How the 2020 election could impact your retirement and taxes
Bill Smith, CBIZ MHM Managing Director, joins The Final Round to highlight the key differences between the candidates in the 2020 presidential election and what their policies could do to your retirement savings plan.
Video Transcript
[DIGITAL EFFECT]
MYLES UDLAND: All right, welcome back to "The Final Round" here on Yahoo Finance. Myles Udland with you in New York. It's time now for our retirement segment, brought to you by Fidelity Investments. As we've mentioned a couple times today, just about eight weeks away from the presidential election. So what do you need to know about Trump and Biden's tax plans and how may it impact your finances going forward? For more on that, we're joined now by Bill Smith. He's a managing director at CBIZ MHM Tax Office. Bill, thanks so much for joining the program once again. So let's kind of just start highest level here, biggest differences as you see them between what the president has outlined and what Vice President Biden has outlined.
BILL SMITH: Well, sure, Myles. Initially, if the candidate doesn't flip the other side of Congress, very little is likely to happen. So Biden needs to flip the Senate or Trump needs to flip the House before much is going to happen. That being said, on the Trump side, there hasn't been much detail. Trump simply said that he wants to extend the provisions of the tax cuts and jobs act, because they've already passed their tax bill. So they had to make certain provisions expire for budget purposes. They expire in 2025. He wants to make those permanent.
Otherwise, he's talked about potentially indexing capital gains, meaning your basis goes up, so you'd have smaller capital gains, potentially lowering the capital gains tax. And we did see in the CARES Act a little relief for required minimum distributions. Biden on the other hand, obviously wants to raise taxes. He's targeting people with incomes over $400,000, so that's a lot of where his play occurs on the income tax side. But one of the big issues that he's talking about is eliminating the step up in basis on estate taxes.
So normally, if you die and you pass your property to your heirs, they get a step up in basis to the fair market value at the time you die. If you eliminate that, that doesn't impact the giant estates, only. So right now, we have an $11.58 million dollar exemption for individuals, twice that for married couples, and you think, well, changes to estate tax don't mean that much. But if you eliminate the step up in basis, it affects every mom and pop in the country. If you're passing your small business on to your kids, historically, they would start with a basis of date of death value. That goes away if Biden's plan succeeds there.
Also, he's trying to do some things for the elderly, like protect Social Security, by bringing back the Social Security tax on income over $400,000. Right now, it terminates at $137,000. He's also allowing long-term care to be purchased by retirement benefits. And talking about bringing back the earned income tax credit if you're over 65 and a low wage earner. So more people are working longer. That would be a big help, because right now if you're over 65, you're not eligible for the earned income tax credit.
MYLES UDLAND: Yeah, and Bill, as you outlined, unless we have full democratic control of all three branches, it's unlikely there's going to be any major changes. But it's interesting hearing you talk about the capital gains tax, as well as the estate tax, because these are really issues that I think the donor class cares a lot about. The average voter, it really could not matter less to them, some of these machinations. I guess if we do imagine a world though where the Democrats do manage to flip the Senate and Joe Biden is sitting there and he has his priority list, would you say that getting corporate taxes back to 28% would be a top priority? Would it be trying to change capital gains? Is there any sense you have in his agenda were that to come to pass?
BILL SMITH: Getting the corporate tax rate back up to 28% and cutting into the qualified business income deduction, the 199A deduction, would be top priorities, because they're so much bigger a revenue raiser than some of these other provisions. So when you're talking about trying to raise taxes to put an agenda into place, you get a much bigger bang for your buck if you raise the corporate rate back up to 28% from 21%, and you start to hack away at the 199A qualified business income deduction.
MYLES UDLAND: All right, Bill Smith with CBIZ MHM's Tax Office. Bill, thanks so much for joining the program once again, and we'll be in touch shortly.
BILL SMITH: Go Milan.