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How the Democratic Presidential Candidates’ Tax Plans Would Impact Privately-Held Businesses

Carlo R. Ferri, CPA Director, Tax Strategies, Construction Industry Group Co-Leader

presidential election candidates tax reform

As the election year gains momentum with the arrival of the Democratic primaries, privately-held business owners have been asking how the candidates’ tax proposals would impact their businesses. A common theme among each of the candidates has been a plan to raise taxes on wealthy individuals, owners of pass-through businesses, and corporations. In addition to a wealth tax, a few of the candidates have proposed eliminating the 20 percent pass-through deduction.

Another common theme among the candidates is a proposal to include tax incentives and credits for energy-efficient technologies, as well as tax increases specifically targeted at the fossil fuel industry, which could impact business owners who support these industries. Additionally, most candidates include a tax that is related to net worth over a certain amount and capital gains being taxed at ordinary rates. This could also impact business owners, since most of their net worth is related to their closely-held businesses.

Below is an analysis of how privately-held businesses could potentially be impacted based on the current details proposed by the top candidates.

Michael Bloomberg

Despite being a relatively late entry to the field of candidates, Michael Bloomberg has been quickly gaining ground. His tax plan includes income tax increases for high-income taxpayers and corporations. In addition, he proposes an increase in estate taxes, including lowering the estate tax threshold and taxing capital gains on assets still held at death. He would eliminate tax preferences for oil and gas and increase tax incentives for the use of energy-efficient technologies. He would also impose a 0.1 percent tax on securities purchases and derivatives transactions, which would be phased in gradually.

Bloomberg has proposed to:

  • Raise the top corporate income tax rate to 28 percent from the current 21 percent.
  • Restore the top individual income tax rate to 39.6 percent from the current 37 percent.
  • Repeal the 20 percent deduction on pass-through income.
  • Increase the minimum tax on foreign income and apply it on a per-country basis.
  • Tighten rules on transfer pricing and reporting of foreign taxes.
  • Impose a 5 percent surtax on incomes over $5 million.
  • Tax capital gains at the same rate as ordinary income for those with more than $1 million in income.
  • Eliminate the preferential tax treatment of carried interest.

Elizabeth Warren

Elizabeth Warren has proposed increasing income and payroll taxes for high-income taxpayers and corporations. Her plan includes a wealth tax and an increase in estate taxes. Under her plan, employers would be required to pay a share of the costs of covering their employees through a new Medicare for All program. She would eliminate tax preferences for oil and gas, reinstate the Superfund tax, and increase tax incentives to use energy-efficient technologies. She would impose a tax on organizations that spend substantial amounts on lobbying. Her plan also aggressively taxes income earned from pass-through businesses and the money owners take out of their business.

Warren has proposed to:

  • Restore the top corporate income tax rate to 35 percent from the current 21 percent.
  • Charge payroll taxes on income earned from pass-through businesses (i.e., S-corps).
  • Apply a net investment income tax to income received by active shareholders in S-corps and limited partnerships.
  • Impose a 7.4 percent social security payroll tax on earnings above $250,000.
  • Repeal the accelerated tax depreciation rules.
  • Lower the estate tax threshold from $11 million to $7 million.
  • Institute a wealth tax starting at $50 million in net worth.
  • Tax capital gains on assets still held by taxpayers when they die.

Bernie Sanders

Bernie Sanders would like to increase income and payroll taxes for very high–income taxpayers and corporations. His plan includes a wealth tax and an increase in estate taxes. He would eliminate fossil fuel tax preferences, impose a tax on the fossil fuel industry, and extend tax credits to displaced energy workers. He would also impose a tax on purchases of securities and transactions involving derivatives.

Sanders has proposed to:

  • Restore the corporate tax rate to 35 percent from the current 21 percent.
  • Repeal the 20 percent deduction on pass-through business income.
  • Institute a wealth tax on individuals starting at $32 million in net worth.
  • Impose a financial transaction tax on stock, bond, and derivative trades.
  • Impose an additional tax on the sale of non-owner occupied real estate.

Amy Klobuchar

Amy Klobuchar’s proposal includes increasing income and payroll taxes for high-income taxpayers and corporations, expanding the child tax credit and the earned income tax credit, and enhancing incentives for retirement saving. She would eliminate tax preferences for fossil fuels and increase tax incentives for investment in energy-efficient technologies.

Klobuchar has proposed to:

  • Increase the corporate income tax rate from 21 percent to 25 percent.
  • Restore the top individual rate to 39.6 percent from the current 37 percent.
  • Impose a minimum tax of 30 percent on adjusted gross income over $1 million for individuals.
  • Tax capital gains at the same rate as ordinary income.
  • Raise capital gains and dividends rates for people in the top two income tax brackets.
  • Apply the social security payroll tax to earnings above $250,000.

Joe Biden

Joe Biden would like to increase income and payroll taxes for high-income individuals and corporations, expand the earned income tax credit and the premium tax credit, and enhance incentives to save for retirement. He would eliminate tax preferences for fossil fuels and increase tax incentives to use energy-efficient technologies.

Biden has proposed to:

  • Increase the corporate tax rate from 21 percent to 28 percent.
  • Restore the top individual rate to 39.6 percent from the current 37 percent.
  • Tax capital gains at the same rate as ordinary income for taxpayers with over $1 million in income.
  • Impose a 15 percent minimum tax on companies’ book income.
  • Tax capital gains on assets still held by taxpayers when they die.

Pete Buttigieg

Pete Buttigieg’s plan is to increase income taxes for investors and businesses while expanding the earned income tax credit and the premium tax credit. He would eliminate tax preferences for fossil fuels, impose a carbon tax, and increase tax incentives for investment in energy-efficient technologies. He would also impose a tax on purchases of securities and transactions involving derivatives.

Buttigieg has proposed to:

  • Restore the corporate tax rate to 35 percent from the current 21 percent.
  • Repeal the 20 percent deduction on pass-through business income.
  • Tax capital gains at the same rate as ordinary income.

Summary

As the primaries continue to take shape, expect candidates to provide more details on their tax proposal plans. Oftentimes, there are winners and losers when looking at tax policy and who it will affect. Based on the information that is currently available, it appears as though the Democratic candidates will work to restore tax rates to pre-2018 levels with the introduction of a wealth tax. We will continue to follow the Presidential campaigns and provide updates throughout the year. In the meantime, if you have any questions, please contact a member of Kreischer Miller’s Tax Strategies group.

Carlo R. Ferri can be reached at Email or 215.441.4600.

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Carlo R. Ferri, CPA

Carlo R. Ferri, CPA

Director, Tax Strategies, Construction Industry Group Co-Leader

Construction Specialist, Business Tax Specialist, Individual Tax Specialist

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