October 27, 2020
By Paul Bubny
With the conclusion of the 2020 elections still a few weeks away and the outcome far from certain on who takes the Presidential oath of office in January, the question of what tax policy will look like post-inauguration hangs in the air. Berkadia recently brought together three tax professionals for a one-hour webinar to shed some light on the subject.
Whether it’s Joe Biden or Donald Trump solemnly swearing on Jan. 20, all three of Berkadia’s panelists—Wendi L. Kotzen, partner, Ballad Spahr LLP; Edward A. Liva, a retired CPA who now teaches partnership taxation at Villanova School of Business; and Edward J. Reitmeyer, Mid-Atlantic partner-in-charge, Tax & Business Services at Marcum LLP—agreed that any major changes in policy won’t happen overnight.
Along with the process of getting tax legislation through both houses of Congress, there’s the question of when the legislation takes effect. Given a sharp economic downturn due to the pandemic, that effective date may be a couple of years away.
What is clear, though, is that Trump and Biden represent sharp contrasts when it comes to taxation. “The candidates have very differing views of policy and the right approach to take for tax,” said Kotzen.
The prevailing view of how a re-elected Trump will approach tax policy is based largely on comments he’s made or the course tax professionals believe he’ll take. “There is no formal Trump plan that has been published or documented, although the President has maintained that he would like to decrease the capital gains rate to 15%,” said Liva.
Conversely, he said, Biden’s plan has been set down in writing. The Democratic contender has proposed generating $4 trillion in new taxes over the next 10 years—a 10-year total that coincidentally is close to the reduction in taxes that went into effect with 2017’s Tax Cuts and Jobs Act.
About half that increase occurs on the corporate side. Biden is proposing an increase in the maximum corporate tax rate from the current 21% to 28%, or halfway back up to the 35% rate it was reduced from. He also is calling for a 15% minimum tax on book income along with an increase in taxes on foreign profits.
At the individual level, said Liva, a big part of the revenue will come from increasing the cap on Social Security taxation for people earning more than $400,000. There will also be an increase in the top personal rate from 37% to 39.6%, caps on itemized deductions at a 28% benefit and a phase-out—or outright elimination—of Section 199A, the 20% business income deduction.
Biden’s proposal, as well as Trump’s, is currently in the talking stages. Kotzen noted that the tax policy climate is currently full of big ideas but short on details and definitions.
She described four concentric circles applying pressure to tax policy: the pandemic, which could affect both the substance and timing of legislation; the presidential election; the congressional elections, in which members of the same party don’t necessarily agree with one another on tax policy; and the infancy of TCJA, which is still working its way through the system as tax
professionals and regulators interpret the provisions of a sweeping bill that Congress passed in a hurry at the end of 2017.
Reitmeyer noted that three economic modeling groups—Penn Wharton budgeting model, the Tax Foundation and the American Enterprise Institute—have scored Biden’s proposal. All three say it would suppress GDP growth long-term by between 0.2% and 1.5%.
Whatever they say about taxation prior to Nov. 3, Reitmeyer noted that “candidates have to campaign,” and so will make statements that play to their bases. “But eventually they get elected and they have to govern,” he said. “I haven’t yet seen any elected official get everything they wanted and they campaigned on.”
He expressed optimism that that government would be able to read tea leaves and see that the pandemic and economic stresses are “more paramount than partisan politics.” Raising taxes represents “a drag on the economy, especially when things are beaten down,” said Reitmeyer. “The time, if you want to raise revenue, is when things are going better.”
Randy Jenson, CFO at Berkadia, moderated the conversation, with Hilary Provinse, the firm’s head of mortgage banking, setting the stage.
For comments, questions or concerns, please contact Paul Bubny