National Association of Insurance and Financial Advisors

Democrats Float New Tax Proposals Mostly Focused on “Tax the Rich”

Democrats are bursting with new tax ideas, most of them targeting high-income individuals. Virtually all the candidates for the Democratic nomination for President are proposing tax increases, including wealth taxes and hikes in the corporate and top individual income tax rates. By contrast, President Trump is floating the possibility of further tax cuts.
 
Among the tax proposals offered in the past few weeks are:
 
  • Increase the top individual tax rate—usually back to the pre-Tax Cuts and Jobs Act (TCJA) rate of 39.6 percent
  • Impose a tax surcharge (a “wealth tax”) on income above a certain amount—proposals range from $1 million/year to $10 million/year or more
  • Raise capital gains rates—most often the proposals suggest subjecting high-income taxpayers’ capital gains to ordinary income tax rates (i.e., tax those gains at 37 percent, or whatever the top individual rate is, rather than the current capital gains rate of 20 percent)
  • Make more inherited property subject to estate tax liability—perhaps by rolling back estate tax rates and rules to pre-TCJA levels
  • Mark to market capital gains—i.e., tax increases in capital asset value annually, whether or not the assets are sold (gain realized)
  • Increase the current corporate tax rate of 21 percent (some suggest going back to the pre-TCJA rate of 35 percent; others suggest a 25, 27 or 28 percent rate)
  • Repeal (or substantially diminish) the TCJA, including its 20 percent deduction for pass-through business income
  • Require employers to contribute to the cost of government-provided health insurance to the extent of 95 percent of the amount they currently pay for employer-provided health insurance
  • Impose a financial transaction tax (FTT)—a tax (usually consisting of from one to 10 basis points) on each trade of a stock or security. Most often, these FTT proposals contemplate that the manufacturers and/or sellers of the stocks/securities, rather than the buyers of them, pay the tax.
  • Close “tax loopholes” (special rules applicable to specific products/transactions/situations), especially at the corporate level
 
So far, President Trump has not specified a new tax plan, but his director of the National Economic Council, Larry Kudlow, said last month that a new tax cut that would principally benefit the middle class is something the Administration is working on. He referenced proposals to create a tax code with only two rate brackets—15 percent and 28 percent, presumably including a significant bump-up in the level of income at which income tax would be assessed (to avoid a tax increase on those currently in the 10 and 12 percent brackets). The Trump people have not specifically addressed the business/corporate tax rate or rules, but it is likely they will as the campaign heats up.
 
Estimates are that taking the corporate tax rate back to 35 percent would raise about $1.3 trillion in revenue over ten years. The lawmakers and candidates proposing the corporate tax rate increase (and other tax hikes) have no shortage of ideas on how to spend the resulting increase in tax revenue. Among the proposals that would be paid for by these tax increases are federal paid leave, education, climate change, and increased (usually provided by the government) health coverage. The revenue could also be used to reduce the federal deficit, which is currently projected to top $1 trillion in the next year or two.
 
Early polling shows considerable voter support for higher corporate taxes as well as higher taxes on extremely wealthy individuals. Thus, the campaign trail is likely to be unusually focused on proposals that include taxes—whether to increase them or cut them. Expect this at the Presidential, Senate and House race levels.
 
Prospects: It’s still a long way to the November 2020 elections, and it remains unclear who the actual candidates will be. But the current trend is clear: Democrats are largely in favor of an increase in taxes paid by businesses and wealthy individuals, while Republicans prefer a lower tax burden, in general, and specifically for business. But candidates and sitting lawmakers from both parties are making taxes among their priority issues. Expect 2020 to be full of discussion of new tax proposals, and 2021 to bring debate on actual legislative proposals.
 
NAIFA Staff Contacts: Diane Boyle, Senior Vice President – Government Relations at DBoyle@naifa.org; Judi Carsrud, Assistant Vice President – Government Relations at jcarsrud@naifa.org.
 
  • Posted November 15, 2019 IN