With the vote for the 2024 presidency just a month away, tax policy, as it always is, remains a central issue. Former President Donald Trump and Vice President Kamala Harris are offering very different visions of how taxes should work in America. Understanding these plans is key to grasping the broader economic goals each candidate brings to the table.
Let’s break down both proposals and consider their potential impact on small businesses, individual taxpayers, and the broader economy.
Donald Trump’s Tax Proposal: A Focus on Business Growth
Trump’s tax plan emphasizes reducing the tax burden on corporations, small business owners, and income earners, with the desired outcome that this will stimulate the economy by spurring investment and job creation. Here are some key elements:
Trump’s plan focuses on extending the tax cuts introduced in the TCJA, which are set to expire in 2025. Some of the fan favorites here:
- The deduction for Qualified Business Income (QBI) which can be equal to 20% of small business income.
- The TCJA lowered the corporate tax rate to 21%, from 35% – Trump’s new proposal in 2024 takes this just a little lower to 20%, and further still to 15% (potentially for domestic production only).
- Ensures that individual tax rates remain lower. Approximately 2-3% per bracket across the board.
Lowering the Capital Gains Tax
- Trump previously proposed (during 2020 campaign) reducing the capital gains tax rate further, potentially bringing it down from 20% to 15%.
Estate and Wealth Taxes
- Make the expiring estate tax cuts from the TCJA permanent – which increased the exemption amount from $5.5 million to $11.1 million and tied it to inflation.
Individual Income Taxes
- Make the expiring individual income tax cuts from the 2017 Tax Cuts and Jobs Act permanent.
- Consider replacing personal income taxes with increased tariffs.
- Reinstate an unlimited itemized deduction for state and local taxes (SALT) paid or discontinue the cap as part of TCJA extension.
- Exempt Social Security benefits from taxation.
- Exempt tip income from taxation.
- Exempt overtime pay from taxation.
Middle-Class Tax Relief
- Trump has floated the idea of a 10% middle-class tax cut, though specifics remain unclear.
Credits
- VP Candidate JD Vance has discussed increasing the child tax credit to $5,000.
Excise Taxes
- Tax large private university endowments. (Harvard over $50 billion; Yale over $40 billion…)
Tariffs
- Impose a universal baseline tariff on all US imports of 10 to 20 percent; and
- Impose a 60 percent tariff on all US imports from China.
As our focus is working with small business here are my thoughts as it pertains to the business community we work with.
Impact on Small Businesses
- Trump’s proposal provides relief to small business owners, especially those structured as S-corporations, LLCs, Partnerships or pass-through entities that benefit from the lower individual tax rates and the Qualified Business Income deduction. These businesses and businesses owners, in our experience, reinvest these funds into their businesses, their employees, and other investments which repeat the cycle.
- The lower capital gains tax might encourage more investment in small and medium-sized businesses.
- There is some concern that the plan disproportionately benefits larger corporations –and that benefit may have an indirect negative impact on Main Street businesses.
Kamala Harris’ Tax Proposal: A Focus on … well we really aren’t sure, are we?
Kamala Harris has centered her tax policy around expansion of tax credits and new incentives for housing. She may continue the same policies put forth in the FY 2025 of the Biden-Harris administration or may propose tax policy changes that differ from the budget. She aims to reverse many of the TCJA provisions and impose higher taxes on individuals (those making more than $400k) and corporations. Here’s a look at her main points:
Reversing TCJA (or allowing to expire)
- Harris proposes to undo the Trump-era tax cuts for individuals earning more than $400,000 annually. This would likely mean a return to a top marginal tax rate of around 39.6%, up from the current 37%.
- The Qualified Business Income (QBI) deduction would be reversed or allowed to sunset.
- The Bonus Depreciation provision of the TCJA allowed business owners to immediately deduct $1.1 million of capital equipment investments placed into service. The deduction began phasing out in 2023 and will completely phase out after 2025. If it expires, business owners will have to spread out the deduction for capital assets over their useful life instead of taking the entire deduction in the first year.
Business Taxes
- Harris has proposed raising the corporate tax rate from 21% to 28%, arguing that corporations should contribute more to the national economy. This aligns with a broader push to ensure that wealthy entities are paying their “fair share”.
- Claw back deductions for depreciation and interest for certain rental construction investment.
- Increase the $5,000 deduction for startup costs to $50,000.
Capital Gains and Dividend Taxes
- Increase the top tax rate on long-term capital gains to 28% for taxable income above $1 million.
- Increase the net investment income tax (NIIT) to reach 5% on income above $400,000.
Expanding the Tax Credits
- Expand the child tax credit to $6,000 for children under age 1, $3,600 for children 2-5, and $3,000 for older children – and make it fully refundable.
- Expand the earned income tax credit for filers who do not claim children.
- Expand premium tax credits.
- Expand housing tax credits, including the low-income housing tax credit, a credit for new homebuyers, and a credit for the construction of started homes.
Individual Income Taxes (not already addressed elsewhere here)
- Exempt tips from the income tax.
Implementing a “Wealth Tax”
- Harris also favors increasing taxes on capital gains and implementing a wealth tax on individuals with significant net worth. These measures are aimed at reducing income inequality and funding programs that benefit lower-income households.
As our focus is working with small business here are my thoughts as it pertains to the business community we work with.
Impact on Small Businesses
- While raising the corporate tax rate will increase the burden on some small to medium-sized enterprises, Harris has indicated she would prioritize tax breaks and incentives for small businesses that support their workers.
- The expiration or reversal of the TCJA will negatively impact the small business community. The loss of the QBI deduction, and bonus depreciation ability, both directly contribute to a small businesses ability to manage cash flow – enabling reinvestment into the business, employees and the community.
Comparing the Two Proposals
The tax proposals of Trump and Harris represent two starkly different approaches to taxation and the economy.
For Wealth and Businesses: Trump’s plan is focused on reducing taxes for corporations, income earners, and investors. His belief is that reducing taxes will fuel economic growth that benefits everyone. On the other hand, Harris aims to increase taxes on the wealthy and large corporations to redistribute wealth and provide more direct support to lower-income households.
For Families: Harris’ proposal may be seen as more generous to families, with expanded tax credits and direct financial relief; whereas Trump’s approach offers middle-class tax relief, through his primary focus which remains on business incentives, many of which directly benefit small business owners which make up our community.
Fiscal Responsibility: Right out the window. Both “plans” miss the mark on fiscal and economic responsibility; as well as completely ignoring finding a way to sustainably deal with the deficit.
Conclusion
As the 2024 race continues, voters and small business owners will need to weigh the pros and cons of these two tax strategies. Trump’s plan leans heavily on boosting businesses and investors to drive economic growth, while Harris is focused on using tax revenue to reduce inequality and redistribute wealth. The outcome of this debate will shape not just tax policy, but the broader direction of the American economy for years to come.
Get out and vote! It’s your duty.