An Overview of the Kamala Harris Tax Plan

The tax proposals from the Kamala Harris campaign are part of the Biden-Harris administration’s broader economic agenda. The goals are to increase tax fairness and generate revenue for social programs by having corporations and high-income individuals pay a larger share. This approach aims to shift the tax burden and redistribute wealth to lower- and middle-income families through expanded tax credits and public services. The new revenue would fund investments in healthcare, education, and infrastructure.

Individual Income and Payroll Tax Proposals

The tax plan includes changes to individual income taxes for households with annual incomes exceeding $400,000. For these earners, the proposal seeks to restore the top marginal income tax rate to 39.6%. This rate was in place before the Tax Cuts and Jobs Act of 2017 lowered it to 37%. The plan states that no individual earning less than $400,000 per year will experience a tax increase.

The proposal also changes how payroll taxes are calculated to fund Social Security. Currently, employees and employers each pay a 6.2% Social Security tax on wages up to an annual limit of $176,100. The plan aims to strengthen Social Security by requiring high-income earners to contribute more, ensuring the program’s long-term stability without reducing benefits.

The plan also reforms taxes that fund Medicare by closing loopholes in the additional Medicare tax and the Net Investment Income Tax. For those with income over $400,000, the proposal increases the Net Investment Income Tax rate from 3.8% to 5%. It would also raise the additional Medicare tax rate on earnings above this threshold, bringing the total Medicare tax on that income to 5%.

Expanded Tax Credits for Families and Workers

The tax plan includes expansions of several tax credits to provide financial relief to families and workers. A proposal is to make the expansions of the Child Tax Credit (CTC) from the American Rescue Plan permanent. This would increase the credit amount and ensure it is fully refundable, meaning families could receive the full credit even if it exceeds their tax liability. The administration also supports making the expanded Child and Dependent Care Tax Credit permanent.

The plan also calls for an expansion of the Earned Income Tax Credit (EITC) for workers without dependent children. The EITC is a refundable tax credit for low- to moderate-income working individuals and couples. The proposed expansion would increase the credit amount and raise the income limit for eligibility.

Investment and Estate Tax Proposals

The tax plan includes proposals that would alter the taxation of wealth and investments for high-income individuals. A primary change is an increase in the tax rate on long-term capital gains and qualified dividends. Currently, this investment income is taxed at preferential rates, which are lower than the rates for ordinary income. The proposal would tax these gains at ordinary income tax rates for individuals with incomes over $1 million, eliminating the current 20% top preferential rate for this group.

Another proposal is the elimination of the “step-up in basis” for inherited assets. Currently, when an heir inherits an asset, its cost basis is “stepped up” to the market value at the time of death. This provision erases the taxable gain that occurred during the original owner’s life. The proposal would eliminate this for gains above an exemption amount, so the original cost basis would be used to calculate capital gains tax upon sale.

The plan also proposes changes to the estate tax, which is a tax on the transfer of a person’s assets after death. The proposal involves lowering the current estate tax exemption, which would subject more estates to the tax.

Corporate and International Tax Proposals

The tax plan proposes several changes to the taxation of corporations and business entities to ensure large corporations contribute more to federal revenues. These proposals include:

• Increasing the corporate income tax rate from the current 21% to 28%, reversing a portion of the rate cut from the TCJA.
• Raising the minimum tax on the “book profits” that large corporations report to shareholders from 15% to 21%. This prevents profitable companies from using deductions to pay little or no federal income tax.
• Increasing the tax on Global Intangible Low-Taxed Income (GILTI), a provision that taxes the foreign profits of U.S. companies, and applying it on a country-by-country basis. This change discourages the offshoring of profits and jobs by multinational corporations.
• Quadrupling the tax on stock buybacks from 1% to 4% to encourage companies to invest in their business and workers.