Vice President Harris Proposed Tax Plan
Whoever becomes President in November will be responsible for a significant tax overhaul in the next presidential term. Expiring tax code changes from the Tax Cuts and Jobs Act of 2017 make this election even more critical, as our decision at the ballot will determine how much we pay in taxes and for everyday purchases.
This long-form research is intended to inform you of the facts so that you can make an informed decision at the ballot. This series begins with VP Kamala Harris's proposal, and our next release will highlight Former President Donald Trump’s proposal.
Personal Income (Ordinary Income Tax)
Harris said she will not increase taxes for households making under $400,000. She also said she would extend soon-to-be-expired Trump-era tax cuts for this demographic. Earners making at least $1,000,000 would have capital gains taxed as ordinary income, effectively taxing capital gains at 37%. Under current law, the top long-term capital gains rate is 23.8% - 20% plus a 3.8% tax on investment income. She also plans to exempt tips from income taxes and increase medicare tax from 3.8% to 5% for individuals over $400,000.
Child Care Tax Credit
Vice President Harris would also expand the child tax credit legislation passed in 2021, which currently offers households $3,000 for most children and $3,600 for children under six, to include a $6,000 tax credit for newborns.
Housing
Harris proposes an offering of up to $25,000 to first-time home buyers. The benefit would be available for four years.
Small Business
The Democratic Presidential Nominee announced during a speech in New Hampshire that her tax proposal includes an increase in small businesses’ allowable deduction for startup expenses from $5,000 to $50,000. Startups could allocate tax deductions across multiple years, up to 15 years, or claim the entire $50,000 once they turn a profit. Eligible startup costs tax deductions include advertisements, employee training, consultant and executive salaries, and travel for securing customers, suppliers, or distributors. Harris’s small business incentive is meant to stimulate entrepreneurship to reach her goal of 25 million new small business applications in her first term as president.
Unrealized Capital Gains
Unrealized capital gains on assets greater than the $5mn per person exclusion would be taxed on death; however, this tax would have some exemptions for family businesses, residences, and personal property, such as cash-value life insurance.
Corporate Tax
Corporations will see a seven-point tax increase to 28%, and large companies will pay a 21% minimum tax instead of the current 15%. Corporations will also face a higher tax bill on foreign profits.
State and Local Tax (SALT)
Harris still hasn't announced her plan for the state and local tax (SALT) cap, which caps tax deductions at $10,000 and expires in 2025.
Budgetary Effects of Harris Tax Policy Proposals
The Harris Campaign announced their tax proposal would add $1,229 billion in positive revenue over ten years, holding constant a conventional basis; however, extending the Tax Cuts and Jobs Act of 2017 for households under $400,000 would produce a revenue loss of $1,464 billion within the same term, reflecting a net revenue loss of $235 billion.
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Conclusion
Overall, the Penn Wharton Budget Model (PWBM) finds that lower—and middle-income households generally benefit from increased transfers and credits on a conventional basis, while higher-income households are worse off.