We are now just days away from the 2024 presidential election of Harris versus Trump, where the potential tax code changes impacting the area of estate planning are generating significant interest among taxpayers, estate planning attorneys, financial advisors, CPAs, etc. The author of this article has learned his lesson over the years on trying to predict which candidate will win, so instead he will try to predict what will happen to the tax code as it relates to estate planning depending on whether Vice President Kamala Harris or former President Donald Trump wins the presidential election. Each candidate’s economic philosophy and policy proposals suggest starkly different approaches to taxation that could reshape the financial landscape of the United States. However, this article will look past each candidate’s proposals to predict what actually will happen to the tax code in relation to estate planning matters.
Kamala Harris: Progressive Taxation and Social Investment
During much of her campaign, Harris has generally stated her continued focus on progressive taxation. Harris has long advocated for increasing taxes on the wealthiest Americans and corporations to fund social programs. We saw this previously when Harris pushed for the “LIFT the Middle Class Act,” but over the years her proposed policies have changed in various manners. The following is a general overview of her various positions today, as well as this author’s prediction on what changes we might see if Harris wins the 2024 presidential election as they relate to estate planning.
Key Harris Proposals
- Increased Tax Rates for High-Income Earners: Harris is likely to push for higher tax rates for individuals earning over $400,000. This could involve reinstating the top tax rate to 39.6%, as it was before the 2017 Tax Cuts and Jobs Act (TCJA).
- Corporate Tax Hikes: The Biden administration’s goal of raising the corporate tax rate from 21% to 28% will most likely see continued support from Harris, reflecting her belief that corporations should pay their fair share.
- Capital Gains Tax Adjustments: Harris has repeatedly advocated for a significant change in how capital gains are taxed, potentially treating them as ordinary income for high earners. This would increase the effective tax rate for wealthy investors and could reduce income inequality. Recently, Harris has argued for a 28% Capital Gains Tax Plan, which would be a big discussion point if elected. (See FORBES: Kamala Harris’ 28% Capital Gains Tax Plan Is A Surprise. Here’s Why.)
- Expanded Tax Credits and Deductions: There could be a significant expansion of tax credits aimed at low- and middle-income families, such as an enhanced Child Tax Credit and Earned Income Tax Credit. This would aim to alleviate poverty and stimulate consumer spending.
- Estate Tax Revisions: Perhaps most important to estate planning attorneys is the discussion on the estate tax exemption (and corresponding gift tax exemption and generation-skipping transfer tax exemption). During her campaign, Harris has mentioned her desire to repeal “Trump’s tax laws,” which are known as the Tax Cuts & Jobs Act (“TCJA”), which would return the estate tax exemption amount from the current historic high of $13.61M in 2024 (and $13.99M in 2025) to the pre-TCJA era levels, essentially cutting all of those exemptions amounts in half.
- Other Proposed Changes to Estate Planning: In addition to Harris’ desire to lower the estate, gift, and generation-skipping transfer tax exemption amounts in one way or another, her campaign has also touch upon (a) eliminating the step-up in basis upon death for wealthy individuals; (b) forcing certain advanced estate planning vehicles, such as grantor retained annuity trusts (“GRAT”) to have minimum 10-year term; (c) limiting the application of valuation discounts for intrafamily gifts or sales; (d) eliminating the ability of a grantor to pay the income taxes of intentionally defective grantor trusts (“IDGT”) as a tax-free gift; and (e) altering the longevity of generation-skipping transfer tax exempt trusts to no longer than two generations.
Predictions to Estate Planning if Harris Wins
The prediction on the impact of a Harris win to the tax code as it relates to estate planning tends to be a bit more complex than the prediction below for Trump. If Harris does win the election and the Democrats maintain control of the House and Senate, this contributor’s prediction is that Harris and the Democrats will simply count the days until TCJA sunsets. Even with maintaining such control and power, it would actually be quite surprising if not shocking that the Democrats would expend political capital and energy to try to modify the tax code in various ways when doing nothing will essentially return the tax code to the Obama era tax code just by letting the TCJA sunset. Certainly this would not accomplish all of Harris’ goals in relation to the tax code, as it would not change capital gains tax treatment nor any of the desired items listed in point #6, above. However, one would assume that Harris and the Democrats remember the failure to pass President Joe Biden’s Build Back Better Act in its intended form due to it essentially being blocked by Senator Kyrsten Sinema of Arizona and Senator Joe Manchin (both of whom were essentially pushed out of the Democratic Party due to their opposition).
If Harris does win the election, but the Democrats lose control of either or both the House and the Senate, this contributor’s prediction will be considerably different. With bifurcated power, the prediction becomes a lot more difficult, but this contributor believes the Democrats and Republicans, at some point in the future, will have to compromise. The predicted end result is that the historically high estate, gift, and generation-skipping transfer tax exemptions would be locked in and continued to be adjusted for inflation, but that the capital gains tax rate would rise to 28% for wealthy taxpayers and the corporate tax rates would also rise as well. Certainly there would be discussions to include other desired items by the Democrats, but in the opinion of this contributor it does not seem likely other areas of the tax code will change.
Donald Trump: Deregulation and Tax Cuts
If Donald Trump returns to the presidency, the tax landscape is likely to shift back toward the policies that characterized his previous administration. Trump’s approach generally emphasizes tax cuts and deregulation, focusing on stimulating economic growth through incentives for businesses and the wealthy.
Key Trump Proposals:
- Reinstatement of the TCJA: It is with great certainty that Trump will aim to make most all of the provisions of the TCJA permanent, including the increase estate, gift, and generation-skipping transfer tax exemptions, as well as the tax cuts to the corporate tax rates.
- Corporate Tax Reductions: Trump has also proposed to reduce the corporate tax rate from 21% to 15% or lower, aligning with his administration’s previous goals to attract foreign investment and encourage domestic job creation. However, recent proposals by the Trump campaign have tied these tax cuts to apply to U.S. companies that produce their products within the U.S. and imposed tariffs of 10%-20% on most all imports.
- Capital Gains Tax Stability: Unlike Harris, Trump is unlikely to propose significant changes to capital gains taxation.
- Deregulation and Simplification: Trump’s approach would likely prioritize reducing compliance burdens for businesses, including efforts to simplify the tax code and cut back on IRS enforcement measures.
- Tax Incentives for Businesses: Expect an increase in tax incentives aimed at boosting small businesses and manufacturing, potentially through deductions or credits designed to spur job creation.
Predictions to Estate Planning if Trump Wins
If Trump wins the 2024 presidential election, this contributor’s prediction generally will be short and sweet: Trump will do everything he can to make the TCJA permanent, as that was one of his biggest successes in the opinions of most Republicans when Trump was President. However, that is easier said than done, as in order to make the TCJA permanent, doing so, in its most general terms, would require creating additional revenue for the Treasury Department to make up for the purported lost revenue that TCJA caused under certain calculations. Thus, it would be rather difficult for the entirety of the TCJA to become permanent, even if the Republicans were to take back the House and Senate, without some concessions or modifications. This contributor predicts that the estate, gift, and generation skipping transfer tax exemptions would remain at their current historic high levels, but modifications would need to be done to the corporate tax proposals in order to do so. If Trump wins the election, but the Democrats maintain either or both the House and Senate, the prediction would still be the same, but modified to note that most likely a temporary extension of the TCJA would occur at the end of 2025 in order to buy more time for the Democrats and Republicans to negotiate.
Conclusion: A Divergent Path Ahead
The contrast between Harris’s progressive tax agenda and Trump’s business-friendly policies illustrates a broader ideological divide in American politics. However, many times the campaign proposals and promises never materialize in their full form. Many facts and circumstances will impact the tax code in regard to estate planning regardless of whether Harris or Trump get elected, such as which political parties control the House and Senate and by what margins. Certainly, the predictions within this article will be fun to look back at following the election and the years that follow. The safest prediction in this article is that the contributor will not be 100% correct on any of the predictions, but hopefully the readers will appreciate the detailed attempt.
This post was originally published on here
