Daylight is starting to emerge between Vice President Kamala Harris and President Biden on tax policy. In recent days, Harris and her campaign have rolled out several tax relief/incentive proposals, which are highlighted in more detail below. 

The political appeal of Harris's tax proposals and those of former President Donald Trump may get tested tomorrow in Philadelphia, where the two candidates will meet on stage for their first (and possibly only) debate. Both are all but certain to field a question or two from moderator David Muir on their tax ideas and — just as important — the revenue/deficit impacts. 

Trump's tax proposals are largely known: making the Tax Cuts and Jobs Act (TCJA) permanent, eliminating taxes on tip income and Social Security benefits, and raising tariffs across the board with a 60 percent tariff on China imports. Trump and campaign surrogates have also discussed lowering the corporate rate to 20 percent for all corporations and a 15 percent rate for companies that produce exclusively American products, expanding and increasing the child tax credit (CTC) to $5,000, and increasing taxes on certain private college endowments.

Before she secured the nomination, Vice President Harris largely embraced the tax policy proposals in the FY 2025 Biden budget and specifically confirmed support for raising the corporate tax rate to 28 percent. She backs the administration's pledge to extend the TCJA's favorable tax provisions for those earning $400,000 or less. She also supports tax-free tips with some income limits.

Harris has proposed several new tax proposals, including:

Small Business

Harris proposes a major increase in the deduction for small business start-up expenses. She would increase the current law $5,000 deduction tenfold, allowing up to $50,000 in deductible costs with greater flexibility in exercising the deduction over time to maximize its financial impact. She also aims to develop a standard deduction for small businesses. The stated goal is to increase new small business applications to 25 million over four years. (In comparison, Trump backed legislation in 2018 to increase the deduction for small business startup costs to $20,000.) 

Housing

On housing, the Harris campaign issued a press release announcing a forthcoming proposed tax incentive "for homebuilders who build starter homes sold to first-time homebuyers." She endorsed a housing bill that would deny interest deductions and depreciation for investors of 50 or more single family properties. She would also expand the credit for low-income housing construction. Other affordable housing provisions would provide first-time homebuyers with roughly $25,000 in down payment assistance.

Families

Harris aims to cut taxes for 100 million Americans by expanding the CTC to include a $6,000 maximum for newborns in their first year. She would also raise the baseline CTC maximum back to its pandemic-era amount of $3,600 for children over one year old. She also supports expanding the earned income tax credit to cover more childless individuals. She would also make permanent the Premium Tax Credit's expanded eligibility and increased amounts that date back to the pandemic and are otherwise set to lapse next year.

Capital Gains Rates

President Biden's annual budget has consistently proposed that long-term capital gains of taxpayers with taxable income of more than $1,000,000 would be taxed at ordinary rates. In addition, he proposed restoring the top marginal rate to its pre-TCJA level of 39.6 percent. Coupled with a proposed increase to the net investment income tax from 3.8 percent to five percent for those earning over $400,000, his proposal would have taxed capital gains at nearly 45 percent for these high earners.  In somewhat of a surprising development (and perhaps to position herself as more moderate and pro-business), Vice President Harris has pivoted to a reduced capital gains rate of 28 percent (while maintaining the net investment income tax).

The tax plans of Vice President Kamala Harris and Former President Trump may be worlds apart, but they do share one important commonality: Neither fully articulates how the costs will be funded or offset. We hope to learn more from the debate tomorrow night. #TaxTake

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Loren will speak at the USA Branch of the International Fiscal Association's 5th Annual Virtual International Tax Conference on September 11.

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