Dominic Rovano
Dominic Rovano

With the November election quickly approaching, there’s more focus on each candidate’s prospective policies. While neither Kamala Harris nor Donald Trump has outlined an official tax proposal, each has communicated aspects of their plan in various campaign speeches, rallies and interviews. The candidates likely will provide more details as we get closer to election day.

The following article is what is currently known from each candidate. We will focus on the aspects of their plans that are relevant to the owners and operators of PR and marketing agencies.

The table below compares what each candidate has revealed about their respective tax plans.

Proposal: individual tax rates

Kamala Harris:

  • Increase top marginal tax rate to 39.6 percent.
  • Expand earned income tax credit.
  • Exempt tips from tax.
  • Tax capital gains as ordinary income.
  • Impose a 4 percent income-based premium on households making over $100,000.

Donald Trump:

  • Make TCJA rate cuts permanent.
  • Introduce 10 percent middle-class tax cut.
  • Reduce 22 percent tax bracket to 15 percent.
  • Exempt tips from tax.
  • Exclude Social Security from income tax.
  • Reinstate the SALT deduction.

Proposal: corporate tax rate

Kamala Harris:

  • Increase corporate tax rate to 28 percent.
  • Raise the corporate minimum tax to 21 percent for large corporations with 3-year average net income over $1billion.

Donald Trump:

  • Reduce corporate tax rate to 20 percent for C-corporations.
  • Make 20 percent QBI pass-through deduction permanent for flow-through businesses.

Proposal: capital gains

Kamala Harris:

  • Tax capital gains as ordinary income at 39.6 percent on income above $1 million.
  • Limit deferral on gains for like-kind exchanges of real property to $500,000.

Donald Trump:

  • Index capital gains for inflation, reducing rates.

Proposal: tax cuts for businesses

Kamala Harris:

  • Expand New Market Tax Credits.
  • Expand Low-Income Housing Tax Credit.
  • Incentivize energy-efficient upgrades.
  • Incentivize the construction of starter homes and affordable rental units.
  • $50,000 deduction for small business startups.

Donald Trump:

  • Make 100 percent bonus depreciation permanent.
  • Introduce “Made in America” tax credits.
  • Expand TCJA Opportunity Zones.

Proposal: tax increases for businesses

Kamala Harris:

  • Revise Global Intangible Low-Taxed Income to 21 percent minimum tax.
  • Impose tax penalty on corporations moving jobs offshore.

Donald Trump:

  • Impose an additional 60 percent tariff on goods imported from China.

Proposal: estate tax

Kamala Harris:

  • Eliminate stepped-up basis for inherited capital assets.
  • Restore estate tax rates to historic norms.

Donald Trump:

  • Make TCJA estate tax provisions permanent.
  • Cap estate and gift tax rates at 20 percent.

Proposal: energy

Kamala Harris:

  • Restore full electric vehicle credit.
  • Reform and extend tax incentives for clean energy.

Donald Trump:

  • Eliminate credits for electric vehicles.
  • Repeal residential energy-efficient property credit.

Proposal: credits, deductions and exemptions

Kamala Harris:

  • Make the Child Tax Credit fully refundable on a permanent basis.
  • Increase the Child Tax Credit to $6,000 for children under age 1, $3,600 for children 2–5, and $3,000 for older children.

Donald Trump:

  • Consider expanding the Child Tax Credit to a $5,000 universal credit.
  • Restore $5,000 personal exemption.

Proposal: payroll taxes

Kamala Harris:

  • Impose 12.4 percent Social Security payroll tax (split evenly between employers and employees).

Donald Trump:

  • No new payroll taxes proposed.

Proposal: tariffs and trade

Kamala Harris:

  • No new tariffs proposed.

Donald Trump:

  • Impose 20 percent tariff on every foreign import coming into the U.S.

The Harris plan summary

Harris aims to boost the corporate income tax rate to 28 percent, penalize companies for offshoring domestic jobs and raise the minimum corporate tax. Her proposals also include a new payroll tax on wages above $400,000, paid by both employers and employees. However, Harris’s plan to expand tax credits for new markets could lower tax liability for some businesses, while developers would appreciate her proposed expansion of affordable housing credits.

Also worth mentioning is Harris’s goal of boosting middle-class income via expanded earned income and child tax credits, along with tax assistance for first-time homebuyers. More money in consumers’ pockets could spur economic activity, helping businesses such as retailers, home builders and restaurants.

The Trump plan summary

Trump has suggested reducing the corporate rate to 20% and floated the idea of dropping income tax entirely in favor of a tariff-based taxation system. Many economists believe that’s not feasible, but it suggests that Trump is open to the idea of major shakeups to the tax code. He’s repeatedly signaled his intent to impose tariffs on all imports and make the 20 percent Qualified Business Income deduction for pass-through businesses permanent. He also wants to expand current Tax Cuts and Jobs Act Opportunity Zones, introduce “Made in America” tax credits and codify a permanent 100 percent bonus depreciation rate.

While Trump’s tax cuts for businesses and high earners hold appeal, economists have warned that his proposed tariff strategy could raise prices, curtail consumer spending and negatively impact economic activity.

Impact on PR and marketing agencies

Potential changes to various tax rates and treatment of capital gains are the biggest issues for PR and marketing agencies to monitor as the election approaches:

Agencies structured as C-corporations should consider the possibility of changes to the corporate tax rate, either higher or lower. Higher rates might reduce profit margins, lower shareholder returns and make U.S. companies less competitive globally. A lower rate could boost profit margins, enhance shareholder value and make these companies more attractive to foreign investment. A lower corporate tax rate scenario could also include the possibility of wage increases for employees and competitive pricing for tech products.

The election could also decide the fate of the 20 percent pass-through deduction for partnerships, LLCs and S-corporations. Owners and partners in these types of entities should anticipate what could be a significant increase in tax liability after 2025 if it expires.

The disparity in the treatment of capital gains is another wild card. A higher capital gains rate could reduce venture capital investment and slow down the pace of M&A. However, a reduction in the capital gains rate would likely increase investment in capital ventures and boost overall M&A activity.

What will happen with bonus depreciation is yet another unknown. Depending on who wins, we could see a permanent 100 percent bonus depreciation rate.

Harris’s proposal includes an additional payroll tax on wages above $400,000, which could be a factor for PR and marketing agencies with high income earners.

How to prepare

With the candidates’ tax proposals heading in such different directions and so much being still unclear, how should PR and marketing agencies and their leaders prepare for the next four years? For now, your best option is to stay flexible, so you can adapt your business practices to save on taxes under either future administration. Nothing is certain and things are destined to evolve. In the meantime, stay aware of potential tax changes that could affect your agency and be prepared to respond if any of these proposals become a reality.

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Dominic Rovano, CPA, is a Partner at Armanino LLP.