Kamala Harris Tax Proposal Broken Down - August 2024 - Complete Wealth Management With Dave Alison

Episode Transcript
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Speaker 0 (00:06):
Hello everyone, this is Dave Allison, founder and CEO
of Allison Wealth Management,and on August 16th, presidential
candidate and current vicepresident, kamala Harris,
released her tax and economicplan, and we want to unpack how
that could impact individuals inthis video.

(00:26):
So let's start off with incometaxes.
Some of the proposals thatKamala Harris is recommending
are exempting tip income fromtaxation, so if you're in the
service industry, that could bea positive for you not having to
pay tax on your tip income.
She has proposed expanding taxcredits for families, and so

(00:51):
what that would look like isthat there's an expansion of the
child tax credit up to $6,000for children under the age of
one, $3,600 for children agestwo to five and $3,000 for older
children.

(01:11):
She'd also like to expand theearned income tax credit for
filers who don't claim childrenand premium tax credits, and so
those are just someconsiderations that could bring
about more tax credits tofamilies with younger children.
She's proposing several housingtax incentives that she wants

(01:34):
to be able to expand housing taxcredits, including low-income
housing tax credits, a taxcredit for new homebuyers and a
credit for the construction ofstarted homes, so things that
could help create moreaffordable housing.
Now how those things are goingto get paid for is that she's

(01:57):
recommending we claw backseveral current income tax
deductions.
These deductions could bethings like depreciation and
interest for certain rentalconstruction investments and
other itemized deductions,particularly for higher income
taxpayers.
She's recommending some changesto corporate income tax rates.

(02:21):
Right now, corporations aretaxed at a 21% tax rate.
She's recommending that go upto 28%.
And remember corporations facedouble taxation because the
corporation is taxed today at21%, but then the money
distributed from the corporationto the shareholders is taxed

(02:43):
again.
Corporations have a double tax.
A lot of people saycorporations don't pay their
fair share, but they'reforgetting that corporations are
double taxed and you need toaccount for both of those.
And then, last but not least,there's a lot of higher tax
rates in her proposals.
So there's really threecomponents of this.

(03:04):
Number one is she is in favorof the sunsetting of the Tax
Cuts and Jobs Act.
She's really in favor of it,sunsetting for anyone who's
earning over $400,000 a year ofincome, but the reality of it is
these tax cuts are scheduled tosunset at the end of next year

(03:27):
for everyone.
It doesn't matter if you're alower income individual or
family or a high earning family.
These tax cuts are scheduled tosunset for everyone.
Unless there's bipartisanagreement to pass new tax law
which, if Kamala wins thepresidency and the Democratic

(03:50):
Party takes over the House andthe Senate, that could certainly
come to fruition.
But if we have a divided Houseand Senate like we do right now,
it might be very hard forKamala to pass any of this tax
reform.
So that's really important tonote when you think about these
presidential policy.

(04:11):
Proposals is all they are areproposals.
There's checks and balancesthat it has to also pass
Congress through the House ofRepresentatives and the Senate
in order to actually become alaw.
But when we talk about highertax rates, there's really a
couple things that stand outhere.
Number one is that she wants toincrease and create a new tax

(04:34):
bracket for anyone earning over$500,000.
That would be a tax rate of 45%.
So if you think about it, rightnow the highest tax rate is 37%
.
When the Tax Cuts and Jobs Actsunsets at the end of next year,
that 37% will go up to 39.6%for those top earning households

(04:59):
out there.
But then, in addition to that,she's proposing another rate of
45% for income starting at$500,000.
That would be a verysubstantial tax increase to
anyone over $500,000 of income.
But again, it's not just thetop tax rates.

(05:20):
With the sunsetting of the TaxCuts and Jobs Act, anyone in the
lowest bracket of 12% will gointo a 15% bracket, so there
will be a 3% tax increase there.
Anybody who's in the 22%bracket will get bumped up to
either the 25% or 28% bracket,and then anyone in that 24%

(05:44):
bracket will get bumped up intoa 28% or higher bracket.
And so under these changesnumber one, assuming there's no
new tax laws passed this year ornext year taxes are scheduled
to go up for almost everybodyout there and if she is

(06:04):
successful at some of theseproposals, there could be
substantial tax increases foranyone over $400,000 of income.
In addition to that, continuingon the income tax reform
proposal, she's suggestingreform to capital gains.
This is where you make aninvestment and hopefully that

(06:26):
investment grows in value overtime and eventually you sell
that investment for a gain.
You have to pay tax on the gain.
So, for example, if you boughta $500,000 home and that home
value doubles, then you have a$500,000 capital gain that could
potentially be subject to tax.
So currently the capital gainstax rates are 0% for some lower

(06:51):
income taxpayers, 15% for mosttaxpayers that are of modest
income, and then 20% for highincome taxpayers.
Plus there's an additional 3.8%net investment or Medicare tax
on top of that for any taxpayerwho earns over $250,000.

(07:14):
Well, in her proposal they'retalking about increasing capital
gains from 23.8% at the toprate all the way up to 44.6%.
That's just at the federallevel.
Of course there's state capitalgains taxes as well.
So, for example, our clients inCalifornia, between federal and

(07:37):
state, they could look at acapital gains tax as high as 59%
under this proposal.
If you're in New Jersey, thatcould be as high as 55.3.
If you're in Oregon, as high as54.5.
So, very substantial increasesto the capital gains tax.
And you have to remember thereason that policy calls for a

(08:00):
preferential tax rate on capitalgains is they want to
incentivize people to makeinvestments.
When you incentivize people tomake investments, it helps drive
the economy.
If you increase that tax oncapital gains, it
disincentivizes people frommaking that investment.
She's also calling for a 32%increase in Medicare tax for

(08:29):
people earning over $400,000.
Thousand dollars.
So again, if you account forthe income tax, which could be
as high as 40 to 45 percent,plus you add in payroll tax,
which is inclusive of Medicaretax, you can really start to see
that for anyone over four orfive hundred thousand dollars,
50, 55% of their paycheck couldeasily be going to income tax.

(08:54):
She's proposing an additionaltax on retirement accounts.
For large retirement accounts,if you've been successful enough
to amass over $10 million in anIRA or a Roth IRA or a 401k, or
you have earnings over $400,000in retirement, she's proposing
additional taxes.
She's proposing a financialtransaction tax, which would be

(09:18):
on trading stocks.
There'd be a 0.2% transactionon stock trades, a 0.1%
transaction tax on bond trades,so that would erode some of your
investment performance due totaxation.
She's suggesting that we shouldapply wash sale rules on

(09:38):
cryptocurrency transactions anddigital assets.
I've explained that in othervideos, but if you're into
crypto, definitely give us acall because that could impact
your tax situation.
And then she's limitinglike-kind exchanges to 500,000.
Like-kind exchanges are astrategic move for real estate

(09:59):
investors to be able to continueto defer taxes, and it's a way
that many families get verywealthy off of real estate and
don't have to pay a tax whenthey sell or exchange properties
, and so she would look to tryto restrict that tax strategy of
deferral to $500,000.

(10:20):
She's also proposing some prettysubstantial changes to the
estate and gift tax exemptionsand this would impact many, many
, many families.
So under current law, there's atax when you pass away if you
have a certain net worthIndividually.

(10:43):
Right now that number is $13.61million, so this tax does not
impact many people.
A married couple could haveover $27 million and never be
subject to the estate transfertax, or they could gift up to
$13.6 million in their lifetimeand not be subject to any tax.

(11:09):
So, again, most people aren'tsubject to this.
But under her proposal they areproposing that we lower this
exemption amount to $3.5 millionper individual.
That would be about $7 millionfor a married couple.
So if you add up your total networth of your estate value,

(11:30):
that would be your home, yourreal estate, your investments,
your retirement accounts, yourbusiness interests, the death
benefit of any life insurance,even if it's group insurance at
your employer or term lifeinsurance.
All of that accounts for yourtaxable estate.
And if you have a taxableestate over $7 million, you

(11:53):
could now be subject to thisestate and transfer tax upon
your passing, if this actuallymade its way into law.
She's also increasing, orproposing to increase, the
estate tax rate.
The current rate is 40%.
So, again, for any of thosefamilies that have over $27 or

(12:14):
$28 million, any amount over andabove that would be taxed at a
40% rate, would be taxed at a40% rate.
Now, under Kamala's proposal,anyone with over $3.5 million
would be subject to an estatetax rate of between 55% to 65%.

(12:35):
So an incredible increase inestate and transfer tax.
So any families, $7 million ormore.
This is something that youshould be considering around how
to structure your estateutilizing trust vehicles,
utilizing life insurance,utilizing annual gifting to

(12:56):
family members to help mitigatethis potential tax.
Because, if this does getenforced, we have a time period
now until the time that this taxlaw went into place to do some
really strategic planning, givenhow high the exemption is today
.
She's also recommending that weeliminate the step up in basis

(13:19):
for grantor trusts.
So a lot of the trusts that weuse in estate planning are grant
or trust, which means that theperson granting the money into
the trust is going to be subjectto the tax liability of the
trust.
A lot of those trusts receive astep up in basis.
That means that thebeneficiaries of the trust won't

(13:40):
have to pay tax on all the gainand if that gets eliminated, it
could be a tax time bomb forthose beneficiaries that have
highly appreciated assets inthese types of trust vehicles.
And then, last but not least,she's proposing we reduce the
annual gift exclusion to $10,000.

(14:00):
Many of our clients gift moneyto their children or other
family members to support them.
This today allows them to giftup to $18,000 to as many people
as they want, without any cap onhow many people they could gift
that to.
So a married couple could gift$36,000, 18,000 times two to as

(14:23):
many people as they want.
If they gift 36,000 to amarried couple, they can gift
72,000 to that married couplebecause there's two people
gifting to two people.
Now, under Kamala's proposal,she wants to reduce that annual
exclusion amount to $10,000 andput an annual cap of $20,000 per

(14:46):
person.
So that's drastically different.
Imagine a grandparent who'shelping out five grandchildren
with college education.
Well, instead of being able togift $18,000 to each of his five
grandchildren, he would becapped at $20,000 to spread out
amongst all five grandchildren.

(15:07):
So this is going todramatically change planning if
that became law.
Some more advanced strategiesregarding estate planning is she
wants to create a 10-year lifefor a grantor, retained annuity
trust and impose a 10% remainderinterest.
If you have a grad or werethinking about one, I'd highly
recommend chatting with our team.
She's talking about ending thegrant or trust status.

(15:31):
This would be a huge change toestate planning overall.
She's talking about limitingdiscounts on certain assets.
This is where sometimes aclosely held or non-marketable
business is able to achieve avaluation discount for estate
planning.
And then, last but not least,she's talking about imposing a

(15:51):
surtax on high income trusts andestates of 5% for adjusted
gross incomes over $200,000.
And an additional 3% for AGIsover $500,000.
So again, that would be a bigincrease in taxes to individuals
who have trust for their family.

(16:13):
Last but not least, somethingthat I think is almost
unthinkable is a wealth tax.
This is a minimum 25% tax ontotal income for taxpayers with
wealth greater than $100 million.
Now you might say well, whocares?
They have over $100 million.
The reason I say this isunthinkable is she is proposing

(16:37):
that this is inclusive ofunrealized capital gains, which,
in my opinion, is almostunworkable and probably
unconstitutional.
But let me give an example.
Let's say we have a businessowner, family-owned business.
They've worked for 50 years.
That business is bringing in$10 million of net income.

(16:57):
It's got a value of over $100million.
They employ 700 employees, sothey're doing a great job for
the economy, creating jobs,paying all these employees, but
because that business has avalue of over $100 million,
which is an unrealized capitalgain, that owner is not selling

(17:19):
the business, they're runningthe business.
They would owe an income tax of25% just because they have a
business that's valued over $100million, but they don't have
that $100 million becausethey're not selling the business
, and so this is something thatwould impact many business

(17:40):
owners, many privately heldcompanies, many businesses that
have substantial real estate,anything that doesn't have
liquidity associated with it.
Again, this is something that'sprobably far stretched to
actually make its way throughCongress, but something she is
proposing because her objectiveis to try to raise $5 trillion

(18:01):
of additional tax revenue overthe next 10 years to support
some of the initiatives and thesocial policies that she has.
So, again, this is not political.
This is just the facts of hercurrent proposal, so that you
can help look at some of thesethings and how they could impact
your personal financialsituation.

(18:22):
This is stuff that we work withfamilies on, day in and day out
, to have a plan in place sothat, if some of these things do
come to fruition, that you'renot blindsided, that we've
helped protect what's taken youa lifetime to accumulate.
So if you want to schedule acomplimentary strategy session

(18:43):
with our team of financialsubject matter experts, tax
advisors, estate planningresources, reach out.
Go to alisonwealthcom.
Book a 25-minute introductorycall and wealth experts and
advisors to help you navigatenot only what the current laws

(19:06):
are, but ultimately what futuretax changes could bring for your
family, so that we couldultimately help you reduce your
lifetime tax liability.
Thank you.

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Kamala Harris Tax Proposal Broken Down - August 2024

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Kamala Harris Tax Proposal Broken Down - August 2024