President Trump’s 2017 Tax Cuts and Jobs Act made big changes to the tax code, specifically in deductions and tax brackets. President Biden is now poised to reverse different aspects of the 2017 tax overhaul, calling for higher taxes on capital gains and high net worth individuals. Let’s break down the differences between both tax plans below.
A financial advisor can help you keep up with tax code changes and optimize a tax strategy for your financial needs and goals.
Biden vs. Trump: Tax Brackets
One of the major victories for the Trump administration over the past four years is the tax plan that passed Congress and was signed by the President in 2017. This was a major overhaul of the tax system and established the following tax brackets:
Federal Income Tax Bracket for 2020 (filed in April 2021)
|Single||Married Filing Jointly||Married Filing Separately||Head of Household|
|10%||$0 – $9,875||$0 – $19,750||$0 – $9,875||$0 – $14,100|
|12%||$9,876 – $40,125||$19,751 – $80,250||$9,876 – $40,125||$14,101 – $53,700|
|22%||$40,126 – $85,525||$80,251 – $171,050||$40,126 – $85,525||$53,701 – $85,500|
|24%||$85,526 – $163,300||$171,051 – $326,600||$85,526 – $163,300||$85,501 – $163,300|
|32%||$163,301 – $207,350||$326,601 – $414,700||$163,301 – $207,350||$163,301 – $207,350|
|35%||$207,351 – $518,400||$414,701 – $622,050||$207,351 – $518,400||$207,351 – $518,400|
This plan was actually not as radical as the plan the Republicans originally proposed, which would have reduced the total number of brackets to just four. And, of course, it isn’t the flat tax that many tax hawks dream of. Still, it was generally seen as a win for high-income earners, who saw their tax rate lowered.
Biden’s proposed tax plan calls for the highest tax brackets rate to be restored to 39.6%, where it stood before the 2017 bill. Biden has said he will not raise taxes on anyone earning less than $400,000, so the other bracket rates seem unlikely to be touched by his administration.
Biden vs. Trump: Corporate Tax Rate
This is another area where Biden aims to reverse changes the Trump administration (along with Republicans in Congress) made through the 2017 Tax Cuts and Jobs Act. That law lowered the corporate income tax rate from 35% to 21%.
Biden calls for the corporate income tax rate to be raised — though not to the level it was before 2017. Instead, he wants to settle in the middle with a new corporate tax rate of 28%. Biden has two other major points in terms of corporate tax policies: he wants to establish a minimum 15% tax for corporations, meaning that regardless of any tax breaks or other loopholes, every corporation pays at least 15% income tax on all revenue reported to investors. Biden also plans to tax foreign profits of American corporations at 21%, while Trump’s bill placed this rate at 10.5%.
Biden vs. Trump: Tax Deductions
Deductions are used on a person’s tax return to lower the income they have to pay federal income tax on. In Trump’s 2017 bill, the standard deduction for a single filer was increased from $6,350 to $12,200.
Biden, meanwhile, focuses on those taxpayers who choose to itemize their deductions — which generally, means the wealthy. He plans to cap the benefit of an itemized deduction to 28% of the value, which will limit the ability of wealthy people and families to cut their tax liability through things like charitable contributions.
Biden vs. Trump: Capital Gains Taxes
Capital gains refers to money investors make they sell an asset — for instance, a stock or bond — for more than they bought it for. Currently, these gains are taxed at a rate of up to 20%. Trump had proposed the idea of lowering this as part of a plan that he said would lower overall middle class tax burdens.
Biden, meanwhile, wants to stop treating capital gains differently from all other income. Short-term capital gains — gains on assets held for less than a year — are already taxed at normal income tax rates. But Biden’s plan singles out taxpayers earning more than $1 million: For them, the plan aims to tax their long-term capital gains — gains on assets held for more than a year — at the same rate as income earned through wages and bonuses. For those who earn a lot of money through all streams each year, this could be a big change. For instance, if a taxpayer’s income is in the top tax bracket already, any additional money earned through capital gains would now be taxed at 39.6% under Biden’s plan, instead of at 20% under Trump’s tax act.
Biden vs. Trump: Financial Transactions Tax
A financial transaction tax is a levy for making certain transactions on financial markets. It would raise more money from investors who move currency as a way to increase wealth.
Biden has expressed support for a financial transactions tax, but it is not part of the tax plan he has published. Trump did not issue any statements on a financial transactions tax, but following Republican party general ideology against raising taxes, it seems reasonable that he did not support it.
Biden vs. Trump: Trade
Trade may not impact individual consumers as directly as tax rates and deductions, but the nation’s trade policies ultimately impact everyone.
Trade is one of the areas of public policy where the Trump administration has done the most in the past four years. Trump dropped out of the Trans Pacific Partnership (TPP), renegotiated the North American Free Trade Agreement (NAFTA) (renaming it the United States-Mexico-Canada Agreement) and engaged in what many call a “trade war” with China. Trade is complicated, but generally speaking, Trump has vied to orchestrate trade deals that he determines are best for American companies and workers and forgoing a more cooperative approach.
Biden, on the other hand, wants to work with American allies to combat the rise of China as an economic superpower rather than attempt to do it alone as Trump had done. Biden has said he would renegotiate the TPP, potentially clearing the way for the U.S. to back into the pact. That, of course, might upset some of the economic populists who are already wary of the former vice president.
Biden vs. Trump: Economic Winners and Losers
Though its hard to look ahead and accurately predict exactly who will win and lose economically in a potential presidential administration, the policies laid out above do give us the ability to make some generalizations about who could do better under each president.
Trump proposed tax cuts for both corporations and individuals. The Biden administration, however, will likely raise taxes for corporations and the wealthy.
Furthermore, Trump did not raise revenue, making any expansion of social programs unlikely. Biden, meanwhile, plans to raise revenue that could potentially be used to expand a number of social programs, including the possible expansion of healthcare through a public option as part of the Affordable Care Act. This is part of a compromise position to that could avoid creating a single-payer healthcare system.
The Bottom Line
There are key policy differences between President Trump and President Biden. Generally, Trump’s approach is more beneficial to corporations and high earners, while Biden seeks to make these entities and people pay a bigger share of their wealth to the government.
Tax Planning Tips for Your Finances
- Changes in the tax code could impact your finances. Consider working with a financial advisor to create a tax plan for your finances. SmartAsset’s free tool connects you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors, get started now.
- Good tax software can help you avoid missing a tax credit or deduction. SmartAsset evaluated common tax filing services to find the best online tax software for your needs.
Photo credit: ©iStock.com/Ole Schwander, ©iStock.com/NoDerog, ©iStock.com/g-stockstudio