Elections in the U.S. often serve as vehicles to help usher in new policy proposals, as newly elected officials frequently cite the recent votes of American citizens as referendums — or even mandates — in favor of the policy positions upon which candidates have campaigned.
This is especially true of presidential elections. And by the evening of Nov. 5 voters will have submitted their ballots, which will ultimately elect either Kamala Harris or Donald Trump as the next U.S. president.
From Retirement Daily: Tax Proposals — Harris vs. Trump Plans
With regard to tax policy, Retirement Daily Editor Robert Powell explains, competing proposals from each side are topics of discussion during the final weeks of the campaign.
So Powell recently gathered together tax experts Steve Siegel of the Siegel Group and Robert Keebler of Keebler & Associates to examine some of the important details, paying close attention to major items tax advisors and their clients ought to consider.
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One tax policy word of caution is quickly addressed
As a first item of business, Siegel mentioned an important caveat to any discussion about tax policy that might result from a national election, regardless of whether it's Harris or Trump who wins.
That is, unless the winning presidential candidate's party also wins majorities in both the House of Representatives and the Senate, little either candidate proposes will get legislative traction.
"Some of these plans are so diverse between one party and the other that compromise seems unlikely," Siegel said.
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But, if either the Democrats or Republicans win both houses of Congress in addition to the presidency, and can pass a law sooner than the end of 2025, tax requirements for Americans would be enacted at a quicker pace.
Siegel explained that Congress would have a chance at passing a law by November or December of 2025, and that these usually take effect by the next year.
"But ... there is the possibility that some things could be made retroactive, which suggests that we don't allow clients to wait and see what's going to happen for very long," he added, pivoting to thoughts of taxpayers who are seeking advice.
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Harris and Trump differ on individual income tax plan ideas
A quick look at likely plans for individual income taxes reveals some differences between the proposals Harris and Trump support.
For example, Harris proposes exemptions for tip income from taxation, expansion of the child tax credit to $6,000, expansion of the earned income tax credit for filers not claiming children, and expansion of housing tax credits and premium tax credits, Powell explained.
There are also reports that Harris would bring back the top 39.6% income tax rate for people making $400,000 or more and increase the 3.8% net investment income tax to 5%. In addition, she supports a 25% minimum income tax on people with $100 million or more in wealth.
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Trump has indicated he would make permanent the expiring income tax cuts put in place in 2017, Powell said. He would also consider replacing personal income taxes with increased tariffs, expanding the child tax credit to $5,000 and exempting tips from income taxes.
"For anyone over that $100 million threshold, you need to initiate a discussion with your CPA and lawyer immediately to see if there are any chess moves available," Keebler said.
"The move from 37% to 39.6% tax rate means evaluating Roth conversions," he added. "The change of the 3.8% tax to 5% is significant over time, but there's not a lot we can do to plan for that other than working on accelerating income into 2024 and likely 2025."
"It's possible these would have a retroactive effect, but more likely they would be effective January 1, 2026."
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