4 Tax Topics in the Presidential Campaign

Posted on Thu, Oct 24, 2019 ©2021 Drucker & Scaccetti

american_flag_312241By: Greg Mugnier

 

We are closing in on the one-year countdown to the presidential election. Democratic candidates’ campaigns are in full swing, each vowing for the opportunity to challenge President Donald Trump in the 2020 election. In the coming year, we'll hear various views on a wide range of campaign issues, but today we will highlight one area in particular--taxes! Here are a few tax topics that are bound to arise in the campaign and some of the candidates’ positions.

 

The traditional consensus of the Democratic Party concerning tax policy has been addressing income and wealth inequality. With that in mind, we’ll look at four (4) important tax topics and the differing views that Democratic candidates have on each, based on what they have published or discussed on the campaign trail.

 

  1. Wealth Tax

The “wealth tax” has been a big topic of discussion among the candidates thus far. Its two biggest advocates have been Sen. Bernie Sanders (VT) and Sen. Elizabeth Warren (MA), but their plans differ from one another. Under Sanders’ version, we would see a progressive rate structure starting with a 1% tax on net worth above $32 million, increasing gradually to an 8% tax on wealth over $10 billion.

 

Warren's plan calls for a 2% tax on wealth over $50 million and a 3% tax for any amount over $1 billion. The assets included in net worth under Warren's plan would include worldwide assets, including residences, businesses, trusts, retirement funds, and personal property worth $50,000 or more.

 

Both tax plans also call for a 40% exit tax on certain assets for wealthy taxpayers looking to expatriate to avoid the tax.

 

The Tax Warrior Perspective

The practical challenge of a “wealth” tax will be how to fairly and consistently value taxpayers net worth.  Given the wide variety of assets an individual may own, e.g., art or privately-owned businesses, acceptable valuation methodologies will be a major issue that will likely require copious regulations.

 

  1. Capital Gains Tax

The taxation of capital gains is another hot tax topic. Some Democratic candidates, such as Rep. John Delaney (MD) and Sen. Cory Booker (NJ), are advocating for long-term capital gains tax rates to increase to match ordinary income tax rates. Under current tax law, single taxpayers with 2019 taxable income over $434,550 are taxed on gains at 20%. Booker’s and Delaney's plans would have these same gains taxed at 35% or 37%, depending on taxable income levels. It should be noted that these two candidates have also been advocates of repealing parts of Tax Cuts and Jobs Act of 2017 (“TCJA”), specifically returning ordinary income rates to their highest level before TCJA at 39.6%.

 

Former Vice President Joe Biden takes a different view on the capital gains tax.  His plan would double the capital gains tax for those making over $1 million, increasing the current rate of 20% tax to 40%. Like Booker and Delaney, he also plans to return the highest personal income rate back to 39.6% and the corporate income tax rate to 28%.

 

The Tax Warrior Perspective

Capital gains rates continue to be a hot topic of conversations during presidential campaigns.  President Obama promised to increase capital gain tax rates, and he did accomplish this in 2012, however the increase in rates were not as large as he first proposed.  If a Democratic candidate is elected, and Congress is not in agreement with their proposed increase in capital gain tax rates, it will be difficult for any candidate to accomplish their proposed plan.

 

  1. Carbon Tax

Whether you believe the science or not, climate change is a driving force behind tax policies for the Democratic Party and many candidates support a "carbon tax." A carbon tax is simply a fee imposed on all carbon-based fuels, which is believed to be a big step towards eliminating the use of fossil fuels. Biden, Sen. Kamala Harris (CA), and South Bend, Indiana, Mayor Pete Buttigieg are a few that support a carbon tax. Harris' plan includes eliminating tax breaks for the fossil-fuel industry on top of the proposed carbon tax. In contrast, Buttigieg intends to implement the carbon tax, but with the intention of returning the tax revenue to American taxpayers through progressive rebates. Additionally, many candidates are campaigning on tax credits for things such as zero-emission vehicles, and transit programs.

 

The Tax Warrior Perspective

The oil industry lobby will continue to be a major hurdle for any carbon tax proposal.

 

  1. Estate and Inheritance Tax

Estate and inheritance tax reform is yet another often-discussed topic in the campaigns. Candidates Booker, Buttigieg, and Rep. Beto O'Rourke (TX) agree on removing the step-up in basis for inherited property and potentially leaving beneficiaries with a large tax bill from a decedent's estate. Booker and Buttigieg also support reducing the estate tax exemption amount back to pre-2010 levels, decreasing it from the 2019 $11.4 million individual exemption ($22.8 million for married couples) to the 2009 exemption of $3.5 million ($7 million for married couples).

 

The Tax Warrior Perspective

This is a major issue wealthy taxpayers should watch closely.  Estate planning with an $11.4 million exemption looks very different than estate planning with a $3.5 million exemption.  If a Democratic candidate wins the 2020 presidential election, estate attorneys may be very busy in December 2020.

 

The results of the 2020 presidential election may provide major changes to U.S. tax policies. Sweeping changes to the tax code don’t happen often because proposals are hard to get through Congress intact. Should any of the Democratic candidates win the 2020 election and implement their proposed tax changes,  The Tax Warriors® at Drucker & Scaccetti will be prepared to provide you with personalized consulting on how any tax changes may affect you and your family.  Contact us with any questions or help needed with strategic tax planning for the future. 

Topics: Elizabeth Warren, O'Rourke, Castro, Wealth Tax, carbon tax, estate inheritance tax, Biden, Booker, Sanders, gabbard, buttigieg, Harris, Delaney, capital gains tax, Democratic candidates, 2020 presidential election

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