Election Day 2024: How Democrat and Republican Tax Proposals Could Shape Your Finances

Today is Election Day—a day where every vote truly counts. In addition to a range of other issues, tax policy stands as one of the defining differences between Democrat and Republican candidates. Each party's vision for the future includes distinct approaches to income, capital gains, corporate, and estate taxes, among others, each with the potential to impact your financial health in meaningful ways.

In this blog post, we’ll break down how each party’s tax proposals may affect Americans in various tax categories. It’s important to remember that, regardless of the outcome, changes in tax law take time to implement, with ripple effects reaching far and wide. Let’s dive into each tax category and explore the proposed policies.

Federal Income Tax

Democrat Proposals The Democratic Party has emphasized progressive taxation, with proposals focusing on increasing tax rates for high-income earners while providing relief for middle- and lower-income households. For example, Democrats have suggested raising the top marginal tax rate for high-income individuals and reducing taxes on those with moderate incomes. Additionally, many Democrats support increasing the Child Tax Credit and Earned Income Tax Credit (EITC) to further benefit lower-income families, with the aim of alleviating financial strain and reducing poverty. Some other changes include exempting tip income from taxation, expand housing tax credits, and increasing the $5,000 deduction for startup costs to $50,000.

Republican Proposals The Republican approach often centers around lowering tax rates across all brackets to stimulate economic growth and investment. Proposals include making the Tax Cuts and Jobs Act (TCJA) rates permanent and further simplifying the tax code. Some other proposals include reinstating the unlimited itemized deductions for state and local taxes paid, exempt Social Security benefits from taxation, exempt tip income from taxation, exempt overtime pay from taxation, and create a tax credit for family caregivers. By maintaining or lowering income tax rates, Republicans argue that this strategy leaves more money in taxpayers' pockets and encourages investment and spending, which they see as key drivers of economic expansion.

Capital Gains Tax

Democrat Proposals Democrats have proposed increasing the capital gains tax rate up to 28%, especially for individuals earning over $1 million, who could see their capital gains taxed as ordinary income. The idea behind this increase is to ensure that the wealthiest individuals contribute more proportionately, given that capital gains often account for a large portion of high-net-worth individuals' income. Additionally, Democrats are considering reforms to the “step-up in basis” rule, which allows inherited assets to be taxed at their value at the time of inheritance, thus potentially increasing tax revenue from inherited wealth.

Republican Proposals Republicans generally favor maintaining or reducing current capital gains tax rates, emphasizing the importance of investment incentives. By keeping rates low, Republicans argue this policy encourages investments in the stock market and business assets, potentially stimulating economic growth. Some Republicans are also open to the idea of indexing capital gains for inflation, which would reduce the effective tax rate on long-term gains.

Corporate Tax

Democrat Proposals Democrats advocate for raising the corporate tax rate to 28%, which was reduced to 21% by the TCJA. The proposal to raise this rate aims to increase government revenue and ensure that large corporations contribute more to federal income. Additionally, Democrats have suggested a minimum corporate tax on companies that report high profits to shareholders but show low taxable income due to various deductions and credits. The objective here is to curb tax avoidance by profitable corporations, closing loopholes that allow corporations to reduce their effective tax rates significantly. The “America Forward” proposal does allow tax credits for certain types of business activities including AI, aerospace, biotech, data centers, and iron and steel manufacturing. This proposal is aimed to revitalize the US economy, foster innovation, and strengthens the US as a leader in these critical global industries.

Republican Proposals Republicans generally oppose increasing corporate tax rates, arguing that a low corporate tax rate is essential for U.S. competitiveness in the global market. The Republican candidate proposes lowering the corporate tax rate from 21% to a 20% corporate tax rate and to lower the corporate income tax rate to 15% for companies that make their products in the US. They believe that by maintaining or even further lowering the corporate tax rate, businesses will have more capital to reinvest in growth, job creation, and wage increases. Additionally, many Republicans favor simplifying tax regulations for corporations to reduce compliance costs and encourage business formation.

Conclusion: The Broader Impact of Election Day on Tax Policy

Each party's tax proposals reflect their differing philosophies on economic growth, income distribution, and fiscal responsibility. No matter the outcome of today's election, tax policy will likely evolve over the coming years, affecting not only individuals but businesses, investments, and estates.  Whether you’re voting to support a particular vision or to protect your financial interests, today’s election has real potential to impact the tax landscape and, by extension, everyday American life. Stay informed and engaged, as tax law changes may require adjustments to your own financial strategies. If you need assistance with your own taxes, you can contact us at info@mkhstaxgroup.com.