Tax Impact: Trump vs. Harris and Your Wallet

Tax Impact: Trump vs. Harris and Your Wallet

In the final days leading up to the presidential election, both Kamala Harris and Donald Trump have strategically highlighted the importance of taxation. This focus is intentional, as over 144 million taxpayers are actively filing individual income tax returns this year, making this a crucial topic that resonates with a large segment of the voting population. Understanding their tax policies is vital for voters as it directly impacts their financial lives.

While Congress ultimately controls fiscal decisions, the policy priorities of these candidates significantly influence the legislative agenda. Therefore, heading into Tuesday’s 2024 general election with comprehensive knowledge of their positions on taxes is essential for making an informed choice at the ballot box.

Here’s a detailed overview of the critical tax issues as articulated by former President Trump, the Republican nominee, and current Vice President Harris, the Democratic nominee.

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Trump’s Proposal: Make the Trump Tax Cuts Permanent

On his official website, Trump emphasizes his commitment to implementing “large tax cuts for workers.” The 2024 GOP platform further elaborates that Republican lawmakers intend to “permanently maintain the provisions of the Trump Tax Cuts and Jobs Act (TCJA), which doubled the standard deduction, enhanced the Child Tax Credit, and stimulated economic growth for all Americans.” These proposals underscore a broad vision aimed at benefiting the workforce.

A significant part of Trump’s legacy centers around the 2017 TCJA, which fundamentally altered the taxation landscape for both individuals and businesses. On average, this act reduced taxes for individuals by approximately $1,600, with households earning between $308,000 and $733,000 reaping the most significant benefits. This tax reduction is particularly relevant as many of the favorable provisions of the TCJA are set to expire at the end of next year. While lower taxes are appealing to many, extending the TCJA could significantly increase the national debt by an estimated $7.5 trillion by 2035, posing long-term economic concerns.

Harris’s Vision: Increase Taxes on High Earners

Echoing President Joe Biden, Harris has committed to not raising taxes for anyone earning below $400,000 annually. However, she is focused on ensuring that “the wealthiest Americans and the largest corporations pay their fair share,” as outlined in her economic opportunity policy book. This approach aims to create a more equitable tax system.

Harris advocates for rolling back the tax cuts implemented during Trump’s presidency, specifically targeting affluent Americans. Her proposals include instituting a minimum income tax for the ultra-wealthy and raising the net investment income tax. Additionally, she suggests increasing the tax on long-term capital gains—profits from the sale of assets held for over a year—to 28% for individuals earning more than $1 million annually. Notably, Sen. Bernie Sanders has criticized this plan as insufficient in addressing wealth inequality.

While critics argue that implementing her proposals may pose administrative challenges for the IRS, there’s potential for meaningful progress toward her stated goals. An analysis from the Institute on Taxation and Economic Policy indicates that her tax strategies could result in a 4.1% tax increase for the wealthiest 1% while providing an average tax cut of 2.7% for middle-income Americans, thereby promoting a fairer distribution of the tax burden.

Trump’s Commitment: No Taxes on Social Security Benefits

In a recent video posted to his Truth Social account, Trump denounced the “cruel double taxation” of Social Security benefits

The taxation of Social Security benefits dates back to 1984 and currently allows for taxation on benefits up to 85%, depending on income levels. This issue is particularly pertinent to millions of older Americans who rely on fixed incomes and struggle with the rising cost of living. However, the actual impact of Trump’s proposed changes might be relatively limited. A study by Morningstar analysts reveals that 45% of American workers may not be able to cover all their expenses in retirement; Trump’s proposal could reduce this figure to 41%. Moreover, concerns have been raised that his plan to eliminate taxes on Social Security could hasten the depletion of the program’s funds.

Harris’s Proposal: Enhance the Child Tax Credit

Harris’ policy book outlines a strong commitment to restoring the expanded Child Tax Credit, which served as a financial lifeline for numerous families navigating the economic challenges posed by the pandemic. She advocates for making this expansion permanent, increasing the tax credit from its current maximum of $2,000 to as much as $3,600 per child. Additionally, Trump’s running mate, Ohio Sen. JD Vance, has expressed support for a child tax credit of $5,000 per child, raising the stakes for this vital policy.

Moreover, Harris proposes providing middle- and low-income families with a $6,000 tax cut during the first year of their newborn’s life. She emphasizes the importance of this critical developmental year, stating, “That is a vital, vital year of critical development of a child.” The associated costs can add up quickly for new parents, who face expenses for essentials such as diapers, clothing, and car seats.

While Harris’s child tax credit proposal could cost approximately $1.6 trillion over the next decade, according to the nonpartisan Tax Foundation, another analysis suggests that her tax plan, which includes expanding the earned income tax credit, could increase national debt by $3.95 trillion by 2035, raising important discussions about sustainable fiscal policy.

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Trump’s Strategy: Implement Increased Tariffs

Trump’s economic strategy includes a strong emphasis on increasing tariffs, stating, “Our trade deficit in goods has grown to over $1 trillion a year.” The GOP platform indicates that Republicans will advocate for baseline tariffs on foreign-made goods, support the Trump Reciprocal Trade Act, and take action against unfair trading practices. The underlying rationale is that as tariffs on foreign producers rise, taxes on American workers, families, and businesses can decrease, theoretically benefiting the domestic economy.

The necessity of tariffs has become a cornerstone of Trump’s 2024 campaign. According to the nonpartisan Council on Foreign Relations, tariffs can serve as a modest source of government revenue. Trump has proposed imposing tariffs of up to 20% on imported goods from most countries and a staggering 60% on imports from China, aiming to protect American industries.

However, the implications of Trump’s tariff policies may adversely affect American consumers. The Washington Post reported that executives from companies like AutoZone and Columbia Sportswear acknowledged plans to raise consumer prices as a result of these tariffs. Furthermore, an August analysis from the Peterson Institute for International Economics estimated that, depending on policy implementation, Trump’s tariffs could cost middle-class households up to $2,600 annually, raising concerns about affordability.

To mitigate these potential burdens, Trump has proposed eliminating taxes on car loan payments and reinstating the state and local tax (SALT) deduction, aiming to balance the economic scales for everyday Americans.

Harris’s Plan: Support Homebuyers with Tax Incentives

Harris’s policy book outlines her comprehensive approach to addressing the housing affordability crisis through a variety of tax credits. These include initiatives aimed at supporting the “new construction or rehabilitation of over 400,000 owner-occupied homes in lower-income communities,” as well as incentives for builders who create affordable starter homes. Additionally, she proposes offering first-time homebuyers up to $25,000 in down payment assistance, reflecting her commitment to making homeownership achievable for younger families.

The overarching goal is to deliver substantial tax relief to homebuilders who construct homes accessible to working families, ultimately reshaping the housing market to better accommodate younger buyers. However, specific details about the execution of these proposals remain largely undefined. Experts have expressed concerns regarding the challenges in defining what constitutes a starter home, and there’s apprehension that an increase in housing demand could inadvertently drive up prices.

Shared Proposal: Eliminate Taxes on Tips

Both Trump and Harris have voiced their intentions to abolish taxes on tips, a move that could significantly impact the approximately 4 million Americans employed in tipped positions, as reported by Yale University’s Budget Lab. While this proposal may seem appealing, the tangible effects are questionable, particularly for low-income workers who often do not pay substantial income taxes due to their earnings.

There are potential unintended consequences to consider as well: Employers might respond by reducing base pay for employees, according to an op-ed from the Brookings Institution. Furthermore, individuals in traditionally non-tipped roles might begin to request tips to navigate the new tax landscape, complicating the broader conversation about wage fairness. Additionally, it’s possible that consumers could reduce their tipping practices, which may overshadow ongoing discussions about increasing the minimum wage.

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Explore More Insights from Money:

Discover how Harris and Trump are addressing inflation: Their strategies for lowering prices.

Examine the candidates’ plans regarding retirement: How do their approaches to Social Security, Medicare, and other key issues compare?

Learn about their housing policies: What are each candidate’s strategies for reducing costs for homebuyers and renters?



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