Now that we know officially who the two main contenders are for the White House in November, I thought it would be helpful to evaluate the two sides’ competing tax proposals, head to head. Over the next couple of weeks, I’ll be taking pieces of the two tax plans and comparing them for you in my Blog posts. It may not change who you vote for, but at least you won’t be surprised when they do what they say…

Individual Tax changes

We currently have seven tax brackets ranging from 10% to a top rate of 37%. The 37% rate kicks in at income levels over $510k (single). The Trump plan would retain the current structure but is considering a 10% rate cut for the middle class. The Biden plan would increase the top rate to 39.6% and lower the point that it applies to $400k.

For Capital Gains, we currently have a 3 tiered rate structure, 0, 15% and 20%, plus the add on Net Investment Income Tax of 3.8%. The Biden plan would eliminate the structure for those earning over $1mil and tax Capital Gains at 39.6%. The Trump plan would remain the same as is, or, alternatively, index capital gains for inflation. Neither side supports a wealth tax (an annual tax on net worth) which has been discussed by some.

The Earned Income Credit is currently available for low income taxpayers with qualifying children, and some others. In addition, a taxpayer can claim a $2,000 credit for each qualifying child. These credits phase out as income increases. The Trump plan would extend these provisions through 2025 and require valid Social Security Numbers for work to claim some credits. The Biden plan expands the Earned Income Tax Credit to include workers over 65, and greatly expands the dependent care credits to half of expenditures for child care, up to $8,000 for one child and $16,000 for two or more. The Child Care credits would phase out for families making between $125,000 – $400,000.

For itemized deductions current law caps state and local tax (SALT) deductions at $10,000. There are other separate limitations for mortgage interest, charitable donations, and medical costs. The Trump plan would extend these to 2025. The Biden plan would eliminate the SALT cap, but allow only 28% of the total value of itemized deductions as a deduction.

There’s lots more of this stuff, and I’ll be showcasing the provisions I think are most relevant to readers without getting too wonky. Stay tuned for the next installment!