[UNITED STATES] As the 2024 presidential race heats up, the tax proposals put forth by Vice President Kamala Harris and former President Donald Trump have become a focal point of economic debate. These plans, vastly different in their approach and potential outcomes, offer a glimpse into the fiscal philosophies of both candidates. A veteran financial advisor has provided a blunt assessment of these proposals, shedding light on how they might affect American taxpayers and the broader economy.
Corporate Tax Rates: A Key Battleground
One of the most significant differences between the Harris and Trump tax plans lies in their approach to corporate taxation. Harris proposes increasing the corporate tax rate from 21% to 28%, a move that would generate substantial revenue for the federal government. This increase is projected to raise approximately $900 billion through 2035, according to estimates.
In contrast, Trump's plan aims to further reduce the corporate tax rate, building on the cuts implemented during his previous administration. This approach aligns with his broader strategy of stimulating economic growth through tax reduction.
John Eckel, a certified financial planner and founder of Pinnacle Investment Management, offers insight into these contrasting approaches: "Harris's plan to raise corporate taxes could potentially slow down economic growth in the short term, but it aims to address income inequality and fund social programs. Trump's plan, on the other hand, is banking on the idea that lower corporate taxes will spur investment and job creation."
Individual Income Tax: Targeting Different Demographics
The impact on individual taxpayers is another area where the two plans diverge significantly. Harris's proposal focuses on providing relief to lower and middle-income Americans while increasing taxes on high earners. A key component of her plan is the expansion of the Child Tax Credit, which could provide significant benefits to families.
Trump's plan, however, seeks to make permanent the individual tax cuts from the Tax Cuts and Jobs Act of 2017. This would potentially benefit a broader range of income levels, with particular advantages for higher earners.
"The difference in these approaches reflects fundamentally different views on how to stimulate economic growth and address income inequality," Eckel explains. "Harris is targeting relief at the bottom of the income scale, while Trump's plan provides more benefits to those at the top, based on the theory that this will drive investment and job creation."
Capital Gains and Investment Income
Another area of stark contrast is the treatment of capital gains and investment income. Harris proposes increasing the capital gains tax rate to 28% for those earning more than $1 million annually. This move is aimed at generating revenue from the wealthiest Americans to fund other initiatives.
Trump's plan, while not explicitly addressing capital gains, is expected to maintain or potentially lower the current rates, continuing his previous administration's approach of incentivizing investment through tax policy.
Eckel comments on this aspect: "The capital gains tax proposal from Harris could significantly impact high-net-worth individuals and potentially influence investment behavior. Trump's approach, by contrast, is more likely to maintain the status quo or even further incentivize investment through tax breaks."
Small Business Provisions and Economic Growth
Both candidates have included provisions aimed at supporting small businesses, albeit through different mechanisms. Harris supports increasing the deduction limitation for small business start-up expenditures from $5,000 to $50,000. This move is designed to encourage entrepreneurship and small business growth.
Trump's plan includes making the 20% deduction for qualified business income permanent, a continuation of a key provision from the Tax Cuts and Jobs Act2.
"These differing approaches to small business support reflect the candidates' broader economic philosophies," Eckel notes. "Harris is focusing on reducing barriers to entry for new businesses, while Trump is looking to provide ongoing tax relief for established small businesses."
Deficit Projections and Economic Impact
A critical consideration in evaluating these tax plans is their potential impact on the federal deficit and overall economic growth. According to the Committee for a Responsible Federal Budget, Harris's economic plan would add more than $3 trillion to the federal deficit over the next decade, while Trump's plan would increase the debt by $7.5 trillion.
Eckel provides context for these projections: "While both plans are projected to increase the deficit, the scale of increase under Trump's plan is significantly larger. This raises questions about long-term fiscal sustainability and potential impacts on future generations."
The Tax Foundation estimates that Harris's proposals would reduce long-run GDP by 2.0%, the capital stock by 3.0%, wages by 1.2%, and employment by about 786,000 full-time equivalent jobs. However, these projections are subject to debate and depend on various economic assumptions.
Social Security and Retirement Planning
The treatment of Social Security benefits is another area where the candidates differ. Trump's plan proposes to exempt Social Security benefits from taxation, a move that could provide relief to many retirees. Harris's plan does not currently address Social Security taxation directly.
Eckel comments on the implications: "Exempting Social Security from taxation could provide immediate relief to many retirees, but it's important to consider the long-term funding implications for the Social Security program itself."
Estate Tax and Wealth Transfer
The estate tax, often a contentious issue in tax policy debates, is addressed differently by the two plans. Trump's proposal aims to make the doubled exemption amount from the Tax Cuts and Jobs Act permanent, potentially benefiting high-net-worth individuals in transferring wealth to heirs2. Harris's plan does not currently include specific proposals regarding the estate tax.
"The approach to estate taxes can have significant implications for wealth transfer and generational wealth accumulation," Eckel explains. "Trump's plan would likely be favorable to high-net-worth individuals planning their estates, while Harris's lack of a specific proposal leaves room for potential changes in this area."
As voters consider these tax proposals, it's crucial to understand their potential impacts on both individual finances and the broader economy. Eckel emphasizes the importance of looking beyond short-term benefits: "While tax cuts might seem appealing in the short term, it's essential to consider the long-term implications for economic growth, income inequality, and fiscal sustainability."
The contrasting approaches of Harris and Trump reflect fundamentally different views on economic policy and the role of taxation in society. Harris's plan aims to address income inequality and fund social programs through increased taxes on corporations and high earners. Trump's proposal, on the other hand, focuses on stimulating economic growth through broad tax cuts and incentives for investment.
As the 2024 election approaches, voters will need to weigh these different visions for America's fiscal future. Understanding the nuances of these tax plans and their potential impacts will be crucial in making informed decisions at the ballot box.
Eckel concludes with a word of caution: "Regardless of which plan one might prefer, it's important to remember that tax policy is complex and interconnected with many aspects of the economy. The actual implementation and outcomes of these proposals may differ significantly from what's projected, and voters should consider multiple factors when evaluating these plans."
