What the 2024 election could mean for taxes

During the 1988 presidential race, George H.W. Bush famously said, "Read my lips: No new taxes!" only to reverse that promise once elected and deficits needed trimming. As the saying goes, history doesn't necessarily repeat itself, but it often rhymes.

This time around both presidential candidates are promising tax cuts in the face of even higher deficits. Whether their campaign promises turn into law will depend on the pace of economic growth, which has an impact on federal tax revenues, and the makeup of Congress, which will have an impact on the next president's ability to enact his or her agenda.

All that will play out over the next months. In the meantime, here's a breakdown of the key tax issues facing the next president, and what the candidates are saying so far.

Will the 2017 tax cuts get extended?

Front and center for both Vice President Kamala Harris and former President Donald Trump will be whether to extend the individual rate cuts from the Tax Cuts and Jobs Act (TCJA) of 2017 or let many of the provisions sunset at the end of 2025. The act made substantial changes to the tax code, including expanding tax brackets and lowering the top tax rate, increasing the standard deduction, capping the mortgage interest and state and local tax (SALT) deductions, as well as increasing the federal gift and estate tax exemption. Just extending the TCJA could add up to $4.6 trillion to the federal debt by 2033, according to the Congressional Budget Office.¹

Trump has said he would extend the 2017 income tax cuts, paying for them in part by imposing a 10% tariff on imports (60% or more on Chinese goods).² As a candidate in 2020, Harris supported letting the tax cuts expire but has since endorsed President Biden's proposal to extend the personal income tax cuts for all but those making more than $400,000 a year, offsetting the costs with higher taxes on higher income earners, capital gains and dividends, and corporations. Trump has also spoken about eliminating taxes on Social Security income, while Harris has suggested raising taxes on higher-income Social Security recipients to shore up the trust fund. Both Harris and Trump have also spoken recently about ending taxes on tip income.

The Tax Cuts and Jobs Act (TCJA) is set to expire in 2026.

Here are 8 major changes that will happen if Congress doesn’t act to extend all or part of the legislation:

1. The top tax rate rises to 39.6% from 37.0%.
2. The threshold for the top tax bracket drops to $470,000 from $600,000 (adjusted for inflation).
3. The standard deduction is cut nearly in half for most taxpayers.
4. The $10,000 cap on the state and local tax deduction is eliminated.
5. The deduction limit on cash contributions to qualified charities drops to 50% from 60% of AGI.
6. The mortgage interest deduction limit reverts to the higher $1,000,000 (married filing jointly) limit from the 6.) TCJA’s $750,000.
7. Estate and gift tax exclusion reverts to about half its current total of $13.61 million.
8. The Child Tax Credit is reduced.

Harris presidency

Harris could follow in President Biden's footsteps, potentially using the administration's budget plan for 2025 as a blueprint. The budget sets out a list of potential tax increases for the wealthy and corporations while allowing many provisions of the TCJA to expire for certain individuals, while also giving tax breaks to lower- and middle-income people. But there are a number of other potential increases as well.

Income taxes. The Biden budget proposal called for increasing the top marginal rate on ordinary income to 39.6% from 37%. The top rate would likely apply to taxable income over $400,000 (single) or $450,000 (joint) in 2024, indexed after 2024. Harris might also look to impose a minimum 25% tax on total income, including unrealized capital gains, on taxpayers with a net worth over $100 million. The other marginal rates, as well as the income thresholds for each marginal bracket, could also change.

Qualified dividends and capital gains rates. The Biden budget has proposed taxing qualified dividends and long-term capital gains at ordinary income rates, with a top rate of 37% (or 39.6% if the top rate is increased).

Child tax credit. Harris has expressed support for expanding the Child Tax Credit (CTC), a tax break that helps with the costs of raising children. An expansion could look like what happened with the pandemic-era American Rescue Plan Act, when the current administration temporarily increased the CTC to $3,600 per child and made it fully refundable for those with income of $2,500 or less. These earners did not previously qualify for the credit.

Estate taxes. The TCJA increased the estate tax exemption to $13.61 million for single people and $27.22 million for couples. Without an extension, those amounts could fall to about half their current levels.

Also on the estate planning front, the Biden budget for 2025 proposes eliminating the step-up in basis for capital gains greater than $5.25 million for single tax filers or $10.5 million for married tax filers.

Retirement savings. Harris may advocate for Democratic proposals to either limit or eliminate back-door and mega-back-door Roth IRA conversions that allow higher earners to make nondeductible contributions to a traditional IRA and then convert those funds into a Roth IRA. These proposals were first part of the Build Back Better Act of 2021, but ultimately not enacted.

Social Security taxes. Harris has supported the Biden administration's proposal to subject earnings of more than $400,000 to Social Security taxes as a way to help shore up the Social Security trust fund.

Net investment income tax. The Biden 2025 budget proposal calls for increasing the net investment income tax (NIIT) to 5% from 3.8% for people with earned income of $400,000 or more. The NIIT is a surcharge for investment income, currently applied to individuals with modified adjust gross income between $200,000 and $250,000 depending on filing status. The additional Medicare tax rate for those earning more than $400,000 would also increase to 5% from 3.8%.

Corporate taxes. Harris has proposed increasing the corporate tax rate to 28% from 21%.

Trump presidency

While Trump's tax platform is still coming into focus, it's likely that he would look to extend many of the provisions that are part of the TCJA if elected.

Income taxes. It's likely Trump would push to extend the income tax provisions of the TCJA, perhaps on a short-term basis as Congress debates a larger tax-reform package. That could mean federal tax brackets would stay where they are today, with a top marginal rate of 37%.

Qualified dividends and capital gains rates. The TCJA lowered taxes on long-term capital gains by setting up separate tax brackets for assets held longer than 1 year and for qualifying dividends, though the rates remained the same at 0%, 15%, and 20%. The TCJA also retained the 3.8% net investment income tax, or NIIT, for higher income people. There has been some discussion among Republican tax policy experts about making the top rate 15% and eliminating the NIIT.