At first glance, the tax agendas of presidential candidates Donald Trump and Joe Biden could not be more different. Biden has offered a detailed tax plan. If Trump has a second-term tax strategy, he has kept it mostly under wraps. Biden wants to raise taxes on high-income individuals and corporations, while Trump appears to want to cut them. But in one key respect, their plans appear surprisingly similar: When it comes to middle-income households, each is proposing a modest tax cut—though with quite different timing.
Let’s look at each of these three aspects of their tax plans:
Transparency. Democratic nominee and former vice president Biden has proposed more than 50 different tax initiatives. These are campaign proposals, not legislation, so they leave out many details. But they provide a clear description of Biden’s tax goals.
By contrast, and in keeping with his overall campaign strategy, President Trump has said almost nothing about his second-term tax agenda. We really only know about two of his unfinished first-term ideas.
In his most recent budget, the president proposed making permanent the individual income and estate tax provisions of the 2017 Tax Cuts and Jobs Act (TCJA), currently due to expire at the end of 2025. And he strongly supports an ongoing lawsuit to overturn the Affordable Care Act (ACA). Reversing the ACA would repeal taxes on high-income households, drug companies, and some employers.
Beyond that, the president’s tax agenda is a black box. His campaign says he broadly supports tax cuts for some manufacturers that produce in the US, expanding the TCJA’s Opportunity Zone subsidies for investment in designated communities, and some form of payroll tax cut. But it has been mum on any details that would help voters understand how any of these ideas would work.
Taxing the rich. The contrast could not be more striking. The Tax Policy Center estimates that Biden would raise income, payroll, and estate and gift taxes on high-income households by about $1.6 trillion over 10 years. The former vice president promises that all his proposed individual income tax and payroll tax hikes would be paid by those making at least $400,000 or more. Only those making $1 million or more would pay higher taxes on their dividends and long-term capital gains.
Biden also would raise taxes on many corporations. Most of those tax hikes would come from increasing the corporate tax rate from 21 percent to 28 percent and through a country-by-country minimum tax on US firms that do business around the world. At the same time, he’d create a new tax credit for corporations that create domestic manufacturing jobs.
Trump, by contrast, would significantly lower taxes on high-income households. TPC estimates that by extending the expiring provisions of the TCJA, he’d reduce 2026 taxes on households making between $344,500 and $829,000 (the highest 95th to 99th percent of income) by an average of $13,000 or about 3.1 percent of after-tax income. He’d give the top 0.1 percent of taxpayers (with incomes in excess of $3.7 million) an average tax cut of about $71,000, or 0.8 percent of their after-tax income.
If the Supreme Court accedes to Trump’s wishes and repeals the ACA, those high-income households would get an even bigger tax cut. TPC estimates the top 1 percent would benefit by nearly $28,000 in 2022, or 1.7 percent of after-tax income. Overturning the ACA would give the top 0.1 percent a tax cut of $160,000, or 2.2 percent of their after-tax income.
Tax cuts for the middle class. This may be the biggest surprise. For all the partisan shouting, it turns out that both Trump and Biden would cut average taxes for middle-income households by roughly the same relatively modest amount.
While Biden would significantly raise taxes for those with very high incomes, he’d give middle-income households an average tax cut of about $6280 in 2022, about 1.1 percent of their after-tax incomes. However, Biden’s tax cuts would primarily benefit only those in specific situations, such as renters, first-time homebuyers, and families with children. Others with identical incomes may not get any tax cut at all. In addition, Biden says one of his major initiatives, an expansion of the Child Tax Credit, would expire after only one year, thus eliminating the tax benefits for many.
Trump’s average tax cuts would be only slightly bigger. And though they’d be permanent, middle-income taxpayers would have to wait until 2026 to get them. That year, making the TCJA permanent would cut taxes for middle-income households by about $860, or about 1.2 percent of after-tax income. And the effects also would depend largely on personal situations.
If the Supreme Court reverses the ACA sometime next year, middle-income households would get a quicker tax cut. But it would average only $30.
If you wonder why taxes have received such scant attention this election season, one reason may be that neither candidate would change the average tax bill of middle-income households by very much at all.
This blog has been revised to reflect changes in TPC's analysis of Biden's proposal to increase minimum taxes on foreign-source income of US firms.
