#tax proposal

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All Eyes on the US Election: Tax Proposal Client Planning Alert

The upcoming US presidential election is generating tremendous public interest, as the US electorate and the world evaluate the policies proposed by each candidate. This election, taxes are an especially relevant topic, as many of the provisions of the Tax Cuts and Jobs Act are scheduled to expire soon. Each candidate has announced particular reforms that they would seek to implement if they become President, many of which will have implications for the US income tax and US estate tax. Yet with the deluge of election coverage, it's easy to get lost searching for each candidate's proposals.

Because we know taxes are an important topic for many of our clients, and since tax planning is a core piece of every individual financial plan, we have summarized the proposed tax reforms announced by each of the two major candidates for United States President. This article highlights key US income tax and US estate tax proposals by each candidate based on our current understanding of their stated positions, and discusses how individuals can best plan in an environment of uncertainty. As always, clients should consult their individual legal and tax advisors before undertaking any planning strategy.

What the Candidates Agree On

Both candidates have indicated they would end the taxation of tips on restaurant and hospitality workers. According to the Tax Foundation, for tax year 2018 approximately 6.1 million taxpayers reported a total of $38.3 billion in taxable tip income.

Both candidates have indicated they would expand the child tax credit, but would do so in different ways.

Ms. Harris has proposed a plan which would expand the tax credit to $6,000 for children under the age of 1, $3,600 for children ages 2 through 5, and $3,000 for older children. Mr. Trump has proposed a plan which would expand the child tax credit to $5,000 per child, and would apply at all income levels without a phase-out for higher earners.

Tax Reform Proposals By Donald Trump

Mr. Trump has indicated he would make permanent the tax cuts enacted under the Tax Cuts and Jobs Act of 2017. This would include making permanent the doubling of the standard deduction, and various changes to itemized deductions, including the $10,000 cap on state and local tax, the mortgage interest deduction cap, and the elimination of miscellaneous personal itemized deductions such as investment fees and union dues. It would also make permanent the expanded unified credit, which is approximately $13.6 million for tax year 2024 (indexed annually for inflation), and which is currently scheduled to "sunset" on January 1, 2026 to its pre-2017 levels (which will be one-half the current levels, indexed annually for inflation).

Mr. Trump has also indicated he would lower the corporate tax rate from 21% to 20%, and he would further lower the corporate tax rate to 15% for companies that make their products in the United States.

Mr. Trump has indicated he would eliminate taxes on Social Security benefits. Under current law, individuals drawing Social Security benefits are required to pay taxes on 50-85% of their benefits, depending on their income level.

Mr. Trump has indicated he would impose baseline tariffs on all foreign-made goods imported into the US, and in public statements has indicated that the level of the tariffs could be approximately 10-20%.

Tax Reform Proposals By Kamala Harris

Ms. Harris has proposed increasing the maximum tax rate for long-term capital gains to 28% for taxable income in excess of $1 million per year. Currently, the maximum tax rate for long-term capital gains is 20%.

Ms. Harris has also proposed raising the maximum Net

Investment Income Tax (NIIT) to 5% on income in excess of $400,000 (currently the rate is 3.8%, but potentially applies after $200,000 for single filers and $250,000 for married filers).

Ms. Harris has proposed raising the corporate tax rate to 28%, which is higher than the current rate of 21%, but would be less than the rate of 35% which existed prior to the enactment of the TCJA.

Ms. Harris has proposed raising the excise tax on stock buybacks. Under current law, the excise tax is 1%, and Ms. Harris has proposed raising the excess tax to 4%.

Ms. Harris has indicated she would extend the tax breaks under the TCJA as they relate to individuals earning less than $400,000 per year. The implication of this is she may not extend these tax breaks to wealthier individuals, including the expanded unified credit for the US estate tax and generation-skipping transfer tax, and instead would allow the temporary expansion to sunset on January 1, 2026.

Ms. Harris has proposed increasing the business deduction for startups to $50,000. Under current law, the tax deduction is $5,000. She has also proposed providing 400,000 first-generation homebuyers with $25,000 in down payment assistance and a $10,000 tax credit for other first-time homebuyers. It is not yet known how the down payment assistance would be implemented, but some tax policy experts suggest it could be in the form of a tax credit.

What Individuals Can Do Now

Whether any of these proposals ultimately become law depends on the priorities of the elected candidate and whether a bill reflecting such priorities can be enacted. In some cases, such as the Tax Cuts and Jobs Act (TCJA), parts of which is scheduled to sunset at the end of 2025, the timing of legislation is critical: if nothing occurs before January 1, 2026, the tax brackets and rates will return to their pre-TCJA levels.

For individuals who would be directly impacted by the halving of the federal unified credit, time is of the essence to lock in the current available credit at its historical high. For others, it may be a good time to speak with an HSBC Relationship Manager about strategies to help mitigate future tax exposure, such as realizing gains in advance of a possible increase in the capital gains tax rate. In all cases, having a comprehensive plan in place is incredibly important, and it is equally important to have older plans reviewed periodically to ensure that they are still well suited to the family's current goals. Families who have not yet put together an estate plan are encouraged to meet with estate planning advisors soon to ensure that their wealth planning goals have been considered and drafted into a Last Will and Testament, estate planning trusts, and/or other legal documents.

At HSBC, our team is dedicated to assisting clients on the full breath of wealth management topics, including comprehensive financial planning and optimization in keeping with your goals. We can discuss these developments with you and discuss any opportunities for thoughtful, proactive planning done in conjunction with your personal legal and tax advisors. If you would like to learn more, please reach out to your Relationship Manager to inquire further.

— Important Notice:

HSBC, we, our, or us refers to HSBC Bank USA, N.A. Member FDIC, HSBC Securities (USA) Inc. Member NYSE/FINRA/SIPC, and HSBC Insurance Agency (USA) Inc. HSBC Bank USA, N.A. provides banking products and services. HSBC Securities (USA) Inc. provides investment products and services and is an affiliate of HSBC Bank USA, N.A. HSBC Insurance Agency (USA) Inc. provides insurance products and services and is a wholly owned subsidiary of HSBC Bank USA, N.A. OHSBC Bank USA, N.A. 2024. All rights reserved. Member FDIC

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House Republicans' Tax Package: Changes and Challenges

Navigating Debt Ceiling and Bipartisan Support for Tax Reforms: Potential tax proposals focusing on R&D credits and 1099-K relief for online

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Split Roll Tax Initiative Will Have Substantial Impact on Agriculture

Split Roll Tax Initiative Will Have Substantial Impact on Agriculture

Agricultural groups have serious concerns as it pertains to the split roll tax initiative that will be appearing on the November ballot. If the measure is passed it will make serious changes to Proposition 13 in reassessing commercial and industrial properties at fair market value. The California Farm Bureau Federation (CFBF) has joined the Californians to Save Prop 13 + Stop Higher Property Taxes

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Objections to the Split-Roll Property Tax Measure

Objections to the Split-Roll Property Tax Measure

Supporters of an effort to establish a split-roll property tax are currently working to accumulate signatures in order to qualify the initiative for the November ballot.  Known as Initiative 19-0008, supporters of the measure will have until April 14 to file the necessary number of signatures to be placed on the ballot.  The measure has already met the first threshold for requiring…

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PHOENIX  | Energized Arizona teachers turn attention to tax proposal

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PHOENIX  | Energized Arizona teachers turn attention to tax proposal

PHOENIX — On a hot Arizona evening under a park pavilion, math teacher Heather LaBelle handed out petitions for a ballot initiative that would increase taxes on wealthy residents to get funding for schools. Later that night, her school board voted to give her and her fellow teachers an average raise of 15.5 percent.

LaBelle, like many in Arizona’s #RedforEd movement that triggered a six-day teacher walkout, says improving teacher pay is just one step toward better schools.

“The longer we wait, the longer we have a generation and two generations of kids that don’t have the tools they need,” she said.

Arizona was a key state in a spring that saw teachers around the U.S. mobilize to demand better education funding. They wound up netting hundreds of millions of new dollars in the state budget — much of it going to teacher pay raises — after their historic walkout shuttered most of Arizona’s schools.

Districts around the state have since spent the end of the school year authorizing the first rollout of their pay raise plans — even as the growing teachers movement turned its attention to qualifying and passing a ballot initiative that would funnel nearly $690 million annually to education.

The new state budget authorizes a 20 percent teacher pay raise over the next three years. When fully implemented, the plan will cost $645 million, according to a state budget analysis. There’s also a partial restoration of nearly $400 million in recession-era cuts, with a pledge to fill in the rest within five years.

But some say the funds aren’t nearly enough to reverse Arizona’s teacher vacancy crisis and address longstanding concerns like crumbling infrastructure, large class sizes and lagging math and reading scores.

“School districts still have needs way beyond what this plan pays for,” said Chris Kotterman, director of governmental relations with the Arizona School Boards Association.

For LaBelle and others, that’s where the ballot initiative comes in. The Invest in Education Act would increase income taxes for those who earn more than $250,000 a year. Sixty percent of the money raised would go toward teacher pay, with the rest earmarked for maintenance and operations.

Supporters must collect more than 150,000 valid signatures by July 5 to get the initiative on the November ballot.

Joe Thomas, president of the Arizona Education Association that co-helmed the walkout, is bullish about its prospects. People are willing to tax themselves to give students a quality education, he said.

An April poll from The Associated Press-NORC Center for Public Affairs Research found half of Americans would pay higher taxes to pay teachers more and provide money to schools, with 26 percent opposed. The results cut differently on a partisan basis: 69 percent of Democrats said yes to higher taxes for schools compared with 38 percent of Republicans and 30 percent of independents who say the same.

Opponents of the Invest in Education Act, including the Arizona Chamber of Commerce, maintain it would harm small-business owners and the state’s economy.

Republican Gov. Doug Ducey says he won’t comment on ballot initiatives until they qualify, but he’s been vocally opposed to tax increases.

The governor feels the state can afford the raise plan because of better-than-expected revenue projections, spokesman Daniel Scarpinato said.

Scarpinato also said solving a teacher shortage takes multiple steps. He pointed to a new initiative that gives free tuition to teachers who study at Arizona’s three major public universities and agree to stay in the state for four years.

As of December, nearly 2,000 Arizona teacher positions remained vacant. Another 4,303 were filled by individuals who don’t meet standard requirements, according to the Arizona School Personnel Administrators Association. Combined, that represents two-thirds of total teacher openings.

Metro Phoenix’s Washington Elementary School District — one of Arizona’s 10 largest — struggles to get applicants because of low pay, said Justin Wing, its human resources director and a past association president. It authorized an average of a 6.5 percent teacher raise before the walkout. Doing so was a heavy lift that involved reassigning staff to save money, Wing said.

The new state budget allows the district to distribute an average of 15.5 percent raises for teachers and an average of 10.6 percent raises for hourly staff next year. But Wing says even with the increases, it will be difficult for Arizona to attract teaching candidates.

“If there was no commitment from the state, we’d be in a world of hurt in education,” he said.

In Mesa Public Schools, the state’s largest district, a 10 percent teacher raise will put new-hire base salary at $41,850, up from $38,500. Employees who are paid by the hour will get a 5 percent raise or a fixed 50-cent to 80-cent hourly bump, based on which is greater. Other Phoenix-area increases going to teachers include:

— 10 percent raises at Chandler Unified School District and the Dysart Unified School District with 5 percent pay raises for support staff.

— 11.34 percent raises for certified classroom teachers in the Peoria Unified School District, plus raises for non-classroom teachers, staff and administrators.

— 12 percent raises for teachers at the Paradise Valley School District, including three percent that was approved April 19, plus raises for support staff and administrators.

Christine Thompson is CEO of Expect More Arizona, a group that aims to improve education opportunities and quality. She said this year’s state budget marks progress, but the changes made now could take years to shake out. A middle schooler who has never had a permanent math teacher, for example, may be affected by that for the rest of their educational career.

“We’ve got a very long way to go,” Thompson said. “So, appreciate the steps, stay at the table as part of the conversation, and recognize that all of these things help us in the direction of where we need to go.”

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By Associated Press

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