Critical Tax Developments on the Horizon
As the 2025 elections approach, tax policy remains a focal point for candidates. The Tax Cuts and Jobs Act (TCJA), signed into law in 2018, transformed the tax landscape by significantly reducing taxes for many taxpayers while increasing the standard deduction. This legislation marked the first major update to the tax code since 1986, creating ripples across various income brackets.
The TCJA nearly doubled the standard deduction, raising it from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for married couples filing jointly. However, in a significant move, it restricted several itemized deductions, which resulted in a drop in the number of itemizers from 31% to just 9% from 2017 to 2020.
Fast forward to today, and the expiration of these tax changes in 2025 poses both challenges and opportunities. Candidates are preparing their strategies, and voters must pay attention. Their decisions may affect taxpayers of all demographics and income levels.
Kamala Harris's Approach to Taxation
Kamala Harris has expressed her commitment to President Biden's existing tax plan, ensuring that those earning under $400,000 will not see their taxes rise. A crucial aspect of this plan focuses on what will happen as the TCJA reaches its expiration date; Harris is expected to revert marginal tax rates for the top 1% of earners, which the TCJA lowered from 39.6% to 37%.
Additionally, Harris proposes expanding the child tax credit, which was increased from $1,000 to $2,000 under the TCJA. She aims for a more permanent increase, up to $3,600 depending on a child’s age. This move also includes introducing a newborn tax credit to alleviate the financial burdens new parents face.
Donald Trump's Vision for Tax Reform
On the other side, Donald Trump aims to maintain the benefits provided by the TCJA, promising to extend all its tax cuts. He champions further reductions in the corporate tax rate, which the TCJA slashed from 35% to 21%; Trump proposes cutting it down even more to 15%. According to him, these further reductions are essential to stimulate economic growth and generate job opportunities.
Trump’s approach also includes providing more substantial tax credits for families. His running mate, JD Vance, introduced a plan for a $5,000 tax credit per child, reflecting a broader strategy to support high-income families while maintaining incentives for individual taxpayers.
Potential Consequences of TCJA Expirations
The TCJA's expiration means several substantial tax policies could revert to their previous state, impacting millions of Americans. Key changes on the chopping block include:
The doubled child tax credit
Increased federal estate and gift tax exemptions
The expanded standard deduction
Lowered top federal income tax rates
As voters consider their choices, the stark contrast between the two candidates' approaches to tax policy becomes evident. The decisions made in this election may profoundly affect the U.S. tax system and its citizens for years to come.
Frequently Asked Questions
What is the TCJA?
The TCJA, or Tax Cuts and Jobs Act, is a significant tax reform enacted in 2018, aimed at cutting taxes for individuals and businesses.
How will the expiration of TCJA affect taxpayers?
The expiration could mean the return of higher taxes for many, as key provisions like the increased standard deduction and child tax credits may disappear.
What are Kamala Harris's key tax proposals?
Harris aims to keep taxes steady for the middle class and increase taxes on the wealthy, with proposals for higher credits for families.
How does Donald Trump's tax plan differ?
Trump's plan focuses on extending TCJA tax cuts, proposing lower corporate taxes and more substantial credits for families.
Why is tax policy a critical election issue?
Tax policy directly influences disposable income, social equity, and economic growth, making it essential for voters to understand candidates' proposals.
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