Non-Partisan Comparison of Tax Proposals: Donald Trump vs. Kamala Harris

Tax Proposals: Donald Trump vs. Kamala Harris

This article provides an overview of the tax proposals from Donald Trump and Kamala Harris, covering key areas like income, capital gains, tips, estate taxes, child credits, Social Security taxability, Earned Income Tax Credits, housing tax credits, and more.

Disclaimer: In the interest of simplicity, we've skipped analyzing the proposals' impact on both the federal deficit and economic growth. Why? Well, both parties seem to agree on one thing—increased deficit spending—and, frankly, there aren't enough details to properly evaluate these impacts yet. Also, we're not quite smart enough to predict the long-term effects on economic growth. So, for now, we’ll leave those aspects to the economists and future debates. Keep in mind that the numbers could change, and with them, so could the outcomes.

The tax proposals discussed in this article are based on early policy outlines from Donald Trump and Kamala Harris. These proposals are subject to change as more details emerge and policy discussions evolve. Additionally, many of the current proposals lack sufficient detail to fully evaluate their potential economic impact or specific implementation. Readers should remain aware that future updates may provide further clarity, and any final legislation may differ significantly from the concepts outlined in these early stages.

1. Ordinary Income Taxes

• Donald Trump: Trump aims to extend the Tax Cuts and Jobs Act (TCJA) provisions, keeping the top marginal rate at 37% (down from 39.6%). He seeks to make these cuts permanent.

• Kamala Harris: Harris advocates for raising taxes on high-income individuals earning more than $400,000. She supports increasing the top marginal tax rate back to 39.6% to generate additional revenue from high earners.

2. Capital Gains Taxes

• Donald Trump: Trump has suggested lowering the top capital gains tax rate (currently 20%) to stimulate investment and economic growth.

• Kamala Harris: Harris supports raising the top capital gains rate to 28% for individuals earning over $1 million. There’s also discussion of increasing the Net Investment Income Tax (NIIT) from 3.8% to 5%, which could raise the effective top rate to 33%.

It should be noted that Harris, as part of the Biden administration’s budget proposals, initially supported taxing long-term capital gains at ordinary income rates for high earners, but has since backed away from that position.

3. Taxes on Tips

• Donald Trump: Proposes eliminating federal taxes on tips, allowing service workers to keep their full earnings.

• Kamala Harris: Harris has adopted this proposal, supporting the elimination of taxes on tips to benefit low-income workers.

4. Estate Taxes

• Donald Trump: Trump has not proposed changes to the estate tax, but the TCJA raised the exemption to $12.92 million per individual. This provision is set to expire in 2025, potentially reverting to around $6.5 million (adjusted for inflation based on the original $5 million baseline from 2013).

• Kamala Harris: Harris is likely to support letting the exemption revert to pre-TCJA levels, increasing the tax burden on estates exceeding $6.5 million per individual.

Portability: Under current estate tax law, any unused portion of the exemption can be transferred to a surviving spouse, effectively doubling the exemption for married couples. For example, the current exemption allows couples to shelter up to $25.84 million.

Opinion: Congress has been notoriously reluctant to lower the estate tax exemption—likely because many lawmakers and their wealthy donors would be affected. While the law calls for it to revert in 2025, history suggests Congress may avoid significantly reducing the exemption.

5. Child Tax Credits

• Donald Trump: Trump aims to maintain the Child Tax Credit at its $2,000 level, which was expanded under the TCJA.

• Kamala Harris: Harris supports making the expanded Child Tax Credit from the American Rescue Plan permanent, increasing the credit to $3,600 per child (for children under 6) and $3,000 for older children. She also proposes a first-year child tax credit of $6,000 for newborns, providing extra support to families during the child’s first year.

6. Child Care Tax Credits

• Donald Trump: Trump has signaled support for expanding child care-related tax deductions to assist working families.

• Kamala Harris: Harris advocates for expanding child care tax credits, focusing on low- and middle-income families to make early childhood care more affordable.

7. Wealth Taxes

• Donald Trump: Trump opposes any form of wealth tax, focusing instead on reducing taxes for high-income individuals through cuts to income and capital gains taxes.

• Kamala Harris: Harris has expressed interest in a wealth tax on individuals with a net worth over $100 million, though it has not been formally introduced into her platform.

Constitutionality: The Pollock v. Farmers' Loan & Trust Co. (1895) decision classified wealth taxes as direct taxes, requiring apportionment among the states. The 16th Amendment only applies to income taxes, meaning a wealth tax could face constitutional challenges unless carefully structured.

Concerns Over Expansion: Critics worry that wealth taxes, which currently target ultra-wealthy individuals, could eventually be expanded to affect those with lower net worths.

8. Social Security Benefits Taxability

• Donald Trump: Trump has proposed eliminating taxes on Social Security benefits to relieve the tax burden on retirees receiving these benefits.

• Kamala Harris: Harris has not introduced any new proposals regarding changes to the taxation of Social Security benefits.

9. Social Security and Medicare Taxes

• Donald Trump: Trump has not proposed major changes to Social Security or Medicare taxes, though he has mentioned potential payroll tax cuts.

• Kamala Harris: Harris supports a "donut hole" proposal for Social Security taxes. Under this system, wages over $400,000 would again be subject to Social Security taxes, leaving earnings between the current cap ($160,000) and $400,000 untaxed. She also endorses the additional 0.9% Medicare tax on income over $250,000.

10. Earned Income Tax Credit (EITC)

• Donald Trump: Trump has not specifically addressed the Earned Income Tax Credit in his current proposals but has supported expanding it in the past.

• Kamala Harris: Harris supports expanding the EITC for low- and middle-income families, offering greater financial relief for working-class Americans.

11. Housing Tax Credits

• Donald Trump: Trump has not made specific proposals regarding housing tax credits but has historically supported programs that encourage real estate investment.

• Kamala Harris: Harris supports expanding housing tax credits, including a $25,000 first-time homebuyer tax credit to help low- and middle-income Americans purchase homes. She also supports tax credits for developers to build more affordable housing units.

12. 1031 Exchange

• Donald Trump: Trump supports maintaining the 1031 like-kind exchange, which allows real estate investors to defer capital gains taxes when reinvesting in similar properties.

• Kamala Harris: The Biden administration has proposed limiting the 1031 exchange for high-income individuals, and Harris is likely to support reducing the benefits for wealthier investors to increase tax revenue.

Opinion: The 1031 exchange is unlikely to be significantly altered. The real estate lobby remains one of the most powerful in Washington, and like carried interest, lawmakers are hesitant to eliminate provisions that deeply benefit their constituents and donors.

Important Note: Jimmy Panetta’s 121 Exclusion Proposal

Representative Jimmy Panetta has introduced a bipartisan proposal to raise the Section 121 exclusion for capital gains on the sale of a primary residence. The plan would increase the exclusion from $250,000 to $500,000 for individuals and $500,000 to $1 million for married couples, reflecting rising home values and helping homeowners avoid higher capital gains taxes when selling their homes.

This comparison highlights key differences between Donald Trump and Kamala Harris on tax policy, with Trump focused on extending tax cuts and stimulating economic growth, while Harris emphasizes increasing taxes on the wealthy and providing relief to working families.