It’s hard to escape talk about the upcoming presidential election cycle in the US, especially if you live in a swing state. While there are many differences between the candidates, one that I’m discussing more often than not with clients is income tax policy.

It’s understandable – income taxes can have a material impact on workers and retirees alike and as a result, it’s a key policy issue for voters (and investors) to consider. Adding to the importance in this election is the fact that the 2017 tax cuts (put into place during President Trump’s first term), are set to expire at the end 2025. These 2017 cuts included lower individual income tax rates, a higher standard deduction, a cap on state and local tax deductions, and a larger amount of assets that can be inherited without triggering the estate tax.

The expiration of these cuts is leading to considerable back and forth regarding what to do with income tax policy – as well as what other tax issues could be included in a larger bill. For instance, both candidates have discussed excluding tips from taxation. Trump has noted his support for eliminating taxes on Social Security benefits and overtime pay, while Harris has proposed new tax incentives for first-time homebuyers and small businesses. 

An area of particular focus for clients is the candidates’ plans for tax brackets and rates. At this time, it doesn’t seem like either candidate has an intention to alter taxes meaningfully for most Americans (both have stated no planned increases for those making $400,000 or less). However, at the wealthier end of the spectrum, there are differences between the parties’ proposals. Vice President Harris has endorsed most of President Biden’s tax plan, which includes allowing the top individual income tax rate to return to 39.6%. But Harris recently proposed a capital gains rate much lower than Biden’s, calling for a top rate of 28%, plus a 5% Net Investment Income Tax, for households earning more than $1 million. There have also been discussions about taxing unrealized gains for certain individuals that undoubtedly have clients concerned (and a bit confused).

While it’s of course important to consider tax proposals from the candidates as you cast your vote, one very important thing we’ve been advising clients to keep in mind is that a president cannot change tax policy. That must be done by Congress. And at this point, based on available polling data, it seems like there will be a divided Congress (Republicans likely to win Senate, Democrats expected to gain House control). If we do end up with a divided Congress, few of either candidate’s proposals have any chance of happening and there will need to be considerable negotiations (and concessions) to get anything approved by Congress.

Where does this leave us until November? Expect a lot of back-and-forth this fall about next year’s tax debate, but until we know who will be occupying the White House and which party controls the House and Senate next year, it’s impossible to predict how the complicated issue of income taxation will play out.