It’s important to educate ourselves about the proposals of Biden, Sanders, Warren, Harris and Buttigieg — vs. those of the GOP.
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With the first 2020 Democratic candidate debates to be broadcast June 26 and June 27, it’s important for entrepreneurs to pay attention to the tax proposals to be discussed — and how these changes could potentially impact their bottom line.
As everyone knows, 23 Democratic candidates are currently running; but, here, let’s take a closer look at what the top five — Joe Biden, Bernie Sanders, Elizabeth Warren, Kamala Harris and Pete Buttigieg — are saying about this hot topic, which will be the subject of many debates throughout the 2020 election season.
Related: How Amazon and Entrepreneurs Can Pay Zero Federal Income Tax, and Do So Legally
First, the big picture: The Tax Cuts and Jobs Act of 2017 provided the biggest tax code changes since the Tax Reform Act of 1986 under President Ronald Reagan. This 2017 Republican-led tax plan permanently lowered corporate tax rates from 35 percent to 21 percent and reduced some individual rates until 2025.
The results? A steady GDP of 3 percent, increased investment in research and development, increased investment in real estate, lower taxes for many (including the 20 percent pass-through deduction for many small businesses), increased standard deductions, lower corporate tax revenues, and an increase in the U.S. deficit.
The overall theme of the 2020 Democratic candidates might be summed up to what Biden said: “We’ve got to start to reward not just wealth. We’ve got to reward work.” However, many GOPers will argue that the new tax plan has already created more jobs, increased research and development and helped fuel the economy with tax incentives.
So if you’re confused, and many are, let’s take a closer look at what is being proposed by the five Democratic frontrunners:
Former Vice President Joe Biden
In a recent interview, Biden shared, “First thing I’d do is repeal those Trump tax cuts” in the name of “fairness.” The challenge Biden will face is that millions have benefited from the Trump tax plan. The former VP recently tweeted that it was unfair for Amazon and other big companies to pay lower taxes than “firefighters and teachers” do. Amazon then tweeted back, “We’ve paid $2.6B in corporate taxes since 2016…We have. $200B in investments since 2011 & 300K US jobs” (Source: CNBC). As a way to generate new jobs and revenue, Biden’s central plan calls for a “Green Energy Revolution” with $400 billion invested over 10 years on green energy research and development.
Sen. Bernie Sanders, I-Vt.
Currently in second place in the polls, Sanders offers a tax proposal that would reduce the threshold that the estate tax applies, from $11 million to $3.5 million. Sanders estimates that reducing the estate tax threshold will raise “$2 trillion” from the country’s “588 billionaires.” Sanders also proposes increasing the capital gains tax. In addition, Sanders advocates for Medicare For All and Free Tuition, which raises more questions about how to cover these costs.
Sen. Elizabeth Warren, D-Mass.
Warren has been the frontrunner in new tax proposals to tax the rich. Warren proposed in February a new “Wealth Tax,” which is a yearly 2 percent tax on households with a net worth of $50 million or more, and a 3 percent tax rate on net worth above $1 trillion (source: Barron’s). This plan is estimated to impact 75,000 households, and economists have projected that it would raise about $2.75 trillion between 2019 and 2028. In addition, Warren recently unveiled a new way to tax corporations with the “Real Corporate Profits Tax” that would apply to corporations reporting over $100 million, where “every dollar would be taxed at 7 percent” (Source: The Intercept).
Related: 7 Tax Breaks for Startup Entrepreneurs to Take Advantage of in 2019
Sen. Kamala Harris, D-Calif.
Harris has been actively presenting a new LIFT (Livable Incomes for Families Today) Middle Class Act. This act proposes a nearly $3 trillion plan to provide middle and working-class families with a tax credit of up to $6,000 per year for couples making a combined income of $100,000 or less, and a $3,000 tax credit for individuals earning $50,000 or less. This LIFT tax credit would be available in either an annual lump sum or monthly payments. Harris is also advocating for a pay increase for teachers, who are paid 11 percent less than other comparable education jobs (Source: Economic Policy Institute). Harris has proposed a $315 billion plan over 10 years. Her proposal would increase the estate tax and “crack down on loopholes” to pay for a $13,500 raise for teachers (Source: Time).
Pete Buttigieg, Mayor, South Bend, Ind.
Mayor Pete Buttigieg has been more general with his tax plans and does not have a specific proposal. In a recent Fox News Town Hall, Buttigieg said he would entertain a “fairer” tax, which he said “means a higher, marginal income tax rate on those earning the most.”
What these proposals mean
The challenge with many of these Democratic proposals to “tax the rich” is that the wealthy can typically afford to pay attorneys and tax advisors to find legal savings to offset these costs.
The bottom line is that taxes will go up if Democrats win the White House and Senate back in 2020. The question all small business owners need to ask is which approach is best:
- tax cuts for the rich that many conservatives believe already are generating jobs and strengthening the economy; or
- a “fairer tax” that is being proposed by many Democrats to reward wealth and work.
Related: The 3 New Tax Law Deductions You Probably Missed This Tax Season
Because taxes are anyone’s biggest expense, it’s important for us all to educate ourselves on these tax proposals during the debates, primaries and 2020 election. Which philosophy do you support?