Election Special Bulletin #1: Tax Plan Proposals
Full Article Provided By City National Rochdale
Key Points
Democratic presidential nominee Biden has taken the position that major provisions of the TCJA favor more affluent taxpayers and has offered a tax plan to address that perceived imbalance.
President Trump believes that the TCJA temporary tax cuts were necessary to fuel economic growth and should be made permanent.
Please note, however, that while both Trump and Biden have put forth proposals, very little detail is available on each. Additional details may emerge during the campaign so both tax proposals could change over time.
The November 3 general election is less than two months away. Although the COVID-19 pandemic is still a major part of the fiscal policy debate in this election cycle, one of the main issues on the ballot this year will be the Tax Cuts and Jobs Act (TCJA), which significantly raised the threshold for the imposition of income and transfer taxes for many individuals, estates and pass-through entities. Many provisions of the TCJA are scheduled to sunset (expire) at the end of 2025 for budgetary and procedural reasons, but the question is whether the TCJA will survive until the end of 2025.
Democratic presidential nominee Biden has taken the position that major provisions of the TCJA favor more affluent taxpayers and has offered a tax plan to address that perceived imbalance. President Trump believes that the TCJA temporary tax cuts were necessary to fuel economic growth and should be made permanent.
Our goal is to provide a balanced high-level overview and comparison of how each candidate’s proposals would work, along with a side-by-side comparison of each candidate’s positions on key issues.
Please note, however, that while both Trump and Biden have put forth proposals, very little detail is available on each. Additional details may emerge during the campaign so both tax proposals could change over time. We will provide updates as significant new details emerge. It is also important to note that tax legislation begins with Congress, not the White House, so any tax legislation that emerges must be agreed upon by both the House of Representatives and the Senate and then signed by the president before it becomes law. This could lead to action or inaction depending on the makeup of Congress after the election.
Income Tax Comparison
Transfer Tax Comparison
Gifting Strategies could include
Grantor Retained Annuity Trust (GRAT):
Intentionally Defective Grantor Trust (IDGT):
Spousal Lifetime Access Trust (SLAT):
Irrevocable Grantor Trust (IGT):
Other Issues
Slight possibility exists that gifts made in 2020 will be retroactively negated if new law passed during 2021 only allows gifts made prior to January 1, 2020 to be grandfathered. More likely scenario is that gifts made prior to January 1, 2021 would be grandfathered.
Grantor retained annuity trust (GRAT) rules to be revisited to eliminate short-term GRATs introducing greater mortality risk. This has been debated for the past 10 years, because of the use of “zeroed-out” GRATS as a way of gifting assets to family members, especially when interest rates are low, as they are today, at little or no gift tax cost. The short term nature of the GRAT allows individuals to continuously roll the assets of the GRAT into new GRATS.
Applicability of valuation discounts on Family limited partnership (FLP) and Limited liability company (LLC) interests being transferred to be revisited. IRS proposed regulations in August 2016 would have eliminated valuation discounts for lack of marketability and lack of control. Proposed regulations were pulled back after the election of President Trump.
Corporate Income Tax
Democratic tax proposal would raise the corporate income tax rate from 21% to 28%.
Republican tax proposal would keep the corporate income tax rate at 21%.
- Current tax law has corporate income tax rate at 21%.
- Democratic tax proposal would create a minimum income tax on corporations with book profits of $100 million or higher. The minimum tax would be structured as an alternative minimum tax—corporations would pay the greater of their regular corporate income tax or the 15% minimum tax while still allowing for net operating loss (NOL) and foreign tax credits.
- Republican tax proposal would not create a minimum corporate income tax.
- Current tax law provides that corporations will be taxed at a rate of 21% on all income.
- The general election is less than two months away, and it is not clear which presidential candidate and which political party will be setting the tax policy agenda when the next administration begins in 2021. In addition, as the nation continues to grapple with the economic uncertainty stemming from the COVID-19 pandemic, the tax proposals put forward by Biden or Trump, depending on the outcome of the election, may be influenced by factors that are unknown at this time as well as by the status of the economic recovery.
- It is possible that significant tax law changes may occur over the next few years, and it is never too early to start evaluating the proposals being put forward, modeling potential outcomes, and planning to take appropriate action that fits your goals and objectives if and when these proposals go from possibility to the law of the land.
Source: Deloitte 2020 Essential Tax and Wealth Planning Guide: July 2020.
Important Disclosures
Certain information has been provided by third-party sources, and, although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.
This material is available to advisory and sub-advised clients of City National Rochdale, LLC, a Registered Investment Advisor and a wholly-owned subsidiary of City National Bank.
CNR is free from any political affiliation and does not support any political party or group over another.
This information provided is general and educational in nature. This information does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations.
All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.
