Tax Code Overview: Differences Between Harris and Trump Proposals

Welcome to Ewa’s finlit podcast. Ewa is a fee only RAa, based out of Pittsburgh, Pennsylvania. We hope all listeners of this podcast will benefit as we deep dive into complex financial topics that we will make simplified for you. And we hope that this really serves as a catalyst so that you can make the best financial planning decisions for your family and also save time. Welcome, everyone, today’s Finlit by EWA podcast, joined here by Jameson Smith. And we’re going to be talking about the impact of taxes on a corporate level, and then specifically to individuals and families, and how it’ll affect their financial plan dependent on the election results. Now, these are just proposals. So obviously, depending on who gets elected, you know, later this year, to pass this stuff, it still has to go through a rigorous process.
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Speaker 1
00:56
But we want to compare how you can proactively educate yourself and then make adjustments to your financial plan if necessary. So, Jameson, let’s just start with stock market price earning ratios. These are all driven. The price to earning ratios and profits of corporations all drive stock market. So some people are forecasting maybe earnings go down if tax rates go up. So what’s the difference between Trump and Harris’s views on corporate taxes?
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Speaker 2
01:36
Yeah, I guess, in general. So I think it’s important to know the lay of the tax landscape. So the 2018. What was that thing? The tax. There was some name for it. Bottom line, taxes got cut. That’s in place till 2026. So after next year, if there’s 2017.
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Speaker 1
01:56
Tax cuts and job acts.
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Speaker 2
01:57
Yeah, that’s what it is. Job act. And so taxes are cut, and if no legislation’s changed in 2026, they’re going back to the old tax code. But what happened then? Corporate taxes were a big thing. I think they went from where it’s now 21%. I think it went from 28 to 21. So it lowered corporate taxes. And bottom line, Trump wants to maintain that and keep it low. It looks like his proposal is to drop it down to 20, from 15 to 20, from 21% to 20%. And certain, it says certain companies that make their products in the US as low as 15%. And the difference between Harris’s is to revert back to the old tax code of 28%.
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Speaker 1
02:42
Well, the top tax rate before Trump was 35, we dropped it to 21 and now. So originally, Biden was saying, we’re going to go back, you know, we want to keep it up. Now, coma’s going to split the difference at 28. So it’s still an increase. So Trump at 21, nine to 20. And then Kamala is saying 28.
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Speaker 2
03:02
Yeah, I think it’s important to understand, like, in general, there’s obviously the national debt is people talk about all the time. And so that’s basically the premise of any. There’s different ways you can increase inflows to the government, and taxes are a very easy way to do so. That’s basically the root of why this is a huge discussion.
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Speaker 1
03:23
Absolutely. And then, so she’s also talking about climbing back some deductions for depreciation, interest for certain rental, construction investments, and then proactively wants to expand housing credits. Tax credits, including the low income housing tax credit for. It’s basically a credit for new homebuyers.
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Speaker 2
03:41
Or construction of starting starter homes with the corporate tax. We’ll just dive into that a little bit. What do you think? What are pros and cons of higher or lower? How does that impact the us companies, us economy, stock market?
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Speaker 1
03:55
Yeah, I think in a long term view, we’ve seen. So if you just look at returns of Democrats versus Republicans over the last 100 years, it’s very similar returns if you average it all out and you get punished if you take your political views into your investment policies, because staying invested, republican or Democrats, always the best route, you’re going to take returns way down if you were to just invest on a republican president or just invest in a Democrat. So history shows us it’s irrelevant. I mean, corporations have some of the smartest people that work for them. So they’ll navigate higher tax rates. They’ll navigate lower tax rates and figure out how to deploy talent, their cash flows, etcetera. So I think short term, there will probably be overreaction either way.
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Speaker 1
04:42
There may be some short term gains if Trump were to get elected, if Kamal got elected, just purely from the tax rates, you can even see this as the pools go. There was a jump earlier this year when Trump was favored, saying, oh, tax rates are going to stay down. So the market typically looks six months in advance. So long term, I think it’s completely irrelevant. And every investor that we work with obviously invested, but there may be some short term noise. But the short term noise would only hurt you or help you if you’re making short term bets. So all of this is totally irrelevant in the grand scheme of a long term financial.
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Speaker 2
05:15
And if you’re not properly diverse, if you’re only in like one, again, this is all speculation. But one consequence could be, okay, maybe you could say if rates are higher, us companies will look to do business elsewhere because they’re paying more in tax, they go to somewhere that’s more tax variable. But if you’re properly diversified and you’re not only in the us equities, then theoretically, your portfolio should be fine.
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Speaker 1
05:38
Absolutely. Absolutely. Well, let’s go through, for families and workers, the difference between what Trump and Harris are proposing. So, James, from an individual perspective, we saw these tax rate cuts where we basically have a 10% bracket starting up, and then it ends at 37. So he wants to make all of that permanent when it expires in 2026. So, yeah, let’s walk through the differences of Trump versus Harris.
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Speaker 2
06:14
I’m just going to read these off, actually, and then we can dive in. So Trump’s proposal making expiring income tax rates from 2017 permanent. Exactly what you said. Consider replacing personal income taxes with increased tariffs. So, again, back to that. How do we replace the revenue? It would be through tariffs, not taxes. Consider expanding the child tax credit to $5,000. Universal credit. Reinstate an unlimited itemized deduction for state and local taxes. So that’s.
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Speaker 1
06:39
That’s big. So right now it’s capped at 10,000.
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Speaker 2
06:41
Yeah. So with the 2017 tax cuts, it’s capped at 10,000. So if your state and local taxes are 100,000, you only get to deduct 10,000, and that could potentially go away. Exempt Social Security benefits from taxation. Exempt tip income from taxation. That’s a huge gray area. There’s a lot of. I’ve heard a lot of different things on that.
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Speaker 1
06:59
I don’t know how it’s already. Not that people don’t really report their tips anyways.
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Speaker 2
07:02
Yeah, but, like, you could then, like, what’s stopping? Like, you could pay an employee in a tip and not pay tax. There’s so many different, like, loopholes.
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Speaker 1
07:11
There’s a lot of loopholes there.
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Speaker 2
07:13
Exempt overtime pay from taxation. That one seems like that’d be hard to pass.
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Speaker 1
07:17
Yeah. Cause that would only affect certain workers, like trade workers and people that are paid hourly, I guess.
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Speaker 2
07:24
So. I guess, bottom line, it’s maintaining the current tax code that’s set to expire with a few changes.
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Speaker 1
07:30
Yeah. So this. This would benefit high income earners the most. Right. And the. Purely because, you know, you’re looking at that top tax rate before of 39.6.
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Speaker 2
07:44
Yeah. Well, that’s what. That’s. That’s what we’d go back to. Right.
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Speaker 1
07:47
37 versus 37. So that’s like, if someone’s making a couple million, that’s 2.6% per million, that’s $26,000. Of tax savings in your pocket. Again, that 37%, that top tax rate doesn’t come in until you’re in, like, the 700 range. Anything above that. But for a really high income earner, that’s pretty big. You know, like, let’s say 3 million above that’s like 78 grand of tax savings between the two policies. And then the salt is also big as well, because for high income earners, like, let’s say you’re making a million in Pennsylvania, you’d pay 30,700 in state taxes. Like, let’s say you live downtown in the Pittsburgh, greater Pittsburgh area. Like, you pay 3% local tax, that’s like 60 grand. That would be a deduction versus only ten grand is a deduction right now. So that’s 50 grand ran at a 37% tax bracket.
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Speaker 1
08:40
That’s 17,100 of tax savings in your pocket. So for high income earners, pretty significant. For a low to mid income earner, there’s very few differences between the Trump and the Harris plan because you’re just not going to reach those higher brackets where it really matters. So I think there is some just, and again, not to get into politics here, just to stick to the facts. The Trump tax code is really meant to help higher income, higher net worth, whereas the comma was more geared towards taxing higher income earners higher with the proposed of let’s even the playing field, if possible.
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Speaker 2
09:26
And a lot of hers, which we can read off, a lot of hers are tax credits for lower middle class, lower income earners. So that would Trump’s taxes maybe slightly lower, but hers would be, you get more favorable tax credits, would then result in more money in your pocket. So things like she has on here, exempt tipping, come from taxation. Same thing as what Trump proposed, expand the child tax credit to 6000 for children under the age of one. Then it phases down in amount.
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Speaker 1
09:55
I think that one’s really good because, I mean, we’re in an epidemic right now where we have, like, not having kids.
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Speaker 2
10:02
Yeah. It’s underpopulation problem. Yeah.
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Speaker 1
10:04
And that brings a lot of issues for longevity of a good country. Right. So incentivizing from a financial people are very, you know, financially driven. Incentivize young couples to start having children, I think is big, especially those that have student loans. And, like, seeing that the money flow in from this would be, I think would be a win.
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Speaker 2
10:21
Yeah.
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Speaker 1
10:21
So I do like that.
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Speaker 2
10:24
Expand premium tax credits, expand housing tax credits. So that was when there was a, I think it was a $25,000 tax credit for first time homebuyers or something like that.
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Speaker 1
10:33
Yeah.
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Speaker 2
10:34
And then increase the Medicare tax. Yeah, increase the Medicare tax to reach 5% on income above 400,000. So right now, that’s, this is the net. I know, never mind. There was one about the net investment. This is Medicare tax. So right now it’s 1.45 if you’re, you, .9 if you’re self employed, 2.9 total. That increased up five for income above, actually 2.1%.
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Speaker 1
11:00
So someone making a million, 600 grand times two mean versus it excess now, I think 0.9, it’d be big. Yeah, that’d be big. But obviously, you know, they’re, they have an agenda of keeping that system, you know, running the bombacare as well. So. Yeah, very interesting. But what’s your, any further thoughts on the, how people can prepare for this?
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Speaker 2
11:29
I mean, definitely don’t overreact because it’s all speculate. Like you said, it has to get passed in the House, the Senate, and the president. So, like, when Biden got elected, there was a huge tax overhaul that was proposed to do a lot of these things, and it got passed in, I think, the House and not the Senate. So it just never, you know, never made it through. So there’s a lot of steps to even get any of this to pass.
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Speaker 1
11:51
Yeah, absolutely. Well, I think, you know, the big thing is there’s obviously agendas on both sides, but just being aware how, you know, again, I think it’s really smart to keep politics out of investment policy. I think it’s really smart to keep politics out of your financial planning as well. Just be, but do be educated on how this impacts your family. Right, right. So if Trump gets elected, here’s what my net income is. That’s all that matters. From a financial planning standpoint, if Kamala gets elected, here’s what my take home is. Depend on income. And just, I would say, educate yourself, because if you’re gonna take, let’s say you’re a lower income and you’re like, you’re gonna get an extra dollar, 500 a month as a result of Kamala’s plan.
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Speaker 1
12:42
I’m just making these numbers up as example, like, make a plan for that. Because if you don’t have. That’s $500 a month, money’s a temperature. If you don’t educate yourself on that or no, you’re just gonna end up spending that money. It’s just gonna go, that’s just like the law of financial planning of the universe. Make a plan for that. Start saving that money, because you’re obviously current lifestyle now and then from. From the opposite of your high income earner. Like, you may miss, you may be missing a couple grand a month. And most high income earners, believe it or not, like in their thirties or forties, they can’t afford to miss a couple grand a month, believe it or not, with student loans, with kids, with everything like that.
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Speaker 1
13:20
So just becoming educated and aware how this impacts your financial plan, stress testing, it can be, obviously, very key.
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Speaker 2
13:28
I think this one’s really important, too. Capital gains and dividends.
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Speaker 1
13:32
Yes.
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Speaker 2
13:33
So says Trump. No tax policies proposed.
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Speaker 1
13:37
He just wants to keep it the same flat. You know, it’s a 0% capital gain tax on low income, 15% all the way through mid through high, and then 20. And then there’s the Medicare surcharge at 3.8. So you cap out of capital gains right now at 23.8% on a federal level. Plus any state that you live in would levy that on top.
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Speaker 2
13:55
So, Harris is a significant change. So increase the top tax rate on long term capital gains to 28% for taxable income over a million. So that’s an immediate 8% increase. Plus this one’s biggest increase, the net investment income tax, to reach 5% on income above 400,000. So right now, I think that kicks in at 250 for married somewhere around there.
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Speaker 1
14:17
So you’re basically going from 23.8% to 33% now. So it’s almost a. Yeah, if you’re basically. If you’re a million dollar income earner and you have, you know, a lot of investments, stocks, real estate, at a non qualified manner, it could be a 10% higher tax. Almost like a 30%. No, like a 40% increase in tax, but a factual 10% higher. Almost a 10% higher actual tax.
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Speaker 2
14:44
I would say actionable items. I mean, make sure you’re maximizing all the tax efficient accounts, your Roth accounts, your HSA, your 529, anything that you can get money into. Because I think a lot of. If you think of, like, a really easy, outside of estate taxes, a really easy grab for tax revenue is capital gains and money that’s in a taxable account, because you’re paying tax on that much more frequently. And really high income earners and billionaires, that’s where a lot of their money is. So that’s the thing that, in my opinion, is low hanging fruit for them to just grab more tax from it. Luckily, they took the unrealized capital gains tax out of this. But actionable advice, just maximize all your tax efficient accounts so you can get as much money out of that environment as possible.
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Speaker 1
15:29
No question. No question. Now, estate and wealth taxes. So for, if you’re, you know, very. A one percenter right now, you have a record. What is it, 12.9?
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Speaker 2
15:43
Yeah, I think it’s 12.9. So it’s roughly 13.
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Speaker 1
15:46
Roughly 13 million that you. And if you’re married, your spouse, you each have 13 million. Can I pass to the next generation, either where you’re living or when you die tax free, anything above those numbers gets taxed at 40%. So if you’re very high net worth or have the potential to get there, 2026, this expires. So it gets cut in half back to the six, with inflation adjustments, probably around 70. So that’s a big cut. And so let’s say someone’s worth 50 million that dies, like, both spouses die if they die this year, basically, 26 million, if they’re married, gets. Goes tax free, 24 million gets hit at 40% tax rate from a federal level. So that would be 9.6 million. Right. 2026 times 40%.
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Speaker 2
16:37
13.4 million. Yeah.
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Speaker 1
16:41
10.4 million of tax. Literally 10.4 of your 50 handed to the government. Right. But if you die two years from now, under, just currently have no policy law changes, it’s 14 tax free, 36 gets taxed times 40.
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Speaker 2
16:59
16 million ish.
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Speaker 1
17:01
Give me one sec.
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Speaker 2
17:05
Yeah.
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Speaker 1
17:07
So that’s an extra 4 million in tax.
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Speaker 2
17:11
Yeah.
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Speaker 1
17:13
So obviously you can do. Yeah, 14.4 million. Just double checking my math there. But, you know, that’s a $4 million, basically $4 million tax hit if you’re very rich. So there’s many ways to save that. You can gift the money now. You can set up a trust, a spouse, a life access trust, a family limited partnership. If you want to maintain control of your business interest, you’ll shift some of that to the kids. Well, you have the 13 million, not the. The approximately 7 million that were anticipating 2026. So, you know, Trump has come out and said, I want to make those limits permanent. And Kamala, I think, is. She’s got some big donors, some big backers. So she is. I mean, she’s doing a good job of, like, I think, reaching both sides right now because she’s. She’s changed a lot.
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Speaker 2
17:57
She pulled off the, I mean, the capital gains. One had to get 35 down to 28 billion, like, people that were backing or got mad that.
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Speaker 1
18:04
Yeah. And as I think you’re gonna see, I’m not sure, because like, they. Bernie was pushing hard for three and a half.
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Speaker 2
18:12
I read somewhere that they were even talks, they were trying to get down to one 1 million.
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Speaker 1
18:16
Like, it was like even. Yeah, like over a decade ago.
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Speaker 2
18:19
Bottom line, I mean, thirteen’s really high.
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Speaker 1
18:21
So we would anticipate that calm was gonna come out the lower number or just keep the current policy in place when it gets cut.
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Speaker 2
18:30
Yeah.
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Speaker 1
18:30
Which would be the easy thing to do. So she could focus on the, you know, more pressing issues. But this is obviously a big revenue generator for the government.
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Speaker 2
18:40
Yeah.
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Speaker 1
18:40
So any other closing thoughts? I mean, those are the ones. There’s lots of little things that, you know, 99% of people would have to worry about, such as that a lot of this stuff is going to more deal with how our foreign relationships are, how the stock market is able to perform, what companies are set up for the stock market. But we’ll do, we obviously have done several podcasts on the portfolio, but this one we want to focus on how this affects you as an individual, which if you’re an individual, you’re probably investing in the stock market that could get affected with corporate tax rates and then ultimately what, your paycheck ends up in your pocket and then if you’re doing estate planning.
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Speaker 2
19:19
Yeah, I guess bottom line is just stay aware of it. And we have seen they won’t. They could retroactively for the year that a law gets passed. So, like, if, like who, either one of them gets elected and something gets passed in June of 2025, they could say all of 2025 because nobody’s filed their taxes yet, is going to be under new tax code. So that’s one thing to be aware of. Just try to be proactive about it. And if, you know, obviously we’re going to be aware of this and communicate this to clients. If there’s something that’s going to change, you know, we’ll be proactive about planning to try to mitigate some of the taxes as best we can.
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Speaker 1
19:55
Absolutely. Well, James, thanks for joining and thanks for joining us, everybody. Looking forward to catching you next week. Thanks for tuning in to our podcast. Hopefully you found this helpful. Really hope this is as beneficial and impactful to as many people across the nation as possible. So hit the follow button, make sure to rate the podcast, and please share with any friends or family members that would also find this beneficial. Thank you very much.
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