Kamala Harris and Donald Trump Propose Divergent Tax Plans with Major Implications for Americans

In a time of economic uncertainty and political division, the tax proposals put forth by Vice President Kamala Harris and former President Donald Trump represent two distinct visions for the future of the U.S. tax system. Both plans, if implemented, would rank among the largest changes in U.S. tax history, but they would have very different implications for various groups of Americans.

The Context of Tax Proposals

These bold tax initiatives are especially significant as the 2024 presidential election approaches. The outcome of this election could determine the fate of many provisions in Trump's signature tax legislation, the 2017 Tax Cuts & Jobs Act, which are set to expire at the end of 2025. If Trump were to win the election, he would likely seek to extend many of these provisions, while Harris has vowed to preserve only those benefiting individuals earning less than $400,000.

Tax Proposals: An Overview

Both candidates have been actively courting support from specific voter demographics by proposing targeted tax cuts and credits. Harris has put forth a plan to introduce a $6,000 Child Tax Credit for parents of newborns, aiming to provide much-needed financial relief to new parents. On the other hand, Trump has made promises of tax cuts across a wide range of groups, including senior citizens by proposing to eliminate income taxes on Social Security, and tipped workers by vowing to eliminate taxes on tips.

However, one of the most significant and controversial aspects of Trump's tax plan is his proposal for across-the-board tariffs on all imports. This measure would effectively act as a sales tax on American consumers, as the added cost of tariffs would be borne by consumers purchasing imported goods. This stands in stark contrast to Harris's proposals, which do not include such tariffs.

Potential Impact on Taxpayers

A recent analysis by the Tax Foundation indicates that Trump's combination of tariffs and tax cuts, including a reduction of the corporate tax rate from 21% to 15%, would represent the sixth-largest tax cut since 1940. However, it is essential to note that Trump's tax cuts would require Congressional approval, which may encounter challenges if at least one of the chambers is controlled by Democrats. If Trump is unable to enact his proposed tax cuts but implements his proposed tariffs, he would instead be introducing the seventh-largest tax increase since 1940, according to the same analysis. This is due to the fact that tariffs are essentially sales taxes paid by U.S. consumers, with the average household potentially facing an additional $1,700 in costs per year, according to one estimate.

In contrast, Harris's tax proposals, which include a mix of tax cuts, increases, and expanded tax credits, would rank as the 15th largest tax increase since 1940, according to the Tax Foundation. However, the impact of her proposals would disproportionately affect higher-income households, as she has pledged not to raise taxes on individuals earning less than $400,000. Most low- and middle-income households would actually see a tax break under her plans, while high-income households would bear a significantly higher tax burden, according to analyses by the Penn Wharton Budget Model.

Regarding the specific measures related to families, Harris aims to expand the Child Tax Credit from its current $2,000 to $6,000 for children up to a year old, $3,600 for kids between 1 and 6, and $3,000 for those between 6 and 17. This expansion is projected to provide an additional average benefit of $2,750 to low-income households with children, according to an analysis by the Tax Policy Center. On the other hand, while Trump's vice presidential candidate has floated the idea of a $5,000 Child Tax Credit, more concrete details have not yet been disclosed.

Impact on Senior Citizens and Businesses

When it comes to taxes on Social Security, Trump has proposed eliminating federal income taxes on retirement payments, primarily benefiting middle- and high-income retirees. However, this move has raised concerns about hastening the insolvency of the Social Security trust fund, which relies on those income taxes for funding. On the business front, Harris plans to raise the corporate tax rate to 28%, while Trump aims to reduce it to 15%. Howard Gleckman, a senior fellow at the Tax Policy Center, noted that the candidates' tax plans diverge most significantly in their approaches to corporate taxes.

Tax Cuts and Changes

In terms of tax cuts for workers, both candidates have expressed support for reducing taxes for individuals who rely on tips. However, Trump has also proposed additional tax cuts, such as eliminating federal income taxes on overtime income. On the other hand, Harris seeks to implement measures that would assist individuals in buying homes and starting businesses, including a new $25,000 first-time homebuyers credit and expanding the deduction for startup business expenses from $5,000 to $50,000. Meanwhile, Trump has proposed making auto loans tax-deductible, a move that would primarily benefit higher-income individuals who itemize their deductions.