Tax Implications of the 2020 Presidential Election

As we march closer to November, investors have taken a greater focus on the potential tax implications of this year’s presidential election. Although neither candidate has formally released a detailed tax policy, comments made during speeches and news briefings hint at differing positions – both from one another and existing tax policy.

Our understanding of each candidate’s potential tax policies and impacts are outlined below, with the caveat that there is no way to predict what would make it through Congress in the coming year. Armed with information around intent, individuals will be better positioned to consider and implement tax planning strategies before the end of 2020.

One area of concern for high-net-worth individuals is the potential reduction in the gift and estate tax exemption amount. For those who fall into estate tax territory, proactive planning before the end of the year could save millions.

Individuals are encouraged to connect with your CPA or tax advisor as well as your Bank of Oklahoma Private Wealth planning/trust and investment advisors to discuss potential scenarios to help determine what is right for you.

We at Bank of Oklahoma Private Wealth are here to help you reach your financial goals. Please reach out and let us know how we can help you navigate through this year’s election outcome.

Individual Tax Rates

• Current Law: Top marginal tax rate is 37% for income over $518,400 for individuals and $622,050 for married couples filing jointly. Rates are scheduled to increase to pre-Tax Cuts and Jobs Act of 2017 (TCJA) amounts after 2025.
• Donald Trump: Make TCJA rates permanent.ⁱ Enact a 10% middle-class tax cut, which reportedly could include lowering the 22% marginal tax rate to 15%.ⁱⁱ For 2020 the 22% marginal tax rate applies to income over $40,125 for individuals and $80,250 for married couples filing jointly.
• Joe Biden: Increase top rate to 39.6% for households with income over $400,000.ⁱⁱⁱ

Capital Gains

• Current Law: Subject to top tax rate for long-term capital gains and qualified dividends of 20% for income over $441,450 for individuals and $496,600 for married couples filing jointly. Additional 3.8% net investment income tax applies to individuals with income above $200,000 and couples filing jointly with income above $250,000.
• Donald Trump: Has made public comments expressing an interest in capital gains tax relief through a rate cut or by indexing gains on certain assets for inflation.^iv
• Joe Biden: For individuals with taxable income > $1 million, tax long-term capital gains and dividends at their ordinary income rates.^v

Estate and Gift Tax

• Current Law: 40% estate and gift tax. Step-up in basis applies to inherited assets. Exemption of $10 million per taxpayer, adjusted annually for inflation ($11,580,000 in 2020). Increased exemption from TCJA ends in 2025 and will revert to previous levels ($5,000,000 per taxpayer adjusted for inflation).
• Donald Trump: Make TCJA exemptions and adjustments for inflation permanent.^vi
• Joe Biden: Return to 2009 levels with a top rate of 45% and exemption of $3.5 million per taxpayer indexed annually for inflation.^vii Repeal stepped-up basis at death.^viii

Deductions

• Current Law: Taxpayers may deduct the greater of the standard deduction ($12,400 for individuals and $24,800 for married couples) or the sum of the itemized deductions through 2025. State and local tax payments included in the calculation of itemized deductions through 2025 are limited to a total of $10,000.
• Donald Trump: Make higher basic standard deduction enacted by TCJA permanent after 2025.^ix
• Joe Biden: Cap the benefit of itemized deductions to 28 percent of value. Reinstate the limitation of itemized deductions for taxpayers with income over $400,000.^x

Tax Credits

• Current Law: Maximum child tax credit is $2,000 per qualifying child and will revert to pre-TCJA amount of $1,000 after 2025. Credit for other dependents maximum is $500 per qualifying dependent. The child and dependent care tax credit covers 20% - 35% of work related care costs, up to $3,000 of costs per dependent, or $6,000 for two or more dependents. The earned income tax credit is available to low and moderate income taxpayers. Workers older than 65 without a qualifying child are not eligible for the earned income tax credit.
• Donald Trump: Will require dependents to have a Social Security number to claim the $500 other dependent credit.^xi Make the maximum child tax credit of $2,000 enacted by the TCJA permanent.
• Joe Biden: Increase child and dependent care credit to cover up to 50% of qualifying expenses, up to $8,000 of expenses for one child and $16,000 for two or more.^xii Credit phases out for taxpayers with income over $125,000. Expand EITC to workers over 65 without a qualifying child. Create $5,000 tax credit for informal caregivers. Enact a credit for low-income renters and a tax credit for first-time home buyers up to $15,000.

Retirement Tax Benefits

• Current Law: Contributions to traditional retirement accounts, such as 401(k)s and IRAs, are deductible above the line, thus lowering adjusted gross income. Contribution limits apply to taxpayers in all tax brackets.
• Donald Trump: Has not offered any proposed changes to the current system.
• Joe Biden: Under Biden’s plan, existing contribution limits would remain, but traditional retirement contributions would not be deductible. The deduction would be replaced with a refundable tax credit computed as 26% of the contribution amount and would be deposited into the taxpayer’s retirement account as a “matching” contribution. The taxpayer’s contributions would be a Roth contribution and would not reduce adjusted gross income. This scheme would provide a greater benefit to taxpayers in lower tax brackets and reduce the benefit to those in higher tax brackets.

Payroll Taxes

• Current Law: Social Security: 12.4% tax split equally between employees and employers on first $137,700 of wages and self-employment income. Medicare: 2.9% tax equally split between employers and employees; no income limit. Additional 0.9% Medicare income tax on earned income over $200,000 for individuals and $250,000 for married couples filing jointly. Special Rule for S Corp shareholders: Earnings distributed not considered self-employment income for the purpose of payroll taxes.
• Donald Trump: No specific proposals for permanent structural changes to payroll taxes.^xiii
• Joe Biden: Expand Social Security tax to apply to wages and self-employment income over $400,000, creating a benefit of untaxed wages between $137,700 and $400,000.^xiv

Corporate Tax Rate

• Current Law: Current Law: 21%
• Donald Trump: No formal proposal. Has publically stated he favors a decrease to 20%.^xv
• Joe Biden: Increase to 28%.^xvi

Tax Proposals
Issue	Current Law	Donald Trump	Joe Biden
Individual Tax Rates	Top rate of 37%. Applied to individuals with income of over $518,400 and married couples filing jointly with income of over $622,050.	Make Tax Cuts and Jobs Act of 2017 (TCJA) rates permanent. Enact a 10% middle-class tax cut, potentially lowering tax rate for this class.	Restore top rate to 39.6%.
Capital Gains	0% - 20% tax rate on long-term capital gains and qualified dividends. Additional 3.8% net investment tax applied to individuals with > $200,000 in income and married couples filing jointly with income over $250,00.	Has made public comments expressing an interest in capital gains tax relief through a rate cut or by indexing gains on certain assets for inflation. No formal proposal.	Tax long-term capital gains and dividends at ordinary income rates for individuals with taxable income over $1 million.
Estate & Gift Tax	40% estate and gift tax. Exemption of $10 million per taxpayer, adjusted annually for inflation ($11,580,000 in 2020). Increased exemption from TCJA sunsets in 2025 and will revert to previous levels ($5,000,000 per taxpayer adjusted for inflation). Step-up in basis applies to inherited assets.	Make TCJA exemptions and adjustments for inflation permanent.	Return to 2009 levels with a top rate of 45% and exemption of $3.5 million per taxpayer indexed annually for inflation. Repeal stepped-up basis at death.
Deductions	Taxpayers may deduct the greater of the standard deduction ($12,400 for individuals & $24,800 for married couples) or the sum of the itemized deductions through 2025. State and local tax payments deductible up to $10,000.	Make higher basic standard deduction enacted by TCJA permanent after 2025.	Cap the value of itemized deductions at 28%. Reinstate the limitation of itemized deductions for taxpayers with income over $400,000).
Tax Credits	Maximum child tax credit is $2,000 per qualifying child and will revert to pre-TCJA amount of $1,000 after 2025. Maximum credit for other dependents is $500 per qualifying dependent. The child and dependent care tax credit covers 20% - 35% of work-related care costs, up to $3,000 of costs per dependent or $6,000 for two or more dependents. The Earned Income Tax Credit is available to low and moderate income taxpayers. Workers older than 65 without a qualifying child are not eligible for the Earned Income Tax Credit.	Will require dependents to have a Social Security number to claim the $500 other dependent credit. Make the maximum child tax credit of $2,000 enacted by the TCJA permanent.	Increase child and dependent care credit to cover up to 50% of qualifying care costs, up to $8,000 of expenses for one child and $16,000 for 2+. Expand EITC to workers over 65 without a qualifying child. Create $5,000 tax credit for informal caregivers. Enact a tax credit for first-time home buyers up to $15,000, and a credit for low-income renters.
Retirement Tax Benefits	Contributions to traditional retirement accounts, such as 401(k)s and IRAs, are deductible above the line, thus lowering adjusted gross income. Contribution limits apply to taxpayers in all tax brackets.	Has not offered any proposed changes to the current system.	Under Biden’s plan, existing contribution limits would remain, but traditional retirement contributions would not be deductible. The deduction would be replaced with a refundable tax credit computed as 26% of the contribution amount and would be deposited into the taxpayer’s retirement account as a “matching” contribution. The taxpayer’s contributions would be a Roth contribution and would not reduce adjusted gross income. This scheme would provide a greater benefit to taxpayers in lower tax brackets and reduce the benefit to those in higher tax brackets.
Payroll Taxes	Social Security: 12.4% tax split equally between employees and employers on first $137,700 of wages and self-employment income. Medicare: 2.9% tax equally split between employers and employees; no income limit. Special Rule for S Corp shareholders: Earnings distributed not considered self-employment income for the purpose of payroll taxes.	No specific proposals for permanent structural changes to payroll taxes.	Expand Social Security tax to apply to wages and self-employment income over $400,000, creating a benefit of untaxed wages between $137,700 and $400,000.
Corporate Tax Rate	21%.	No formal proposal. Has publicly stated he favors a decrease of 20%.	Increase to 28%.

Disclosures: BOK Financial® is a trademark of BOKF, NA. Member FDIC. Equal Housing Lender. ©2020 BOKF, NA.

The content in this document is for informational and educational purposes only and does not constitute legal, tax or investment advice. Always consult with a qualified financial professional, accountant or lawyer for legal, tax and investment advice.

ⁱOffice of Management and Budget, “An American Budget (Fiscal Year 2019): Analytical Perspectives,” February 2018; “A Budget for a Better America (Fiscal Year 2020): Analytical Perspectives,” March 2019; “A Budget for America’s Future (Fiscal Year 2021): Analytical Perspectives,” February 2020.

ⁱⁱ Remarks by President Trump in press briefing, August 10, 2020 (mentions plans for middle-class tax cuts, additional payroll tax relief, and capital gains tax relief in second term); Remarks by President Trump in press briefing, August 8, 2020 (discusses memorandum to Treasury Secretary on temporary payroll tax deferral and other executive actions related to the coronavirus pandemic; mentions plans for additional middle-class tax cuts and capital gains tax relief in second term); Remarks by President Trump after Marine One arrival, March 3, 2020 (Q&A with reporters includes mentions of middle-class tax cuts and payroll tax cuts); Remarks by President Trump at a Business Roundtable, New Delhi, India, February 26, 2020 (mentions plans for “a fairly substantial cut” for the middle class); donaldjtrump.com, “Trump Campaign Announces President Trump’s 2nd Term Agenda,” August 23, 2020 (calls for tax cuts “to boost take home pay and keep jobs in America”).

ⁱⁱⁱ Huagun Li, Garrett Watson and Taylor LaJoie, April 29, 2020, “Details and Analysis of Former Vice President Biden’s Tax Proposals,” Tax Foundation, https://taxfoundation.org/joe-biden-tax-plan-2020/, accessed 9/24/2020.

^iv Remarks by President Trump in press briefing, August 10, 2020 (mentions plans for middle-class tax cuts, additional payroll tax relief, and capital gains tax relief in second term); Remarks by President Trump in press briefing, August 8, 2020 (discusses memorandum to Treasury Secretary on temporary payroll tax deferral and other executive actions related to the coronavirus pandemic; mentions plans for additional middle-class tax cuts and capital gains tax relief in second term).

^v Joebiden.com, “The Biden plan for health care”; “Joe Biden’s agenda for the Catholic community”; Presidential primary debates, Washington, D.C., March 16, 2020; Las Vegas, Nev., February 20, 2020; Columbus, Ohio, October 15, 2019.

^vi Office of Management and Budget, “A Budget for a Better America (Fiscal Year 2020): Analytical Perspectives,” March 2019; “A Budget for America’s Future (Fiscal Year 2021): Analytical Perspectives,” February 2020.

^vii “Tax policy decisions ahead: Implications of the 2020 presidential election,” September 9, 2020, https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Tax/us-tax-biden-trump-POV.pdf accessed 9/24/2020.

^viii Joe Biden, presidential campaign kick-off speech.

^ix Jim Tankersley, “Trump Eyes New Tax Cuts for Next Stimulus Package,” New York Times, May 5, 2020.

^x https://taxfoundation.org/pease-limitation-itemized-deductions-really-surtax/

^xi Donaldjtrump.com, “Trump Campaign Announces President Trump’s 2nd Term Agenda.”

^xii Joebiden.com, “The Biden plan to invest in middle-class competitiveness.”

^xiii Donald Trump, “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster,” August 8, 2020.

^xiv Joebiden.com, “The Biden plan for older Americans and retirement” (proposes to put Social Security “on a path to long-term solvency by asking Americans with especially high wages to pay the same taxes on those earnings that middle-class families pay”); Gordon B. Mermin, Surachai Khitatrakun, Chenxi Lu, Thornton Matheson, and Jeffrey Rohaly, “An analysis of former Vice President Biden’s tax proposals,” Tax Policy Center, Washington, D.C., March 5, 2020; Huaqun Li, Garrett Watson, and Taylor LaJoie, “Details and Analysis of Former Vice President Biden’s Tax Proposals,” Tax Foundation, Washington, D.C., April 2020; Committee for a Responsible Federal Budget, “Understanding Joe Biden’s 2020 Tax Plan.”

^xv Brian Faler, “Trump wants to cut corporate rate again, Mulvaney says,” Politico, February 28, 2020.

^xvi Joe Biden, “Build Back Better” speech, Dunmore, Pa., July 9, 2020; Democratic presidential primary debate, Las Vegas, Nev., February 20, 2020.