As we approach the next election, both Kamala Harris and Donald Trump are putting forward their ideas on taxes. However, at this stage, it’s important to remember that politicians often make big promises that don’t always come to fruition. Even if a candidate wins, they still need to navigate Congress and political opposition, meaning many of these proposals may change or never become law.
The goal of this article is to provide an objective comparison of what’s being discussed right now. Whether these ideas pass or not, staying informed can help you make better financial decisions. Let’s dive into what’s being talked about—along with a bit of perspective on what each issue could mean.
Tax Issue #1: Capital Gains Taxes
Kamala Harris:
Harris supports taxing unrealized capital gains or what you might call “gains on unsold investments”. Under current conversations, this means families with a net worth over $100 million could owe taxes on the increased value of investments, even if they haven’t sold them. Harris also wants to increase the long-term capital gains tax from 20% to 28% for people earning more than $1 million a year.
Donald Trump:
Trump has not proposed major changes, signaling an interest in maintaining the current structure.
Commentary: Taxing unrealized gains is a significant shift and could complicate wealth management. If thresholds change, even more people could be affected—highlighting the importance of monitoring these developments.
Tax Issue #2: Corporate Taxes
Kamala Harris:
Harris proposes raising the corporate tax rate from 21% to 28%. This increase is intended to boost federal revenue, with the idea that companies, especially large ones, should contribute more to fund public services.
Donald Trump:
Trump wants to lower the corporate tax rate to 20% and as low as 15% for companies that manufacture their products in the U.S. His position aligns with incentivizing domestic production, potentially bringing jobs back to the U.S.
Commentary: For businesses, these differing proposals could significantly impact operations and profitability. If you run or invest in a business, it’s worth considering how tax rates could affect the bottom line—and whether policy changes might encourage or discourage U.S.-based production.
Tax Issue #3: Individual Federal Income Tax Rates
The Tax Cuts and Jobs Act of 2017 (TCJA) is set to expire in 2025. If Congress does not extend it, individual tax rates will increase. Review the below attached document to see the difference between the current tax code under TCJA (on the left) vs if TCJA expires (on the right).
Kamala Harris:
Harris has proposed not to raise taxes for individuals earning less than $400,000 a year. However, if the TCJA is allowed to expire, taxes will increase unless new legislation is passed to extend or modify the existing rates.
Donald Trump:
Trump wants to extend the TCJA and keep the tax rates the same as what they are now.
Commentary: If the TCJA expires, almost everyone will see higher taxes. Regardless of which candidate wins, it’s smart to review your income strategy and tax bracket to prepare for potential increases.
Tax Issue #4: Taxes on Tips
Kamala Harris and Donald Trump:
Both candidates support eliminating taxes on tips, a move that could significantly benefit service workers. Tips would essentially become untaxed income, increasing take-home pay and possibly attracting more workers to industries struggling with labor shortages.
Commentary: Eliminating taxes on tips would likely change how restaurants and other employers handle compensation. It could result in fewer service charges or alter base wages, which may take time for employers and workers to adjust to. For those in service industries, it’s worth considering how this could shift your overall income and benefits package.
Tax Issue #5: Social Security Taxes
Kamala Harris:
Harris has not proposed specific changes to the taxation of Social Security benefits.
Donald Trump:
Trump proposes eliminating taxes on Social Security benefits entirely.
Commentary: Removing Social Security taxes would be a meaningful change for retirees, especially those on fixed incomes. However, the loss of this tax revenue could raise questions about how to fund Social Security long-term, especially given concerns about the program’s solvency.
Tax Issue #6: Overtime Pay
Kamala Harris:
Harris has not proposed specific changes to the taxation on overtime pay.
Donald Trump:
Trump has proposed eliminating taxes on overtime pay, potentially allowing employees to keep more of their earnings.
Commentary: While eliminating overtime taxes could provide a short-term incentive to work more hours, employees should consider the long-term impact on work-life balance. Additionally, it’s worth asking whether employers would rely more heavily on overtime labor instead of hiring additional staff, potentially leading to burnout.
Tax Issue #7: Tariffs
What Are Tariffs?
Tariffs are taxes imposed on imported goods, often intended to protect domestic industries. However, they also increase prices for consumers and businesses by raising the cost of imports.
Kamala Harris:
Harris argues that tariffs effectively act as a sales tax on consumers, as the higher costs from tariffs often get passed down to buyers.
Donald Trump:
Trump proposes a 10-20% baseline tariff on all imported goods, with tariffs of up to 60% on imports from China. His goal is to encourage domestic production and reduce reliance on foreign goods.
Commentary: While tariffs can benefit certain industries, they also risk raising prices for everyday goods and can lead to trade tensions. If these policies go into effect, consumers and businesses alike will need to budget carefully to account for higher costs on imported items.
Tax Issue #8: Startup Expense Deduction
Kamala Harris:
Harris wants to increase the startup expense deduction from $5,000 to $50,000, allowing new businesses to write off more of their initial expenses.
Donald Trump:
Trump has not proposed changes to the startup expense deduction.
Commentary: The proposed increase could reduce financial barriers, providing potential relief for new entrepreneurs. If you’re considering starting a business, planning ahead to maximize potential deductions could be a smart strategy—regardless of who wins the election.
Tax Issue #9: Child Tax Credit (CTC)
Kamala Harris:
Harris supports increasing the Child Tax Credit to offer more relief to families. Her proposal includes raising the credit to $6,000 for children under age one, $3,600 for children ages 2-5, and $3,000 for older children. She also advocates for making the CTC fully refundable, ensuring lower-income families benefit even if they owe little or no federal tax.
Donald Trump:
Trump has not proposed any significant changes to the current structure of the Child Tax Credit.
Commentary:
Expanding the CTC could provide meaningful financial relief, especially for families with young children. However, changes may depend on congressional negotiations and the budget impact.
Tax Issue #10: Net Investment Income Tax (NIIT)
Kamala Harris:
Harris proposes increasing the NIIT from 3.8% to 5% on income over $400,000. This tax currently applies to investment income such as interest, dividends, and capital gains. Her plan aims to generate additional revenue from higher earners.
Donald Trump:
Trump has not proposed changes to the NIIT, indicating he may maintain the existing tax rate and structure.
Commentary:
Increasing the NIIT would primarily affect high-income earners with significant investment portfolios. It could also lead to more complex tax planning for those near the $400,000 threshold.
Final Thoughts: Focus on What You Can Control
While these tax proposals are interesting to consider, it’s essential to remember that nothing is set in stone. These ideas will need to go through Congress, where they could be revised or even rejected entirely. In the meantime, the best strategy is to focus on what you can control.
Here’s what you can do now:
- Develop your career. Build skills and experience to increase your income potential, regardless of tax changes.
- Stick to your financial plan. Don’t make sudden moves based on campaign promises—your long-term goals are more important.
- Be adaptable. Stay informed and ready to adjust your strategies when tax policies do change.
Politicians can promise anything, but your success depends on how you plan and manage your career and finances. Stay focused, keep learning, and be ready for whatever comes next—because no matter who is in office, you are the one in control.
Disclosure
This article is intended for informational purposes only and does not constitute financial, tax, or legal advice. While efforts have been made to present the proposals accurately, policies discussed are subject to change and depend on congressional approval. Readers are encouraged to consult with a tax professional or financial advisor to understand how potential changes may affect their individual circumstances. Brooks Wealth Management does not endorse any political candidate or party and remains committed to providing objective, non-partisan insights to help readers make informed financial decisions.