent. However, some of those other important aspects of the TCJA are the prime targets in some of the following proposals from both sides.

[00:08:01]:
Okay. With that understanding, let's dive into some of the differences in some of the proposals from Trump and Harris moving forward, and these are in no particular order. Harris plans to reverse parts of the 2017 Tax Cuts and Jobs Act even prior to 2026, and especially as they relate to wealthier individuals and corporations. For individuals earning over $400,000, she proposes restoring the top income tax bracket, or rate, to 39.6%. She plans to increase the capital gains rate to a minimum of 28% for high-income earners and has mentioned imposing a minimum wealth tax on those with wealth exceeding $100,000,000. Although the highest income tax rate is automatically going back to 39.6% starting in 2026 under current laws, Harris' proposal indicates that she intends to do this even sooner to stay consistent with placing a heavier tax burden on the wealthiest of individuals. When it comes to her capital gains tax proposals, she wants to tax long-term capital gains at a minimum of 28% or ordinary income tax rates for individuals who earn more than $1,000,000. This means, again, that wealthy individuals would pay higher taxes on some of their investment income, which is often taxed at lower rates than ordinary income, as we discussed earlier, from working, running a small business, collecting pension payments, what have you. This is essentially another attempt at addressing some of the income equality in the United States.

[00:09:51]:
Now relating to that, she also plans to increase what is called the net investment income tax, which is an additional Medicare tax that we actually already have today. And she plans to increase this from the current 3.8% up to 5% for high income earners, providing additional revenue for health care programs. Harris also plans to raise the corporate tax rate from its current rate, which is 21%, up to 28%, and this targets large corporations and wealthy people. The reason she wants to raise this is to fund social programs, such as child tax credits and certain health care subsidies. Trump, on the other hand, has said that he will seek to lower the corporate tax rate even further from 21% to 15%. And remember, he was the one who already lowered them to that 21% rate when he passed the Tax Cuts and Jobs Act. But if the Democrats win the house, that proposal could quite possibly die in the legislature. Now, a similar outcome could happen with Harris's proposal to raise the corporate tax rate from 21 to 28 if the Senate flips to Republican control.

What would an increase in corporate taxes mean for you? Well, higher taxes for businesses means less money for them to invest in themselves, which can slow positive innovation and economic growth. In addition, since many of these large corporations are publicly traded on the stock market and have shareholders to answer to, the likely outcome will be that they pass that buck along to you in the form of higher prices for their products and services. Now, none of us like higher prices, especially after the run-up in inflation we've experienced in the last couple of years. But here's the flip side. If you're an investor in these companies, you may also benefit from their ability to adapt and continue to stay profitable over long periods of time, no matter what changes in tax law bring. Now, even though she plans to raise taxes on the big corporations, she does plan to expand the tax deductions for small businesses, particularly those involved in affordable housing and new startups. In a nutshell, she wants to allow certain businesses to write off more of their startup costs than they can now under the current law. And this can definitely be a good thing.

[00:12:30]:
The problem is that there are already tens of millions of small business owners out there, and this would only apply to brand-new start-ups that have significant startup costs. So, this may have a minimal effect. There's not much there for the current small business owner. Aside from corporations and small businesses, for middle and lower-income households, Harris also supports things like tax credits, like reinstating the expanded child tax credit to $3,600 per child up to 5 years old and creating a one-time $6,000 tax credit for children under 1-year-old.

Additionally, she proposes a $25,000 subsidy to first-time homebuyers in eliminating the taxation of tips for service workers. This came after Trump had previously said that he plans to no longer tax tips or Social Security benefits nor overtime pay if he were to get back in office. It'll be interesting to see if Harris rebuttals on the last two as well at some point. Now, the subsidy for first-time homebuyers has the potential to muddy up the housing market more than it already is.

I see her thought process here. It's too difficult for younger families to buy affordable housing, and something definitely needs to be done. But I don't think throwing more money at the problem is the solution. The primary reason housing is so expensive is due to the supply and demand issue. If money is thrown at it, which would be funded by other taxpayer dollars, housing prices will likely just adjust upwards to account for it. So that's an interesting one. We'll see where that goes.

[00:14:21]:
Alright. So, we've addressed a lot of the main topics of the Harris proposals. Now, let's dive into some of former President Trump's ideas. Trump's approach, which is very different, primarily focuses on reducing taxes across the board. And to do that, his primary objective is to make many components of the Tax Cuts and Jobs Act permanent. So, continuing it beyond 2026, maintaining lower income tax rates for all the brackets, shielding more money from federal estate taxes, and preserving reduced corporate tax rates. Now, what would this mean for you? Well, on the face of it, if he extends the TCJA, taxes will remain largely the same as they are now for most people, not factoring in any additional changes he may make if elected before 2026. Now, one of Trump's more recent additions to his plan was to lift the $10,000 SALT cap, which is part of the TCJA he put into law back at the end of 2017. This was essentially something he had to give up in order to get the rest of the bill through. Now, he wants it removed.

So you might be wondering, what am I missing? What in the world is a SALT cap? SALT stands for state and local taxes. When you file your taxes, you have two choices for some major deductions on your return to reduce the taxes that you'll pay. One of those is called the standard deduction, and the other is called itemizing your deductions. They are both available to everyone, and you essentially pick the higher deduction of the two. So whichever gives you a better result. The standard deduction amounts are provided to us and were increased dramatically when Trump first put the TCJA into place. The trick is that you will only have more itemized deductions or greater itemized deductions if you pay more for certain things, such as state income taxes or sales taxes, property taxes, personal property taxes, mortgage interest, medical expenses, or give to charity.

[00:16:39]:
However, the SALT cap that was put into place put a $10,000 deduction limit on all of the state and local taxes when you're trying to itemize, which includes any state and local income taxes you pay, state and local property taxes, and state and local personal property taxes. Therefore, many Americans, especially those who live in states with either high-income taxes, property taxes, or both, started to lose out big on some of their deductions. For instance, many residents of California and New York were affected because they had high incomes and property taxes. Then, there are people in states like Illinois, Pennsylvania, and Texas who were greatly affected mainly because of their relatively high property tax rates. Before the passing of the TCJA, taxpayers could deduct all of the state and local taxes they paid, limited only by their federal taxable income. However, if the SALT cap is lifted, it's worth noting that residents in other states actually stand to benefit as well. These include states such as South Carolina, Nebraska, Idaho, New Mexico, and Minnesota, which have a top income tax rate of 5.8% or higher that actually kicks in at a much lower income level than the rates in California, New York, and New Jersey. Now, there's no reason Harris can't follow suit on this and include it in part of her plan as well.

[00:18:18]:
Although, I haven't heard of any plans to do that as of yet. But even without Trump, she still could possibly lift the SALT cap. And just like all of the other tax cuts we've mentioned, reinstating the SALT deduction not only benefits the upper middle income demographic and the wealthy but also complicates the shortage of revenue situation. And this will definitely put pressure on lawmakers to find revenue replacements to fund their tax cuts. And I think it's worth noting that if you're in the highest of tax brackets or maybe stuck in that middle bracket situation I discussed earlier, a break from the $10,000 SALT cap being lifted will likely be somewhat eaten away by your income tax rate increasing to the new higher rates that we talked about earlier if the TCJA isn't extended altogether and tax rates are kept status quo. So, something to think about. Trump's plan also includes additional cuts, such as reducing the corporate tax rate even further to 20% or lower, incentivizing investment in operations in the United States, particularly in manufacturing and industries that employ large workforces, and making Social Security benefits and tips income tax exempt. Now, those last two would be an example of some of the changes that would benefit even working-class Americans, not just the wealthy.

[00:19:50]:
Although, Harris seems to be on board with not taxing tips as well. And as I said, as far as not taxing Social Security benefits, I haven't heard much from her, so we'll see what happens there. Now, when it comes to additional tax cuts for the big corporations, many small business owners are wondering, hey, what about us? Small business is a major contributor to the economy, and Trump will almost certainly look to make sure there are additional benefits for them too, although we haven't heard many clear intentions yet. The big one looming is what will happen with that qualified business income deduction or QBI deduction. In a nutshell, this deduction is a 20% tax deduction for small business owners. This was part of the original TCJA he put in place, but the QBI deduction was scheduled to go away in 2026. While at the same time, big corporations will continue to benefit from lower tax rates, which were actually made permanent. So, if Trump does extend the Tax Cuts and Jobs Act beyond 2026, the QBI will likely stay. But if not, we will just have to see what happens there.

So what does this mean for you? Well, if you're a small business owner and the QBI deduction goes away in 2026 as currently slated, prepare for a much bigger tax bill. However, you may be able to make up for that by utilizing other tax strategies that might be available to you and your small business. Get with your tax professional and financial adviser to set up a game plan ahead of time because that 20% deduction, depending on the profits of your small business, that might be a big chunk of change that's now going to go to the tax authorities. The big question for many of Trump's proposals is how these tax cuts will be paid for, meaning this has to be made up for elsewhere.

For Trump, I think that he plans on the majority of this coming from increased tariffs he plans to impose on foreign goods. However, many economists are struggling with the idea that the amount of revenue generated from the increase in tariffs would be enough to offset all of these tax cuts. If not, then the question is, how long can economic growth through lower taxes be sustained while the United States deficit gets substantially worse? So, in summary, Trump's policies largely benefit higher-income individuals and corporations, but there are still some benefits to be had for many other working class families with average incomes.

[00:22:35]:
And this is all in an attempt to boost investment and economic growth by lowering taxes. However, it sounds very expensive, and we are going to have to pay for this somehow. All in all, the differences between Harris's and Trump's tax proposals reflect their broader economic philosophies. Harris' approach aims to address income inequality by increasing taxes on the wealthy and corporations to fund social programs, which could help stimulate economic activity among lower-income households. However, some argue that this could discourage investment and economic growth, potentially leading to reduced job creation, for example. Trump's approach, on the other hand, focuses on tax cuts to stimulate economic growth and investment, particularly benefiting higher-income individuals and corporations. However, his plan could exacerbate income inequality and lead to larger federal deficits if the anticipated revenue from tariffs and other sources isn't quite enough. Ultimately, Trump's proposals will likely lead to increased deficits, something to the tune of 4 trillion.

And economists project that Harris's policies could potentially increase the federal deficit as well by up to 2 trillion. However, her goal is to balance this by increasing taxes on the wealthy and corporations, which could offset spending on social programs. And unfortunately, neither candidate's proposals offer a more simplistic tax code. Go figure. Making tax planning even more difficult for all of us. In fact, the current law under the TCJA has actually simplified the tax code in many ways over the years. However, I would say that many of these proposed changes suggest that there will likely be unique opportunities to implement strategies over time to reduce the taxes you might otherwise pay, just as there were when the TCJA was first enacted at the end of 2017. In other words, changes in tax law often open the doors for opportunity.

[00:24:50]:
You just have to know where to look. The choice between these two tax proposals not only influences tax rates but also shapes broader economic policy, social equity, and fiscal responsibility in the United States. And each candidate's vision for the economy will resonate differently with voters depending on their individual circumstances and values regarding wealth distribution and government spending.

That wraps up today's show. Now that you have a better idea of how your tax bill might be impacted in the near future, it's time to do something about it rather than be a victim of it. If you find the information I provided in today's show actionable, valuable, and insightful, please subscribe to or follow the show on your podcast app. While you're at it, check out the Retired-ish newsletter to get more useful and easy-to-digest information on retirement planning, investments, and taxes once a month, straight to your inbox.

Of course, if you want to learn more about the topics I went over in the show or you want to ask a question to be answered on a future episode, you can find links to the resources we have provided in the show notes right there on your podcast app, or you can head over to retiredishpodcast.com/55. Thanks again for tuning in and following along. See you next time on Retired-ish.

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