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Where the 2020 Presidential Contenders Stand on Taxes


The New Year brings some interesting potential changes to the tax code. In this election year we have not only the current administration’s tax reform proposals to consider but also those of the Democratic presidential candidates. Let’s review what we’ve heard about President Donald Trump’s plans for individual taxpayers as well as the plans of his leading Democratic competitors.

Donald Trump

Following the Tax Cuts and Jobs Act (TCJA) of 2017, there’s been talk of additional tax reform in 2020. Heritage Foundation economist Stephen Moore, who advised Trump on the 2017 legislation, shared a number of ideas for other tax cuts, including a proposal to defer the payment of capital gains tax upon sale of a stock if the proceeds of the sale were reinvested into stocks, similar to the 1031 Exchange used in real estate.

Meanwhile, National Economic Council director Larry Kudlow has spoken of reducing the 22% mid-tier marginal income tax rate to 15%, which would affect households with income between $78,951 and $168,400. For taxpayers earning above $78,951, this rate cut would result in tax savings as high as $6,261. 

Finally, Trump has proposed indexing cost basis to inflation, which would reduce the capital gains tax. According to a budget model at the University of Pennsylvania’s Wharton School of Business—Trump’s alma mater—approximately 86% of the benefit of this indexing would go to the richest 1% of Americans.

Joe Biden

Former vice president Joe Biden has proposed two major changes to the tax code. The first increases capital gains taxes for high earners. For taxpayers earning more than $1 million per year, capital gains would be taxed at the ordinary income tax rate, which he proposes raising from 37% back to 39.6%, reversing the 2018 rate cut.

Biden has also proposed eliminating the step-up in cost basis at death. Currently, when someone dies, the cost basis of the assets in their estate is marked to the current market value, or “stepped up.” This removes the burden of capital gains taxes from the beneficiary of the estate. Eliminating the step-up would result in inheritors paying capital gains tax upon the sale of inherited appreciated assets such as real estate and securities.

Bernie Sanders

Vermont senator Bernie Sanders has put two tax proposals on the table. The first is a wealth tax on households with over $32 million in assets. The wealth tax rate would be on a graduated schedule, with eight different brackets. The highest of these brackets—8%—would apply to households with over $10 billion in assets. 

Sanders has also called for changes to the income tax bracket structure. His proposed revisions would increase the 35% income tax rate for households earning above $250,000 per year to 40%. The senator plans to add higher brackets on top of this, the highest being a 52% rate on incomes above $10 million.

Elizabeth Warren

Massachusetts senator Elizabeth Warren has presented a lengthy list of tax changes. First, she proposes a 2% wealth tax on assets above $50 million. For assets above $1 billion, she would apply a wealth tax rate of 3%. Another tax targets the top 1% of earners (those who earn above $420,000), who would see the elimination of the long-term capital gains rate and would instead pay the higher ordinary income tax rate on capital gains.

Warren has also proposed a financial transaction tax rate of 0.1% on the value of stock and bond purchases. She has advocated for taxpayers paying their net investment gain every year instead of at the point of sale. This would require that investors mark their investments to market each year to calculate their annual tax payment. 

Pete Buttigieg

As of this writing, the former mayor of South Bend, Indiana, hasn’t provided specific details on a tax plan. However, he has consistently mentioned his support of a higher marginal income tax rate. This would affect short-term gains, which are taxed at ordinary income tax rates. Buttigieg also mentioned more “equitable use of the estate tax,” which may indicate changes to the estate tax similar to Biden’s proposal to eliminate the step-up. Finally, citing profits made by high-frequency traders, Buttigieg discussed a financial transactions tax early in his campaign.

Michael Bloomberg

The former New York City mayor’s tax plan doesn’t include a wealth tax, but it would hit high earners—including himself—in other ways. He proposes increasing the top individual income tax rate from 37% to 39.6% and increasing the corporate income tax rate from 21 percent to 28 percent; both measures would reverse changes made by the TCJA. Bloomberg also proposes taxing capital gains at ordinary income rates for taxpayers who earn $1 million or more. Incomes above $5 million would face a new 5% surtax under his plan. He shares Biden’s aim to eliminate the step-up in cost basis at death and proposes lowering the estate tax threshold, although he hasn’t specified by how much. This week Bloomberg announced a plan to impose a speed limit on trades and a tax on stock, bond, and derivative transactions, which would begin at 0.02% and escalate over time to 0.10%.

The bottom line

Whether any of these proposals will ever be made law is anyone’s guess. Trump must first convince the Democratic majority in the House of Representatives to pass his initiatives—and, of course, his opponent must win the Democratic nomination and the presidential election and then pass their legislation with the help of a divided Congress. As Election Day draws nearer, we’ll keep an eye on new tax proposals and how they may affect your clients.

Potential Parametric solution

Parametric has incorporated tax management into our clients’ portfolios since 1992. Since then—and in all market environments—we’ve helped clients reduce tax exposure while preserving market exposures. We were also among the first to provide after-tax reporting, and we update after-tax performance on a quarterly basis, providing you with key performance data points you can use with your clients.

Rey Santodomingo, CFA, Managing Director of Investment Strategy

Rey is responsible for all aspects of Parametric’s tax-managed equity strategies. As one of the primary strategists for Custom Core®, he works closely with taxable clients and advisors to design, develop, and implement custom portfolio solutions. Prior to joining Parametric in 2008, Rey was a vice president in product management at MSCI Barra. He earned an MA in financial engineering from the University of California, Berkeley, and a BS in chemical engineering from the University of California, Santa Barbara. A CFA charterholder, Rey is a member of the CFA Society of Seattle and a prior board member of the CFA Society of Seattle. He has also served as an adjunct instructor at Seattle University's Albers School of Business and Economics.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss.