Trump & Harris: A Tax Policy Deep Dive
As the 2024 U.S. presidential election approaches its conclusion, tax policy has emerged as a central debate.
Vice President Kamala Harris and former President Donald Trump propose sharply contrasting approaches to taxes, each rooted in their broader economic visions and differing perspectives on income inequality and the role of government.
While it's helpful to recognize the intricacies of each candidate's tax platform, it's equally important to remember that any new legislation is just a proposal that must still navigate the checks and balances of our full political system: not just the Office of the President, but the House of Representatives, the Senate, and perhaps even the Supreme Court. Additionally, keep in mind that a brand new legislative cycle will begin again soon, with mid-term elections in 2026. Although these tax proposals could have significant impacts on individuals, businesses, and the overall economy, a balanced approach in your personal planning remains a prudent way forward.
Trump's Proposed Tax Policy
Former President Trump's tax platform reflects an emphasis on stimulating economic growth through lower taxes under the assumption that benefits will diffuse throughout the economy.
His 2024 tax proposals build on his previous administration’s efforts to reduce taxes for both individuals and businesses, a central element of which is a desire to extend and expand upon his Tax Cuts and Jobs Act (TCJA) of 2017.
Trump's tax policies are generally based on supply-side economics, focusing on reducing taxes to stimulate investment and job creation with a belief those actions will ultimately lead to broad economic growth for everyone.
Trump's Key Tax Question:
Does reducing taxes benefit everyone by stimulating the broader economy, or does it make income inequality and government deficits worse?
Key elements of Trump's proposed tax policy include:
Lower Income Taxes:
Trump's Tax Cuts and Jobs Act (TCJA) of 2017 reduced marginal tax rates for most individuals. Trump wants to make these tax cuts permanent, which are currently set by law to expire in January 2026.
- Tax rates are scheduled by law to increase in 2026 for those making between $10,000 and $360,000 yearly.
- Brackets are also set to narrow in 2026, amounting to a tax increase for those earning more than ~$200,000 yearly ($100,000 single).
- Especially affected by higher taxes in 2026 are (1) those with incomes of ~$200,000 yearly (~$100,000 single) and (2) those with incomes of ~$500,000 yearly and above (both married and single).
The chart below illustrates income tax rates in 2023 and 2024 compared to how they are scheduled by law to change in 2026.
Lower Capital Gains Taxes:
Trump has proposed reducing the capital gains tax rate from its current maximum of 20% to 15%. He has also proposed indexing capital gains rates to inflation.
Exempting Social Security, Tips, and Overtime Pay From Tax
Trump's proposals aim to reduce the tax burden on specific groups of workers and retirees, including:
- Exempting Social Security benefits from taxation would alleviate tax pressure on retirees, ensuring they keep more of their benefits, which are currently taxed differently based on different income levels. Critics fear that exempting Social Security benefits would likely accelerate the insolvency of the Social Security trust funds.
- Exempting tip income from taxation would benefit service industry workers, allowing them to retain more of their often-variable earnings.
- Exempting overtime pay from taxation would encourage workers to take on extra hours without facing higher tax brackets, effectively increasing their take-home pay.
Middle-Class Tax Cuts:
Trump has floated the idea of additional tax cuts for middle-income earners, potentially including a 10% tax rate cut.
Trump's running mate, Senator JD Vance, has discussed increasing the Child Tax Credit (CTC) to $5,000 and removing all income thresholds. The current CTC phases out for single filers above $200,000 and married couples with more than $400,000 in income.
Doubling the Standard Deduction:
TCJA increased the standard deduction (the amount of income NOT subject to tax) for all individuals, which helped some middle- and lower-income taxpayers but also made itemizing deductions less beneficial, indirectly reducing incentives for things like charitable donations (unless following a "bunching strategy" for gifts).
Trump has proposed potentially eliminating the $10,000 cap on itemized deductions for state and local taxes (SALT).
Eliminating the Estate & Gift Tax:
Trump supports abolishing the federal estate and gift tax, which currently taxes qualifying estates at a rate of 40%.
Qualifying estates are those valued at over $13.61 million per individual at death.
The exemption amount of $13.61 million has changed significantly in recent decades, from a low of $625,000 in 1998 to its current high of $13.61 million in 2024. This exemption amount is set by law to decrease from $13.61 million per individual to $7.14 million per individual as TCJA expires in 2026.
Corporate Tax Cuts and Business Incentives:
TCJA reduced the corporate tax rate from 35% to 21%. Trump proposes a further reduction in the corporate tax rate from 21% to around 15% for companies that make their products in the U.S.
Trump also supports extending TCJA's 100% bonus depreciation for equipment and capital investments.
Opportunity Zones:
Trump plans to expand his "Opportunity Zones" initiative, which aims to attract private investment into economically distressed areas by offering significant tax incentives. Existing incentives include a five-year deferral on any prior capital gains reinvested into Qualified Opportunity Funds (QOFs) and a 10% reduction in the deferred capital gains tax if a QOF is held for more than five years (15% if held for more than seven years).
Perhaps the most attractive existing tax benefit is that if the investment in the QOF is held for at least ten years, any additional gains from that investment are excluded entirely from taxes.
Harris' Proposed Tax Policy
Vice President Kamala Harris' approach emphasizes tax reforms, generally that of increased taxation intended to fund social programs and expanding tax credits that strengthen middle- and lower-income households.
Harris' tax policies generally align more closely with a demand-side economics approach, advocating for progressive taxation where higher earners pay more in an attempt to benefit a greater number of people.
Harris' Key Tax Question:
Do higher taxes ensure greater social welfare, or do they stifle innovation, investment, and growth, leading to a net loss for everyone?
Key components of Harris' tax policy include:
Reversing TCJA Provisions:
While Harris has not taken a stance regarding the planned expiry of Trump's 2017 Tax Cuts and Jobs Act (TCJA), she has voiced her support for reversing many elements of the law, particularly those tax cuts benefiting high-income individuals and corporations.
Harris supports restoring the top individual income tax rate from 2017 on income to 39.6% for individuals earning over $400,000 yearly ($450,000 filing married) and increasing the corporate tax rate from 21% to 28%.
Changing Realized Capital Gains Taxes:
Harris supports increasing the capital gains tax rate - which requires individuals to pay taxes on the increase in value of their assets after they are sold - from a rate of 20% to 28% for individuals earning over $1 million per year.
She has also proposed increasing the Net Investment Income Tax (“NIIT”) to 5% and applying these taxes to households making more than $400,000 per year. Currently, a 3.8% rate applies to certain investment income, including interest, dividends, capital gains, rental income, and passive business income, for individuals earning over $125,000 yearly ($250,000 filing married).
These changes aim to equalize the taxation of capital gains (realized profits from investments once they are sold) with ordinary income. Capital gains taxes have historically enjoyed lower tax rates since income subject to capital gains should have already been taxed as income. This treatment ends up disproportionately benefiting investors, who tend to be wealthier individuals who derive more of their income from investments.
Data from countries with similar policies suggest that taxing capital gains at the same rate as income could raise significant revenue without harming economic growth.
Taxing Unrealized Capital Gains:
Harris supports a proposal to tax unrealized capital gains, requiring individuals to pay taxes on the increase in value of their assets before they are sold at a minimum 25% annual tax rate for those with assets exceeding $100 million.
While proponents argue it would generate tax revenue and help target wealth inequality, critics raise concerns about liquidity issues, the challenge of valuing certain assets, and the potential disincentives for long-term investing. Taxes also have a history of affecting very few people initially and expanding their application to reach more people with higher rates over time. Implementing such a tax would need careful consideration to avoid unintended consequences, particularly for investors don't have the cash on hand to pay taxes on yet-to-be-realized wealth.
A New Wealth Tax:
Harris has shown support for the idea of a wealth tax that would impose an annual tax on households exceeding a certain asset threshold.
In her endorsement of President Biden’s 2025 budget and 2024 State of the Union proposals, Harris backed a minimum 25% annual tax on both income and unrealized capital gains for those with assets exceeding $100 million.
Unlike traditional taxes, which apply to earnings from work or gains from investments, a wealth tax would impose a yearly levy on the total value of an individual’s assets, including real estate, stocks, cash, and other property.
Proponents argue that a wealth tax is a tool to reduce inequality and raise significant tax revenue for government programs.
Critics warn that a wealth tax could be difficult to enforce, as it requires annual valuations of assets that are often hard or impossible to sell to cash and hard to determine their price. They also point to the potential for "capital flight", where individuals move assets or themselves out of the area to avoid taxation.
Countries like France and Spain have implemented wealth taxes with mixed results. Whether such a tax will pass in the U.S. remains uncertain, given the political and legal challenges it faces.
Ramping Up the Estate & Gift Tax:
Harris has not taken a stance regarding the federal estate and gift tax but seems to support tightening the rules based on past endorsements.
She has endorsed the estate tax provisions of the American Housing and Economic Mobility Act of 2024, which seeks to lower the estate and gift tax exemption to the levels set in 2009 of $3.5 million per individual.
The proposal increases estate and gift tax exemptions and rates as follows:
- Starting at $3.5 million, estates would be taxed at a rate of 40%.
- Starting at $13 million, estates would be taxed at a rate of 55%.
- Estates between $13 million and $93 million would incur a rate of 60% on amounts exceeding $13 million.
- Estates over $93 million would face a tax rate of 65%.
- Estates over $1 billion would face a tax rate of 65% plus a 10% surtax.
The proposal eliminates the step-up in basis for assets held in Grantor Trusts that are not included in the taxable estate, codifying the IRS's current stance on these trusts.
The proposal aims to lower the annual exclusion for gifts from $18,000 to $10,000 and imposes restrictions on Grantor Retained Annuity Trusts (GRATs) and Grantor Trusts, making them part of the grantor’s estate.
Limiting Tax Forgiveness
Harris supports several proposals that would limit the forgiveness of taxes.
She has proposed limiting the "step up" by treating death as a realization event to tax unrealized capital gains at death for individuals above a $5 million exemption ($10 million for those filing married).
She has proposed limiting 1031 like-kind exchanges to $500,000 in gains.
Middle-Class Tax Relief:
Harris supports increasing the Earned Income Tax Credit (EITC) for those without qualifying children.
Harris supports expanding the Child Tax Credit (CTC) to provide greater financial support to families. She has proposed making the CTC permanently and fully refundable and increasing the maximum amount per child to $6,000 for children under age 1, $3,600 for children 2-5, and $3,000 for older children for households earning up to $400,000 yearly.
Harris has proposed a $25,000 tax credit for eligible first-time homebuyers through the Downpayment Toward Equity Act. This would allow eligible buyers to use the grant for expenses such as a down payment, mortgage closing costs, or securing a lower interest rate. To qualify, homebuyers must be first-generation (defined as those whose parents, legal guardians, spouse, or domestic partner haven’t owned a home in the past three years) and earn less than 120% of the area’s median income, or up to 180% in high-cost areas. Additionally, recipients are required to live in the home for at least five years to retain the benefit.
Comparative Analysis
The tax policies proposed by Trump and Harris represent fundamentally different approaches to economic management and wealth distribution.
Targeting Economic Growth vs. Income Inequality
Trump’s policies focus on reducing taxes to stimulate investment and economic growth, with the belief that lower taxes promote economic growth and benefit all income levels through job creation.
Advocates claim that Trump's tax cuts spurred economic growth and reduced unemployment. However, most economic models predicted—and subsequent data confirmed—that the short-term benefits were unevenly distributed, with the largest gains going to corporations and wealthy individuals. Trump's TCJA’s corporate tax cuts led to a short-term economic boost, but they also contributed significantly to the national debt, increasing it by nearly $1.9 trillion over a decade. The assumption that corporate tax cuts would translate into sustained wage growth for workers has not been fully realized.
Harris’ policies aim to increase taxes on the wealthy and corporations to fund social programs and reduce income inequality.
Her focus on tax credits for low- and middle-income families while increasing taxation on higher-earners would likely reduce after-tax income inequality while funding social programs. Economists suggest this would likely stimulate consumption in lower-income households, which could create a ripple effect of demand-led growth. Based on past examples (e.g., the Clinton-era tax hikes), higher taxes on the wealthy, when paired with increased social spending, did not negatively affect growth. In fact, growth during that period was strong, suggesting that the wealthy continued investing despite higher tax burdens.
Short-Term Relief vs. Long-Term Investment
Trump’s proposals offer immediate tax relief with the goal of boosting economic activity.
In theory, these policies can stimulate investment, innovation, and job creation. If corporate reinvestment happens, it could lead to long-term economic growth. However, by focusing on tax cuts for the wealthy and corporations, there’s a risk of increasing wealth concentration and exacerbating inequality. The growing national debt could also create long-term fiscal challenges, particularly if economic growth slows.
Harris’ approach focuses on investments in social infrastructure, funded by higher taxes on the wealthy.
By focusing on broad social welfare, Harris’ policies are likely to reduce inequality, which many economists argue is crucial for sustainable economic growth. More equitable wealth distribution may also lead to increased economic security for the middle class, promoting higher consumption and growth. However, others argue that increasing taxes on the wealthy has the effect of reducing incentives for entrepreneurship and investment and can be hard to enforce or might lead to counterproductive reactions, including capital flight.
Societal Impact
Trump's policies, in seeking to reward success, may align with meritocratic ideals, but they risk leaving behind those without significant wealth or access to opportunity. If the goal is to promote overall societal welfare, will favoring the wealthy and assuming benefits are shared align with a just and fair society, or could it lead to further inequality?
Harris’ approach aims to correct imbalances and promote the common good through taxation. However, if the goal is equality, is it justifiable to impose higher burdens on the wealthy to support those deemed less fortunate? Does this action encourage fairness, or could it lead to dependence?
Key Differences in Vision
The tax policies proposed by Trump and Harris highlight the stark contrasts in their economic visions.
Trump's plan emphasizes tax reductions to drive growth, while Harris' approach focuses on increasing taxes to pre-2017 levels to fund social initiatives.
The core difference between Trump's and Harris' tax policies lies in who benefits most and the intended long-term economic impact. Each approach has ethical, economic, and societal trade-offs. Which one leads to better outcomes depends heavily on whether the policies make it through Congress intact, how well the policies are executed, and finally, how the economy responds. As the debate concludes, understanding these policies' implications will be crucial for voters and policymakers alike to make informed decisions.
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