Many Americans have looked forward to June 27, as it will mark the first presidential debate between President Joe Biden and Donald Trump. And for that event, taxes will be the major topic many will be paying closest attention to. 

As Trump plans to extend 2017 tax cuts through his term, Biden aims to raise taxes on the upper classes like corporations and billionaires. Doing so will help maintain and lower taxes for individuals who earn less than $400,000 annually.

According to the Congressional Budget Office (CBO), Trump’s tax cuts will furthermore raise the national debt by $3.5 trillion in the next 10 years. According to Andrew Poulos, a well-known tax expert, the 2017 tax law may lead to a major overhaul, while Biden’s plans look very ambitious and unrealistic. That is due to the IRS needing to update its systems that are currently outdated.

Thursday’s presidential debate will give Biden a chance to highlight the federal budget deficit’s impact on middle-class individuals, which has been overlooked through the years. Meanwhile, Trump’s 2017 Tax Cuts and Jobs Act, is set to expire next year. However, Republicans are in favor of extending those cuts, despite the fact they are estimated to result in an over $4 trillion cost, adding to the already large U.S. budget deficit.

Although the debate will not entirely focus on tax and estate planning, this is a topic most Americans have been concerned about. Both Biden and Trump have their own proposals and will discuss some changes they will make if they win the election. 

Understanding these proposals is important for taxpayers and policymakers. We’re likely to see a number of questions asked on these topics during the first few rounds of the debate. Let’s dive into both parties’ stances on taxes, and how these impact the future of the United States’ taxation.

Trump’s Tax Plans

Former President Donald Trump proposed a universal baseline tariff on all U.S. imports and a 60% tariff specifically on Chinese imports. He also sought to make the individual and estate tax cuts from the Tax Cuts and Jobs Act (TCJA) permanent. That would lower the corporate tax rate to 20% and tax large private university endowments. Moreover, doing so could also replace income taxes with tariffs. 

In December 2017, then-President Donald Trump signed legislation known as the “Trump tax cuts,” benefiting wealthy individuals and profitable corporations. While corporate tax cuts were made permanent, individual provisions are set to expire by 2025. The CBO estimates that extending these expiring provisions permanently would cost more than $4 trillion over a decade, averaging over $400 billion annually, including $3.4 trillion from individual and estate tax extensions and $551 billion from business provisions.

The Center for American Progress analysis, based on CBO data, indicates that extending the Trump tax cuts would cost $3.2 trillion over 10 years in 2024 dollars and escalate to $10.3 trillion over 30 years. By 2054, this could raise the debt-to-GDP ratio by 36%, exceeding 200% of GDP, with the Trump tax cuts playing a substantial role in the projected increase in debt.

Extending the tax cuts would favor high-income households more, giving them larger cuts both in dollar amount and as a percentage of their after-tax income compared to lower-income earners, where those making $200,000 would see a larger cut than those making $50,000 or less annually.

In estate planning, the post-mortem basis adjustment is critical, allowing heirs to inherit assets at fair market value upon the decedent’s death. Trump’s tax plan maintains this advantage, reducing capital gains taxes for beneficiaries when selling appreciated assets.

Biden’s Tax Plans

In his FY 2024 budget proposal, President Biden aimed to increase corporate, individual and capital gains tax rates, expand worker and family tax credits, broaden the tax base and maintain existing Section 301 tariffs on $360 billion of Chinese goods. He proposed additional tariffs on $18 billion of steel, aluminum, green energy and medical imports.

Biden plans to raise the corporate tax rate to 28% and the GILTI tax rate to 21%, replacing BEAT with UTPR. He proposes taxing long-term capital gains and dividends over $1 million as ordinary income and taxing unrealized capital gains at death above a $5 million exemption. Biden aims to make the Child Tax Credit fully refundable, temporarily increasing it to $3,600 for young children and $3,000 for older children, and permanently boosting the Earned Income Tax Credit for childless workers.

Biden’s plan includes tightening estate tax rules, increasing the stock buyback excise tax to 4%, and raising the net investment income and Medicare tax to 5% on incomes over $400,000. He proposes a top individual income tax rate of 39.6% for singles earning over $400,000 and joint filers over $450,000, extending the 2017 Tax Cuts and Jobs Act changes for those under $400,000.

Biden’s party aims to end the step-up in basis for inherited assets over $1 million, which could mean unrealized gains face capital gains taxes upon transfer. Senators Sinema and Manchin previously blocked earlier attempts to pass similar laws. They now identify as Independents.

Problems and Complications

The differences in tax proposals between Biden and Trump highlight their contrasting views on taxation, wealth distribution and economic strategy. Republicans support Trump’s plan, which lowers taxes to encourage investment and economic growth, aiming to preserve wealth in estate planning. Democrats argue for Biden’s plan, advocating higher taxes on the wealthy to promote fairness, fund social programs and tackle income inequality.

Taxpayers and estate planners faced the challenge of navigating impending changes, urging proactive planning. Strategies like gifting to irrevocable trusts and maximizing current exemptions before possible reductions gained importance. Seeking advice from tax experts and financial advisors became crucial to adjust strategies and navigate evolving tax laws effectively.

Bottom Line

President Biden and former President Trump’s tax plans have diverged significantly, especially in areas like estate planning. These factors are crucial for individuals, families and businesses to grasp the proposals’ impact on financial planning amidst complex tax regulations.

For those looking to vote in this upcoming election, the presumptive candidates’ views on taxes matter.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.