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With nail-biting days until the U.S. presidential election, investors and business owners are closely following the candidates' proposals, or lack thereof, on an array of tax topics. Vice President Kamala Harris and former President Donald Trump have been sharing snippets of their plans, but the bigger picture will not begin to evolve until after the election, as only Congress can make changes to tax law. There is potential for significant change if Congress does not extend the 2017's Tax Cuts and Jobs Act (TCJA) when it expires at the end of 2025.
Here's a basic look what the candidates have proposed to date.
Though Harris has proposed new tax and economic policies as part of her campaign platform, she has not said whether she will continue the same policies outlined in the Biden-Harris administration's fiscal year 2025 budget, or introduce different tax policy changes, such as hiking the top tax rate on capital gains income to 28%. Trump, meanwhile, has said he plans to extend all tax cuts from the TCJA bill he signed into law during his presidency.
Calculating the potential economic impact of both proposals is a source of wrangling among policy-watchers and number-crunchers. According to the Penn Wharton Budget Model (PWBM), Harris' tax and spending proposals would increase primary deficits by $1.2 trillion over the next decade on a conventional basis, and by $2 trillion on a dynamic basis that includes a reduction in economic activity. Trump's proposals would increase primary deficits by $5.8 trillion over the next decade on a conventional basis, and by $4.1 trillion on a dynamic basis that includes economic feedback impact, PWBM estimates.
Bottom line: Vowing to slash taxes has long been a primary source of debate among presidential candidates, even though the president lacks power to change any tax laws. Once the election is over, all eyes and ears will turn to Congress. Amid the uncertainty, investors should consult their financial advisors on how to prepare for 2025, when we may experience the potential for the most significant changes to tax law in a decade.
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