Kamala Harris Tax Proposals, 2024
Vice President and presumptive Democratic presidential nominee Kamala Harris has a record of favoring steeper taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
hikes on businesses and people than President Biden. While both President Biden and Vice President Harris aim their proposed tax hikes on businesses and high earners, key differences between their tax ideas in the past reveal where Harris may take her tax policy platform in the 2024 campaign.
Three questions stand out: (1) will Harris double down on more aggressive tax increases than President Biden, (2) is Harris open to stepping away from Biden’s $400,000 tax pledge, and (3) how would a President Harris approach the Trump-Biden tariffs levied on China and other trading partners? Additionally, Harris should clarify how she would address the upcoming expirations of the 2017 Tax Cuts and Jobs Act (TCJA) and the unsustainable trajectory of the federal debt.
What Has VP Harris Proposed in the Past?
In her 2020 campaign and as a senator from California, Harris proposed multiple changes to the tax code, including:
- Raising the top marginal income tax rate on the top 1 percent to 39.6 percent
- Implementing a 4 percent “income-based premium” on households making more than $100,000 annually to pay for her version of “Medicare for All”
- Creating a $3,000 refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit (EITC).
($6,000 for married couples filing jointly) (the LIFT Act) for low- and middle-income taxpayers - Raising capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment.
rates to ordinary income tax rates, though it is unclear if Harris would do so only on a subset of taxpayers - Raising the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax.
rate of 21 percent up to 35 percent - Expanding the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs.
- Imposing a financial transaction tax (FTT) on stock trades at 0.2 percent, bond trades at 0.1 percent, and derivative transactions at 0.002 percent
- Providing $2,000 per person per month for pandemic relief in mid-2020; totaling about $21 trillion, hers was one of the largest aid proposals, far surpassing what was eventually passed into law in December 2020
- Creating a tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.
for rent payments made by renters who earn less than $100,000 and spend over 30 percent of their income on rent and utilities
How Do Her Past Proposals Compare to the Biden-Harris Administration?
Though Harris’s campaign proposals often lacked detail, they shared similarities with the policies included in the fiscal year 2025 budget proposed by the Biden-Harris administration:
- Raising the top income tax rate on the top 1 percent of earners from 37 percent to 39.6 percent
- Increasing the corporate income tax rate
- Taxing capital gains and dividends at ordinary income tax rates
- Increasing refundable tax credits for individuals
In many areas, however, Harris’ proposals differ in details and scope:
- Harris proposed returning to a 35 percent corporate tax rate, while the FY 2025 budget would take it to 28 percent.
- Harris did not clarify if ordinary tax rates on capital gains would apply to all earners or just a subset, while the FY 2025 budget would do so only for people making $1 million or more.
- Harris supported a version of Medicare for All, financed by a proposed 4 percent tax on incomes above $100,000. Biden has avoided a Medicare for All-style proposal and taxing those earning less than $400,000 during his campaign and administration.
- Harris proposed the LIFT the Middle-Class Act, a new refundable tax credit structured like the earned income tax credit that phases in with earned income, while the FY 2025 budget focuses on expanding the child tax credit and making it fully refundable on a permanent basis.
- Harris proposed an financial transaction tax on certain Wall Street trades, including stocks, bonds, and derivatives, while the FY 2025 budget includes no such proposal.
- Harris was silent on changes to the international tax system, while the FY 2025 budget proposes a significant overhaul. Additionally, the FY 2025 budget includes a novel minimum tax on high-wealth individuals designed to bring unrealized capital gains into the income tax system.
- As a senator, Harris voted against the 2017 TCJA, while the FY 2025 budget indicates an extension of the expiring TCJA provisions for people earning under $400,000 without specifying exactly how that would be structured or how the revenue loss would be offset.
In all, Tax Foundation estimates the major tax increase proposals in the Biden-Harris FY 2025 budget would reduce economic output by 1.6 percent and employment by 666,000 full-time jobs. If Harris took the tax increases further, as she has supported in the past, the economic losses would be even larger.
What about the $400,000 Pledge?
President Biden has consistently pledged that he would not raise taxes on households earning under $400,000, which dates to his 2020 campaign. The pledge heavily guided the design of Biden’s tax proposals in his annual budgets, the Build Back Better Act in Congress, and the InflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.
Reduction Act (IRA) signed into law in 2022.
While Harris has made supportive comments about the $400,000 pledge as running mate and Vice President, her elevation to Democratic nominee is an opportunity to rethink the tax pledge.
The pledge has several tax policy weaknesses. First, it sharply reduces policymakers’ available options to reform the tax code and raise offsets, as it limits tax increases to about 2 percent of the population. Second, the pledge increases the complexity of the tax code by requiring policymakers to design ideas around not increasing taxes on most households.
Third, key details of the pledge remain unanswered and inconsistent, such as the lack of adjustment for inflation—the pledge’s threshold would stand at about $481,000 today if indexed since 2020—and ambiguity about how the pledge applies to households with different filing statuses. Corporate tax increase proposals were arbitrarily excluded from the pledge, relying on a naive focus on statutory tax incidenceTax incidence is a measure of who ultimately pays a tax, either directly or through the tax burden. This burden can be split between buyers and consumers, or different groups in the economy.
(who directly pays the tax bill) over economic incidence (the corporate tax ultimately falls on workers and shareholders, many of whom earn less than $400,000).
By jettisoning the tax pledge, Harris could consider broader policy options that are more consistent with sound tax policy, such as eliminating tax expenditures to offset pro-growth tax changes related to the 2025 individual tax expirations. In addition to opening options for a more rational tax policy, stepping away from the pledge would increase honesty with the American public that policy changes to rectify our inefficient tax code and dire spending situation will require alterations beyond the top 2 percent of income earners.
What about the Trade War?
Former President Trump instigated a trade war by imposing about $80 billion of tariffs on imports of washing machines, solar panels, steel, aluminum, and billions of dollars’ worth of consumer, intermediate, and capital goods from China.
While the Biden-Harris administration has retained most of the trade war tariffs, and proposed increases of its own, Harris has in the past demonstrated a better understanding of the downsides of tariffs, proclaiming she is not a “protectionist Democrat” and railing against “Trump’s trade tax” that was “taxing American consumers.”
We estimate the current trade war tariffs will reduce long-run GDP by 0.2 percent and eliminate 142,000 full-time jobs. Numerous academic studies have quantified the costs and benefits of the tariffs for the US economy, reaching the conclusion that on net, the tariffs have decreased US production and jobs and increased costs for consumers and businesses.
As the new nominee, Harris would have the opportunity to lift the tariffs, reducing the economic drag they are currently imposing and boosting after-tax incomes for lower- and middle-income households enduring most of the tariffTariffs are taxes imposed by one country on goods or services imported from another country. Tariffs are trade barriers that raise prices and reduce available quantities of goods and services for U.S. businesses and consumers.
burden.
Conclusion
As a US senator and 2020 presidential candidate, Harris supported steeper tax hikes and more aggressive redistribution through the tax code than President Biden. At the same time, she also has a record of departing from Biden’s $400,000 tax pledge and Trump’s tariffs. Her past tax policy stances raise the question of whether, and how far, she might depart from the policies of the Biden-Harris administration.
Stay informed on the tax policies impacting you.
Subscribe to get insights from our trusted experts delivered straight to your inbox.
Subscribe
Share
