This Election May Have a Negative Impact on Your Taxes
Written by Alison Wong
The presidential election is right around the corner, and the polls are tightening! No matter which candidate prevails, there will come many tax rate and policy changes. So regardless of political affiliation, you should know the implications of a “blue wave” versus a “red tide.”
A “blue wave” refers to a Democrat sweep of the White House, Senate, and House of Representatives. A “red tide” refers to Republican control of the White House and both houses of Congress. According to a Deloitte poll on tax implications of the election, 57.6% of participants believed that a “blue wave” would result in a higher corporate tax rate, with 57.6% inferring a rate of over 28% by 2023.
Due to the economic impact of the COVID-19 pandemic, legislation has largely increased debt; therefore, future administrations and Congresses will need to implement ways to combat the deficits. One method to handle debt and deficits are additional tax increases. President Trump has consistently promised lower taxes throughout his campaign, while Former Vice President Biden has vowed to raise taxes for the wealthiest individuals and businesses. However, with the repercussions of the pandemic, many accountants believe that both candidates will need to increase taxes and cut spending in order to remedy the deficit. Once the economy has recovered, both candidates’ tax policies can come into effect.
President Donald Trump enacted the Tax Cuts and Jobs Act, which decreased almost all income tax rates, temporarily, —most notably, it reduced the highest bracket rate from 39.6% to 37%. Similarly, corporate taxes decreased from 35% to 21%, permanently, with Trump hoping to decrease this rate further upon re-election. Democratic presidential nominee Joe Biden has said that he would increase the highest income tax back up to 39.6% and increase the corporate tax rate to 28%.
Regarding capital gains rate, Biden plans to increase the rate for this making more than $1 million annually to 39.6%, almost double the current rate of 20%. Conversely, Trump plans to decrease the rate to 15%. While there is a sharp difference in capital gains policy, it is important to note that Biden’s policy would not affect most Americans.
Which candidate is better for you?
Well, this is why having the conversation and voting for your stance to be represented are important.
Regardless of the outcome, you should be prepared to potentially change your holdings depending on what tax regulations are implemented. For example, if you are thinking of selling some assets in the next year, you should closely watch the election. The large difference in capital gains policy could motivate you to sell your assets this year and take advantage of the 20% rate. However, it is important to review your short-term and mid-term goals. Even if Biden’s tax policies are enacted, tax regulations can change in a couple of years.
Keep the dynamic nature of tax policy in mind before making tax-motivated decisions. We can't stress the importance of getting in touch with your accountant asap regarding tax planning because changes are coming whichever way the election comes out.
Have questions? Want more information about this topic? Contact the HOPE Accounting Firm at 216.744.9303 or at firstname.lastname@example.org.