Here’s where Biden and Trump stand on your taxes

Don’t let the bitterness of the 2020 presidential campaign distract you from what’s been a key contrast between the candidates: the tax impact on your bottom line.

President Donald Trump and Democratic contender Joe Biden are set to face off in the final debate on Thursday at Belmont University in Nashville.

It’s been an acrimonious fight to Election Day. The first debate devolved into shouting and cross-talk, while the second encounter was cancelled when the president pushed back against participating in a virtual debate.

It’s uncertain whether Trump or Biden will comment extensively on their approach to taxes during this week’s debate, but here’s where the two stand on issues that will impact your pocketbook.

Democrats will have to sweep the White House, the Senate and maintain their hold on the House in order for Biden’s tax plan to become law. So don’t make any drastic moves just yet.

Back in 2017, Trump signed off on a massive overhaul of the tax code: the Tax Cuts and Jobs Act.

The legislation trimmed individual income tax rates across the board, roughly doubled the standard deduction and curbed certain itemized deductions – including applying a $10,000 limit on the state and local tax deduction, a move that hit high-tax states like California and New York particularly hard.

“President Trump has made incredible strides to lower taxes on families and help Americans keep more of their hard-earned paychecks in their pockets,” said Courtney Parella, deputy national press secretary for the Trump campaign.

Biden’s campaign did not immediately respond to a request for comment.

Former vice president Biden is proposing raising the top individual income tax rate to 39.6% from its current level of 37%.

He is also calling to limit the value of itemized deductions – the write-offs households can take on expenses that include medical costs and charitable giving – to 28% for households with incomes exceeding $400,000, according to an analysis from the Tax Policy Center.

Though Biden hasn’t specifically proposed an increase in taxes on individuals making less than $400,000, policy analysts have said that middle-income households could see a decline in wages and investment income due to higher corporate income taxes.

Indeed, the former vice president has called for raising the corporate income tax to 28% from 21%. On average, after-tax income for all taxpayers could fall by 1.7% in 2030, according to an analysis by the Tax Foundation.

“The Biden campaign is proposing raising taxes on high-income individuals and corporations with some tax credits for low-income folks,” said Gordon Mermin, senior research associate at the Urban-Brookings Tax Policy Center.

Those credits include a temporary expansion of the child tax credit, boosting it to $3,000 for kids 17 and younger, plus a $600 bonus for children under 6.

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The Tax Policy Center is working on an analysis of Trump’s tax policies. It anticipates an extension of the Tax Cuts and Jobs Act.

“Extending those provisions basically means tax cuts across the income distribution, but primarily for high-income folks,” said Mermin.

Trump has said he would “cut taxes to boost take-home pay and keep jobs in America.” How this might unfold remains to be seen, as the campaign hasn’t shared many details.

“There’s some uncertainty of what that tax cut is to increase take-home pay,” said Erica York, an economist with the Center for Federal Tax Policy at the Tax Foundation “There’s no specificity on those tax cuts.”

“Some people have pointed to the ‘Tax Cuts 2.0’ that the administration has discussed since 2018,” she said. One idea floated in that package included lowering the 22% marginal income tax rate to 15%.

The former vice president has also proposed increasing payroll taxes for those high-earners.

In this case, Biden would extend the 12.4% portion of the Social Security tax — which is shared by both the employee and employer — to earnings over $400,000, the Tax Policy Center found.

Currently, wages up to $137,700 are subject to the Social Security tax.

Trump, on the other hand, has called for a temporary suspension of the payroll tax for workers earning less than $104,000 on an annual basis.

This holiday is voluntary for employers, and workers who partake would see their tax withholding rise during the first four months of 2021.

The president has called for not only forgiving the deferred payroll taxes – a move that would require Congress to act – but he also said this summer that he would make permanent cuts to the payroll tax if reelected.

Currently, depending on income, an investor could face long-term capital gains tax rates of 0%, 15% or 20%.

Certain high-income households – that is, singles with modified adjusted gross income in excess of $200,000 or $250,000 if married – pay an extra 3.8% tax on top of that.

In order to for a gain to be considered “long-term,” you must have held the asset for more than a year prior to selling it.

Biden’s proposal will raise the capital gains rate to 39.6% for taxpayers with income over $1 million, according to the Tax Policy Center.

In contrast, Trump said at an Aug. 10 press conference that he was considering a capital gains tax cut. “We’re also looking at expanding the tax cuts we’ve already done, but specifically for middle income families,” he said.

The president has also called for expanding opportunity zones.

The Tax Cuts and Jobs Act created qualified opportunity funds – investments that direct money to low-income or distressed areas and reward investors a tax break in return.

Trump’s Tax Cuts and Jobs Act nearly doubled the amount of money that families can pass on free of taxes either in a bequeath or in lifetime gifts. This is known as the gift and estate tax exclusion.

In 2020, an individual can pass on up to $11.58 million to an heir without facing federal estate or gift taxes of 40%.

Biden’s plan would bump the top tax rate on these transfers to 45%, limit the amount people can pass on at death free of taxes to $3.5 million and limit the exclusion to $1 million for gift taxes, according to the Tax Policy Center.

He is also proposing to eliminate the step-up in basis, a provision in the tax code that allows heirs to receive assets valued as of the date of death. This means, an heir who sells the holding right away would pay little to no capital gains taxes on it.

Instead, Biden’s proposal would tax unrealized capital gains at death, according to the Tax Policy Center’s analysis.