WSJ Your Money Briefing - Your Money, Your Vote: What Trump’s and Harris’s Tax Plans Could Mean for You

Episode Date: September 22, 2024

In the second episode of our series “Your Money, Your Vote,” we break down the tax plans of Vice President Kamala Harris and former President Donald Trump. Host J.R. Whalen is joined by WSJ tax reporters Rich Rubin and Laura Saunders to discuss which tax cuts might be extended, how the candidates’ proposed policies could affect your finances and the role of a potentially divided Congress in advancing those plans. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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I'm JR Whalen for The Wall Street Journal. This is the second installment of our special series, Your Money, Your Vote. Today we're focusing on where the 2024 presidential candidates stand on taxes. For most people, taxes are only ever on their radar in the months leading up to the filing deadline each April, and every four years right around now when promises about tax cuts come up around election time. Vice President and Democratic presidential nominee Kamala Harris and former president and Republican nominee Donald Trump have talked about taxes throughout their

campaigns. Under my plan more than 100 million Americans will get a tax cut. I am promising low taxes. And at the presidential debate hosted by ABC. I intend on extending a tax cut for those families of $6,000, which is the largest child tax credit that we have given in a long time. Everybody knows what I'm going to do, cut taxes very substantially and create a great economy like I did before. And while taxes may not be the most important issue to every voter, everyone's finances will be affected in some way.

Take Bernard Evers. He's 63, lives in New York City, and is a retired Marine cargo insurance broker. He has his mind made up about who he'll vote for in November, but he says his financial decisions for the next few years are more up in the air. If the tax issue can improve, particularly here in New York, which is a tough place to retire in, I have a decision to make because of everything being taxed on me, social security, pension, 401k, things of that nature. And taxes are on the minds of voters across the country, some more than others.

Here's 43-year-old Elisa Jovin from Los Angeles. I'm fine paying taxes as long as it's going towards roads, schools, helping homelessness, which is a huge issue in Los Angeles. I don't mind paying taxes as long as it's going towards the good of the community that I live in. But with election day rapidly approaching, voters are figuring out what they want from the candidates, like 26-year-old New York City insurance broker, Joana Allen, who's hoping to have more money in her pocket. I'm definitely looking forward to the tax break that will go to the middle class.

And the amount of taxes that's not only coming out of my paycheck, but the things that I have to spend money on on a daily basis is getting a little bothersome. So what changes can taxpayers expect under a Trump or Harris administration? And what challenges could the next president face in putting these policies in place? That's after the break. I'm not going back to university to be your friend. I'm going so I can get Uber One for students.

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I'm joined by Wall Street Journal tax reporters Rich Rubin and Laura Saunders. Rich, taxes are typically part of any presidential campaign platform. But why are taxes so significant in 2024? Well, two reasons. One is that control of the White House, the House and the Senate is all up for grabs and all three are close. So it matters a lot depending on how this election goes, what will happen to people's taxes. And then the second big reason is so much of the tax system expires at the end of 2025. The bulk of the individual tax cuts that Congress passed in 2017 are scheduled

to lapse. And so no matter who wins, the next Congress will be dealing with taxes. We'll talk about those tax cuts in just a moment. But Laura, why does tax policy matter so much for household finances? Well, it affects every part of us, everything we do, our health, our education, our saving for retirement, how we buy a home, everything. It touches all of these things. And so when it changes, that makes a difference and it's going to change.

Rich, how much have the candidates pointed to tax policy in their platforms? And is it something that has resonated with voters? It's not the top issue for voters. It is in the sense that if you think of the economy as a top issue for voters, which it is, then taxes are part of that. You hear both candidates talking about it.

The both are pretty well convinced that they have the upper hand. Well, let's get into why each candidate thinks that. On the Democratic side, what are some of the big tax initiatives that Vice President Kamala Harris has been pushing? Harris wants you to extend a lot of the tax cuts that the Republican Congress put in place. When she ran in 2019 for president, she proposed repealing all of those tax cuts that had just been enacted. And now she's kind of shifted her position.

Someone said, okay, we'll keep the ones for people making under four hundred thousand dollars a year. Those are what the Biden administration's plan has been. And then let them lapse above that. And then she's got two other pieces. One is to raise about $5 trillion in taxes over a decade that you know anything from raising the corporate tax rate to raising the capital gains tax rate to a whole suite of taxes on high income people. And then also she wants to cut some taxes even further than just the Trump tax cuts

on middle and lower income people. The biggest of those is the expansion of the child tax credit. She wants to go back to the child credit that was in place in 2021, which was up to $3,600 for young children as opposed to $2,000 now. And she would add another tier where you could get up to $6,000 if you're a parent of a newborn. Laura Harris has also said she would support taxing unrealized capital gains. What does that mean? And how is it different from how capital gains are currently taxed? Capital gains are gains from investments and typically they're not taxed until the investment is sold and so the concern is that some people can just carry investments on and on and on and on and then they actually never pay taxes on them at all. So what she would like to do is tax at the capital gains on assets even if the

asset hasn't been sold. So it's a net worth people with a net worth of above 100 million dollars? Above a hundred million dollars that's exactly right and it would put a minimum tax of 25% on those gains and it's very controversial because it upends the capital gains tax system but she sees it as a recognition that a lot of money is flowing to the top and staying there and never taxed at all. Rich, another part of Harris's platform is to expand the tax deduction for small business startups.

How would that work? Right now, if you're a small business startup, you can deduct up to $5,000 in startup costs. You would take that $5,000 and make it $50,000. work. that she's got out there raise taxes, not on those new small businesses, but on medium-sized and larger, closely-held businesses. Now let's go over to former President Trump. Rich, what did Trump promise in his first term, and did he carry that out? So he ran on a big tax cut. Like, it was clear throughout the 2015 and the 2016 campaign that if Trump won and Republicans were in charge,

there was going to be a big tax cut. That's exactly what happened. They cut taxes on individuals, they cut taxes on corporations. Some of the biggest benefits went to some higher income households, but there were tax cuts sort of across the income spectrum. Laura, one component of the 2017 tax package is the so-called salt cap, which is a limit on how big a break individual taxpayers can get by deducting what they paid in state and local taxes from their federal taxable income.

Donald Trump said he would lift that cap if he's elected. What kind of pushback did the salt cap receive when it first took effect? Well, it got a lot. It made people in high tax states, especially blue states, very angry because they went from having possibly quite a large deduction to one that is only $10,000 per return. So you get a $10,000 deduction whether you're married or whether you're single.

It might have been $40,000, $50,000 before that. And why was it put into effect? To raise money to use to lower other tax rates and things like that, to do other things that the legislators wanted to do. And for a long time, people in lower tax states have been angry or envious that that provision is in the tax code. They think it's a subsidy. Trump didn't offer details on how he would lift the salt cap numbers wise.

And so it seems like there'll be a lot of number crunching to go. Yeah, it's going to be pretty tricky. He didn't offer details and there will be a lot of opposition and there was even opposition from Republicans the day he said it. Of course, he can't do it himself. Congress has to do it. Moving on to some other potential policies, former President Trump has proposed eliminating taxes on tips, overtime pay, and Social Security payments.

How are those benefits currently taxed? So right now Social Security benefits, it's a little tricky. You have to include half of them in your income when figuring out whether they're taxed. middle and higher income singers, generally people who have other kinds of income, whether that's 401k withdrawals, IRA withdrawals, pensions, wages if they're still working, interest, are more likely to pay some of that. And so for people who are receiving benefits,

even if the benefit gets smaller, because social security runs out of enough money to pay full benefits sooner, which would be the outcome of this plan, you still might come out ahead because you're getting untaxed money even if the pre-tax money is smaller. This is a policy that you haven't heard a ton about

relatively much before this campaign started. It's more than a trillion dollars over a decade. But social security is often seen as one of those third rail items. Nobody wants to touch it with a 10-foot pole. What would have to happen for any change in social security tax to become policy? It would probably have to be a pretty bipartisan exercise because you're kind of turning the

dials on benefits and taxes. And it is that third rail kind of thing where people really are worried about trying to get dinged the next election for having taken away something that people are really counting on, which is true of Social Security. And because the Social Security Trust Fund doesn't run out of money, which doesn't mean there's no benefits, it just means benefits would be cut roughly 20 to 25% until 2032, 2033, somewhere in that range. I wouldn't expect anything relatively soon. The last time there was a big social security deal was 1983 and they didn't really cut that deal until a few weeks or months right before the deadline.

Harris has also said she wants to eliminate taxes on tips. Is her proposal any different from Trump's? So she's tried to focus a little more cleanly on hospitality and service workers, is a little more open-ended. She has tried to talk about trying to find guardrails to prevent some higher income people from recharacterizing their income as tips. So there are a couple of subtle differences. And she's also tried to pair it with minimum wage increases, which she's not trying to do.

We talked earlier about some tax credits that Kamala Harris has proposed in her campaign. What kind of tax credits has Trump mentioned in his platform? A couple of things. One is he's talked about getting What kind of tax credits has Trump mentioned in his platform? A couple things. One is he's talked about getting rid of some tax credits that Democrats put in place a couple of years ago, including tax credits for purchasing electric vehicles and for other renewable energy projects. He's not a fan of those. The child tax credit is a little squishy. You've heard JD Vance, who's the Republican vice presidential nominee,

talk about a $5,000 child tax credit, but Trump hasn't said that. And so it's not clear where that would go. Trump does talk about how the child credit went from $1,000 to $2,000 when he was president. And so that as part of the 2017 tax law, that parents lost deduction and personal exemptions for children. But on net a lot of households with children came out ahead. Laura, are there any areas of tax policy where the two candidates overlap? I think the biggest area is that they both are dependent on who's in Congress and what

Congress does. We don't know who is going to be controlling Congress or the White House, and so really everything is a toss-up. And speaking of uncertainties, what questions do we still have about how a Harris or Trump victory might affect someone's taxes? We don't know exactly where each of them is going to be on the estate tax. We don't know how they're really going to deal with the trade off of tax cuts and deficits. So like how much they're really going to insist on trying to pay for or not the tax cuts that they're adding. And there's a million other small provisions out there that,

you know, an international tax, there's a whole bunch of really complicated things that will have to get dealt with over the course of this debate that will kind of go under the radar, even in 2025. So there's a lot at stake here. And there's a lot that's still unknown. And even once we really know what the election results are, we still really won't know. Even once we really know what the election results are, we still really won't know. Taxes can bite off a significant chunk of your money, so can debt. For millions of Americans, that debt comes in the form of student loans. After forgiveness plans have gone through several legal fits and starts, what does that leave borrowers?

And how is each candidate talking about the cost of education? Join us next Sunday for the third episode of our series, Your Money, Your Vote. And that's it for part two of this special series of Your Money Briefing. This episode was produced by Ariana Osborne. I'm your host, JR Whalen. Sound designed by Jessica Fenton. Jessica wrote our theme music. Our supervising producer is Melanie Roy. Aisha Al-Muslim is our development producer.

Scott Salloway and Chris Zinsley are our deputy editors. And Falana Patterson is the Wall Street Journal's head of news audio. Thanks for listening.