2024 Election Update - Taxes Take Center Stage

September 17, 2024

Going into the 2024 election, tax proposals present a clear distinction between the two major political parties. The Tax Cuts and Jobs Act (TCJA), which passed in 2017, made the rate cuts for businesses permanent, but the cuts for individuals are scheduled to sunset at the end of 2025. Current Republican proposals would make the tax rate cuts for individuals permanent as well.¹ Democrats, on the other hand, plan to raise taxes for individuals making more than $400,000 while keeping tax rates the same for those under the $400,000 threshold, and raising the taxes on businesses.² While Democrats would seek to expand upon the clean energy tax incentives they enacted in the Inflation Reduction Act and other legislation, former President Trump would repeal them.

Top Marginal Rates on Individual Taxpayers

The following chart compares the top marginal federal income tax rates under current law and under the Democrat and Republican platforms. The Democrats have proposed higher rates for those making more than $400,000 (single filers) or $450,000 (married filing jointly). For taxpayers in those brackets, accelerating income into 2024 and deferring deductions into 2025 (or later) could reduce overall taxes if these changes are enacted. Decisions about accelerating gains may be easier to make after the election but before the new Congress is sworn in as Republicans are advocating a lower rate, while Democrats are proposing an increase.

Repealing the Federal Income Tax on Service Industry Tips

One recent proposal, on the individual income tax side, is former President Trump’s June announcement that he wants to eliminate federal income tax on tips. Vice President Harris announced a similar proposal in early August. Either plan, if pursued, would present significant legislative and enforcement complexities if enacted.

Corporate Tax Rates

The Democrats are proposing an increase in the corporate tax rate from 21% to 28%. Several current and former Biden administration officials have focused on what they describe as “tax fairness,” as well as the rising budget deficit since the TCJA was enacted, as justifications. Some Democrats also argue that businesses are partially responsible for rising inflation and that more corporate tax cuts would increase a drive toward greater profits. To counter that trend, they are proposing increased taxes on capital gains, qualified dividends and corporations. To garner voter support for their proposed higher rates, the Democrats have focused on how the revenue generated by higher taxes would be spent. For example, the proposed increase in the corporate tax rate is tied to proposals for funding universal pre-kindergarten, 12 weeks of paid family leave and tax breaks for first time homebuyers.

Republicans argued at the time of the TCJA that cutting taxes would generate a larger tax base and ultimately pay for itself, and that has been their argument for their tax policy, rather than the Democrats’ focus on increased spending.³ Republican lawmakers and policy advisors also have focused recently on opposing the global effort to reach a minimum tax rate of 15% on corporations in all international jurisdictions to reduce “tax haven shopping” by businesses. In their view, the U.S. tax rate on corporations should be lower than 15% in order to keep and attract more businesses in the U.S. (the TCJA reduced the rate from 28% to 21%, so this would be an additional 6% or more cut in the top marginal rate).

Clean Energy Tax Breaks

Another area currently generating significant debate and media coverage is clean energy. The Biden administration enacted numerous tax breaks designed to encourage the use of clean energy and soften the blow of higher costs for energy-efficient technologies. These were part of both the Inflation Reduction Act and the CHIPS and Science Act. While former President Trump has campaigned in favor of repealing these statutes, some Republicans are acknowledging the benefits of this recent legislation and are publicly commenting that not all clean energy provisions of the Inflation Reduction Act should be repealed.

What about cryptocurrency?

Third party candidate Robert Kennedy Jr. has proposed repealing the capital gains tax incurred when payments are made with cryptocurrency. Current law treats cryptocurrency like an investment asset (e.g., a stock or bond) rather than a currency, and when payments are made via cryptocurrency, a gain is recognized on the difference between the taxpayer’s cost basis and the transaction price. Changing this tax rule will reduce the burden of conducting transactions in cryptocurrency, but the increase in market value (which does not occur with cash) will escape taxation. Kennedy is not currently polling high enough to win the election, but another candidate looking to recruit his supporters might adopt some of his policy proposals.

Democrats are concerned about the environmental impact of mining for cryptocurrency, which uses significant amounts of electricity. President Biden’s budget proposal included a 30% tax on the energy used to mine cryptocurrency. This proposal will encourage crypto mining operations to search for ways to save energy, but will make it more expensive for them to do business in the meantime.

What do the polls tell us about the Congressional races?

In the House of Representatives, there are 435 seats and a party needs 218 to control. According to The Cook Political Report (September 6, 2024) there are 24 seats in the “toss-up” column, including one in Alaska, two in Arizona, five in California, one in Colorado, one in Maine, two in Michigan, one in Nebraska, one in New Jersey, one in New Mexico, one in North Carolina, three in New York, one in Ohio, one in Oregon, two in Pennsylvania and one in Washington. Interestingly, there are 11 seats in the toss-up column that are currently held by Democrats and 13 by Republicans.

In the Senate there are 100 seats, with 51 needed for a majority. The Cook Political Report (August 15) has rated three seats as toss-ups, including one each in Michigan, Montana and Ohio.

How is the presidential election shaping up?

To understand the data on the presidential election, it is useful to look at how many electoral college votes still have an uncertain outcome, rather than the gross number of voters who are expected to vote for each candidate. The Cook Political Report (As of August 27) currently reflects 93 electoral college votes in the “toss-up” column. These are from familiar battleground states, Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin.