The gap between the presidential candidates on tax programs is Grand Canyon-esque.
And that may understate it.
President Donald Trump wants to continue the 2017 tax cut, which his campaign claims led to investments that were responsible for lowering unemployment to 3.5% before the pandemic hit. Critics contend the tax cut ballooned the deficit and gave most of its benefits to the wealthy.
Democrat Joe Biden proposes reversing some of the cuts to add revenue and, in his words, “… make the wealthiest among us pay their fair share.”
For most voters, the difference in approach will not have great impact. A tiny percentage of voters stand to benefit or be penalized by either proposal.
Trump wants to continue the tax cuts and add a lowered maximum capital gains rate, which helps the wealthiest investors. Biden will only raise personal income taxes on those who make more than $400,000, which most analysts say is in the top 1% or 2% of wage earners.
However, there is one key tax to keep close watch on: The payroll tax. That is the tax that employers and employees pay to fund Social Security and Medicare. Trump said if he’s re-elected he wants to eliminate the payroll tax and fund Social Security with increased revenue from economic growth. That idea was rejected in the summer of 2020 by Republicans and Democrats and has drawn skeptical assessments from economists.
Biden has pledged that Social Security is a sacred trust and he will protect it, and strengthen it.
The truth is, everyone wants lower taxes, but it’s hard to fund government programs without them.
The oddity of tax plans is that those who favor fiscal conservatism are in favor of lowering taxes, which increases the deficit, something conservatives have bemoaned for years. The other side typically favors expensive programs paid for by higher taxes.
If it doesn’t always seem logical, don’t fret. These are just the “principles” of the two political parties. Details on the actual plans are below.
Trump’s 2017 Tax Cut Plan
Trump has not released a formal tax plan; the Republican party did not put together or release a platform at its 2020 convention, other than saying it wanted to continue Trump’s work. That leads to his belief in the Tax Cuts and Jobs Act of 2017, the signature legislative achievement of the President’s first term.
Problem is the law passed without a single vote from Democrats, which is never ideal. The Affordable Care Act was passed without a Republican vote in 2010 under Barack Obama, and Republicans spent years trying to repeal it. The same could happen with the Tax Cuts and Jobs Acts if Democrats take control in 2020.
The Trump campaign is not shy about boasting about the benefits from the tax bill. The campaign states that it provided tax relief for 82% of middle-class families. The standard deduction was increased to $24,800 for married filers, the Child Tax Credit was doubled to give an additional $1,000 in tax relief for working parents, and taxes for small businesses were cut 20%.
One key fact: Many of the provisions that help individuals and families, expire in 2025, one year after the next presidential term ends. That may mean an increase for almost all Americans if that is not addressed by Congress.
Tax Cut Criticism
Biden and the Democrats are not shy about criticizing the tax cuts, which they say benefitted the wealthy and corporations and did little to help the average American.
The Biden campaign says 83% of the benefits went to the top 1% of earners. This claim is supported by the group Americans for Tax Fairness. It reported in September of 2020 that the richest 1% gained on average $50,000 from the bill, while the lowest 80% of wage earners gained an average of $645. When the bill was passed, Trump told upscale members of his Mar-a-Lago club that “you all just got richer.”
Regarding corporations, Biden’s campaign states that after the bill passed, 91 companies in the Fortune 500 paid no federal taxes, with companies buying back $1 trillion of their own stock.
Biden also says that by lowering the maximum capital gains rate to 15%, Trump would give the 10 richest billionaires – who made $196 billion during the COVID crisis – a combined tax cut of $17.2 billion. Biden would ask the Top 10 to pay $30.9 billion more.
Will Biden Raise Taxes?
Yes, Biden will raise taxes on those making over $400,000 in personal income per year.
Independent fact-checkers say the claim that Biden will raise taxes on everyone is not true. PolitiFact, USA Today and the Committee for a Responsible Federal Budget all call that assertion false.
The Biden campaign sums up key elements of its tax plan this way:
- Increase the top bracket from 37% to 39.6%, which would reverse the 2017 tax bill signed by Trump
- Raise the corporate tax rate from 21 to 28 percent. That would more or less split the difference between Trump’s cutting it from 35% in 2017.
The Security of Social Security
The Social Security trust fund’s solvency depends on what happens with the payroll tax and any plans to replace that lost money.
Trump allowed earners to defer the payroll tax late in 2020 as part of his pandemic relief executive orders. The Social Security Administration Chief reported in August that the trust fund would be totally depleted by 2023 if the payroll tax were reduced to zero. AARP, which represents 38 million retired Americans, sent Trump a letter asking him to clarify his plans, stating that Social Security “is arguably the most important and successful program in our nation’s history” and “the largest source of retirement income for most Americans.”
Congress would have to sign off on any plan to cut or eliminate the Payroll Tax, though, and given the importance of Social Security to seniors, that could be a tough sell.
Biden’s plan on Social Security would keep the income contribution for Social Security at $137,700, but then add payroll tax on earnings above $400,000.
Assessing the Deficit
Deficits under Trump from 2017-to-2020 totaled $3.5 trillion before spending to help those affected by COVID-19, which added an additional $2.6 trillion for a total of $6.1 trillion. In Obama’s first four years, deficits totaled $5 trillion, in part because of the 2008 recession.
Trump had promised when he was running in 2016 to eliminate the debt in eight years. The Congressional Budget Office reports that under Trump, the country’s national debt has ballooned by $6.6 trillion and now exceeds $26 trillion.
The main reasons for the debt increase: Record defense spending, spending to help those affected by the COVID-19 pandemic and the tax cut bill of 2017.
Deficits can and will be debated, but one truth remains: They matter most to the party that does not reside in the White House.
Max Fay has been writing about personal finance for Debt.org for the past five years. His expertise is in student loans, credit cards and mortgages. Max inherited a genetic predisposition to being tight with his money and free with financial advice. He was published in every major newspaper in Florida while working his way through Florida State University. He can be reached at [email protected].
- Dore, K. (2020, September 18) What to Know About Joe Biden’s Tax Policy. Retrieved from https://twocents.lifehacker.com/what-to-know-about-joe-biden-s-tax-policy-1845103361
- Berry, K. (2020, September 1) Election 2020: Comparing the Biden and Trump tax plans. Retrieved from https://www.cpapracticeadvisor.com/tax-compliance/news/21152588/election-2020-comparing-the-biden-and-trump-tax-plans
- Madhani, A., Boak, J., Alonso-Zaldivar, A. (2020, August 13) Trump’s plan to eliminate payroll tax doesn’t add up. Retrieved from https://apnews.com/article/ap-top-news-politics-business-economic-growth-donald-trump-115d67efe74079235adc1b698ae2b6d9
- Amadeo, K. (2020, May 23) US Budget Deficit by Year Compared to GDP, Debt Increase, and Events. Retrieved from https://www.thebalance.com/us-deficit-by-year-3306306#deficit-by-year-since-1929