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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Explore how the 2024 presidential candidates’ tax plans could impact your finances and what to know before voting.

What tax proposals are the 2024 presidential candidates making, and how might these policies affect your finances? What should you know before voting on tax issues? Hosts Sean Pyles and Anna Helhoski discuss the key differences in the candidates’ tax plans and how to make informed decisions to protect your financial future. They begin with a discussion of the importance of tax policy, with tips and tricks on understanding credits and deductions, how taxes fund government services, and the long-term effects of tax laws on your paycheck.

Then, Anna talks to Amy Hanaeur, the executive director of the left-leaning Institute on Taxation and Economic Policy, to discuss the candidates’ specific tax proposals. They discuss proposals to cut corporate taxes, extend expiring tax cuts, provide child tax credits, and eliminate taxes on Social Security benefits.

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This transcript was generated from podcast audio by an AI tool.

Sean Pyles:

Taxes. Nobody likes them, but it’s how we pay for government, from local police and fire departments to the folks at the national level who make our currency and on and on. So what’s a fair and effective tax structure? That’s an argument democracies have been having since the Greeks came up with the system of government, and it’s an argument that we’re still having in earnest in the 2024 presidential campaign.

Amy Hanaeur:

Two-thirds of the cost of making those individual tax cuts permanent would go to the richest fifth of Americans. So to the richest 20% of Americans. So just for a sense of what that would cost, in 2026 alone, that would cost more than $280 billion.

Sean Pyles:

Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.

Anna Helhoski:

And I’m Anna Helhoski.

Sean Pyles:

This is episode three of our Nerdy deep dive into presidential policy and personal finance. And today, Anna, it’s so exciting. We’re going to talk tax policy.

Anna Helhoski:

Wait, wait, don’t everybody leave yet. This is really important stuff. It has a huge effect on your bottom line, so you should know what the two presidential candidates are proposing to do with your tax dollars and then vote accordingly.

Sean Pyles:

Sometimes it’s hard to figure out exactly what this or that tax policy will do to your paycheck. There are proposals for credits and deductions and write-offs, and it can pretty quickly induce your brain to go on zombie status. But even just the broad strokes are important to understand, so we’re going to go through some of that today.

Anna Helhoski:

And remember, Sean alluded to this at the top of the show. Taxes pay for just about every government service you use. Every time you drive on a highway, every time you call 911. Every time you jangle cash in your pocket. Every time you pay for college with a federal student loan.

Sean Pyles:

Every time you get a letter delivered by the USPS. Every time you go to a national park. Every time your grandparents get a Social Security check. Every time you find yourself in a court of law. And every time you realize that national security is pretty important. All of that is the government at work and it’s funded by the money that comes out of your paycheck.

Anna Helhoski:

Is some government spending ridiculous? Yup. Some of my own spending is ridiculous, by the way, but I digress. You can argue over the size of government. A famous Republican anti-tax lobbyist named Grover Norquist once said his goal was to “reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” But it’s hard to imagine how anything would get paid for if there weren’t taxes, including all those other campaign promises that candidates are making.

Sean Pyles:

Right. How would anything get done if it weren’t for, you know… government? But as we’ve been saying throughout this series, the most important part of all of this is that you are an educated voter. That you understand how the presidential candidates’ tax policies could affect you.

Anna Helhoski:

And then take that knowledge to the ballot box and vote your conscience. Or for a lot of us, take that knowledge to the mailbox after you’ve filled in your ballot at home.

Sean Pyles:

I’ve got to say I really love voting from the comfort of my couch, usually in my pajamas. As we’ve noted previously, we want to say at the outset that we are not here to take sides or fan the flames of an already contentious political season. Our goal here is the same goal that we always have at NerdWallet: to help you, our listeners, make smart informed decisions about the stuff that impacts your finances. Sometimes that means choosing the right credit card for your needs. Other times, that means voting for the candidate who you believe will help you achieve your life and financial goals. All right. Well, we want to hear what you think too, listeners. To share your thoughts around the election and your personal finances, leave us a voicemail or text the Nerd hotline at 901-730-6373. That’s 901-730-N-E-R-D, or email a voice memo to [email protected]. So, Anna, who is helping us sort through tax policy today?

Anna Helhoski:

Today, we’re speaking with Amy Hanaeur. She’s the executive director of the left-leaning Institute on Taxation and Economic Policy. Amy Hanaeur, thank you so much for joining us.

Amy Hanaeur:

Thanks for having me.

Anna Helhoski:

Unsurprisingly, Kamala Harris and Donald Trump have introduced some pretty different tax plans. So to kick off our discussion, I’m hoping you can give an overview of what stands out most to you in these plans.

Amy Hanaeur:

I would say there’s a pretty dramatic difference between Vice President Harris’s tax proposals and former President Trump’s tax proposals. It’s one of the biggest policy differences between these candidates.

Vice President Harris has plans to raise revenue from wealthy people and corporations. She’s also a little more concrete about her plans for the child tax credit, which helps middle-class families with children and other families with children. Trump has kind of a history of slashing taxes in ways that largely redound to wealthy people and corporations. He has also put forth some middle-class tax cuts. Those also will go to the wealthiest as well as to middle-class families. So I think his proposals all in all are more expensive and can make it a little harder to pay for the things that are spending priorities for either party.

Anna Helhoski:

Harris has come out with a number of tax breaks, including up to $50,000 for new small businesses, a $25,000 housing tax credit for first-time home buyers, and an increased child tax credit that includes $6,000 for new parents. Would these be effective policies and walk us through their feasibility?

Amy Hanaeur:

I would say that the $6,000 newborn child tax credit along with her proposal to restore the expanded child tax credits for older children that took place during the pandemic are very proven, very effective policies. And we know that the expanded child tax credit cut poverty almost in half. We know that it helped lots and lots of middle-class families. And we know that even at a time when unemployment was sky high, those child tax credits kept the economy moving and kept a lot of families solvent. And the new expanded $6,000 that she’s proposing for newborns is really important because that first year is so important developmentally for children, and so for families to have a little bit more resources in that first year, I think, makes a lot of sense.

The other two things that you asked about I think are a little more marginal in their effect and maybe not the very best approaches. The tax break, the $50,000 for new businesses is a little complicated because a lot of new businesses don’t actually earn enough to pay taxes. And so they would probably stretch that until when they are profitable, and then they would reduce their taxes once they are profitable further down the road. We just don’t think that that makes as much sense as some other approaches. The tax credit for new home buyers is an interesting idea. I think the Vice President is pairing that with some activities on the supply side to make sure that there’s more housing. But I think that those supply-side activities are a crucial part of that because if you just give a tax credit to new home buyers, it could end up driving up the cost of housing. I don’t think it’s the most important or the strongest part of her tax proposals.

Anna Helhoski:

And we need to have more housing supply in order to have more first-time home buyers.

Amy Hanaeur:

Anna Helhoski:

I want to shift over to Trump. He certainly wants to extend the 2017 tax cuts made under his administration, and he said he plans to lower the corporate tax rate even further. Can you remind us what was in the 2017 Tax Cuts and Jobs Act and what is set to expire next year? I know it was a complex law, but if you could give us the highlights.

Amy Hanaeur:

The 2017 tax law really cut the corporate rate from 35% to 21%, and the result of that was that corporate tax payments plummeted, and a lot of huge profitable corporations continued to pay far below the statutory rate. So the rate was 21%, but actually, lots and lots of corporations pay much, much less than that. Our research shows, and the research of a lot of other scholars shows that these kinds of cuts increase income and racial inequality. They also… This is kind of important. They send a massive windfall like 40 cents of every dollar to foreign investors because foreign investors own 40% of corporate stocks. That is just not a very well-targeted proposal, and it would really cost us a lot in revenue, which could reduce the ability of either party to execute on their spending priorities.

Anna Helhoski:

Has the former president said he wants all of those tax cuts renewed? Are there any proposed changes or is it just an extension?

Amy Hanaeur:

The corporate tax rate that I was just talking about is actually permanent, the cut that they already made. But as you said, he’s proposing further cuts to that corporate rate. So that’s a new proposal. That’s not an extension. The part that they made temporary were the individual components of the 2017 tax law, and they did that because it cost too much and it wasn’t possible to pass it with the policy mechanism that they were trying to use at the time because they were trying to do it with only one party’s support. In order to get it below the overall cost limit that is imposed on Congress, they made the individual tax cuts temporary. Former President Trump has said that he wants to extend all of the individual tax cuts that were in that 2017 law.

Anna Helhoski:

What has Harris said about that tax legislation?

Amy Hanaeur:

Well, she has said that with all of her tax cuts, there would not be a situation in which somebody earning less than $400,000 pays more. She has said that for the individual tax cuts, she wants to extend them for those earning less than $400,000 but phase them out over $400,000. I can say a little more about what the 2017 law did distributionally.

Anna Helhoski:

Amy Hanaeur:

If that’s helpful.

Anna Helhoski:

Absolutely.

Amy Hanaeur:

That law as a whole did deliver really large tax cuts to those in the top 1%, and that’s kind of a narrow sliver. I’m talking there about people with income over $800,000 a year. These cuts are the part that expire in 2025, but the Trump campaign wants to make them permanent. Two-thirds of the cost of making those individual tax cuts permanent would go to the richest fifth of Americans, so to the richest 20% of Americans. So just for a sense of what that would cost, in 2026 alone, that will cost more than $280 billion. It really does start to cut into revenue.

Anna Helhoski:

Have you seen any shifts in where Trump’s tax policy proposals are now versus when he was president?

Amy Hanaeur:

I would say that he’s kind of looking to just intensify his previous approach. Now, he’s floated some other things and his vice-presidential candidate has floated some other things, but in terms of concrete things on paper, it’s a little bit more of the same. He talked about, for example, repealing the tax on Social Security benefits. It would lower taxes for US households, I think, by an average of about $550 per household. But it would come with a big price because it would reduce Social Security and Medicare revenues by about $1.5 trillion over the next decade.

Anna Helhoski:

I want to talk specifically about Trump’s tariff proposal. He wants to do a 10% to 20% across-the-board tariff on all imports and up to 60% for goods from China. He has also suggested replacing personal income taxes with these new tariffs. Amy, how do tariffs on foreign countries and taxes for Americans intertwine?

Amy Hanaeur:

This is a sort of surprising proposal because it’s a real departure from the traditional way that Republicans have approached this issue. And frankly, a departure from how Democrats have approached this issue in recent years as well. Most economists absolutely agree that tariffs fall on consumers, but there can be reasons why advocates for particular industries, sometimes the owners, sometimes the workers, may want them at different times for particular economic development reasons or retaliatory reasons if they think that another country has appropriated a technology or industry that we had previously dominated in. I think what’s really challenging about the Trump proposal is that it is so across-the-board, and also that he hasn’t been very clear about exactly what he would do. So at some times, he has talked about 10% across-the-board tariffs. At other times, he has talked about 20% across-the-board tariffs. That’s a pretty big difference. And then he’s talked about, as you said, the additional 60% on China. An economist named Kim Clausing estimated 20% across-the-board tariffs would cost the typical household $2,600 a year. It’s a substantial hit to families and it manifests itself much in the way that inflation does. It would just be basically every product that every household buys would end up costing more.

Anna Helhoski:

Now, the Biden administration has largely kept the tariffs that Trump imposed during his previous term. What has Harris said about that and her view in general on tariffs?

Amy Hanaeur:

I’m not sure that she has said that much. I think that this is a part of the Biden administration policy that they are perhaps somewhat quiet about. I think it’s challenging to repeal those tariffs for political reasons. But I think from a policy perspective, it’s just important to note that they do fall on households. They’re not as large as those 20% across the board and 60% on China tariffs that the former president is putting forth. So they don’t have the same kind of impact, but it is kind of universally accepted that those kinds of tariffs do fall on consumers in terms of increasing prices.

Anna Helhoski:

More of our interview in a moment. Stay with us. Amy, real quick, I just want to turn back to Social Security for a second. Trump had said that he wants to get rid of the tax on Social Security. What would be the impact of that on the average American? What would that mean for their paychecks right now and for the prospect of them having Social Security when they reach retirement age?

Amy Hanaeur:

The Tax Policy Center did an analysis of this proposal and found that it would lower taxes for US households by an average of $550 a year. But at a big, big cost because it would end up reducing revenues in Social Security and Medicare by about $1.5 trillion with a T over the next decade. This would end up driving both programs into insolvency much faster, and so it would end up resulting in sharply reduced benefits for tens of millions of recipients. And the Tax Policy Center has not yet estimated, I don’t believe, the exact nature of those benefit reductions, but we know that Social Security is just one of our most important social programs, pulls a huge number of people out of poverty. The elderly used to be the poorest population age group in the United States, and after Social Security was put in place, they became the least likely to be poor among American households. So it’s really a huge part of our social safety net and just a huge part of our society.

Anna Helhoski:

Now, Trump and Harris don’t agree on very much, but one place where there is overlap is that both candidates have proposed to lift the tax on tips. Can you explain that for us and what it would mean for the average American, both those who receive tips and those who pay them?

Amy Hanaeur:

Getting rid of taxes on tips is probably more about politics than about creating a great public policy. First of all, a very small share of the workforce receives all of its income from tips. And so it would be kind of flawed because do we really think that a waitress who earns a very modest salary and a teacher’s aide or a teacher or a nurse’s aide who earns a really modest salary, do we really think that the waitress should pay a lower tax rate than a teacher or teacher’s aide or nurse’s aide who earns the same amount? And that would be the effect of this policy. It would also really encourage shifting some compensation to tips. So high-paid professionals could ask that their fees instead be structured as tips.

Now, Vice President Harris does have a check in place for her proposal that kind of gets at that because she has suggested ways that it could be targeted toward those earning under $75,000 a year. That certainly makes a big difference in terms of the possibility for gamesmanship by very wealthy earners. But fundamentally, we just think there are better ways at getting at helping low-wage workers who receive tips. Namely, we could get rid of the tipped wage. We could say that every worker deserves a minimum wage. The sub-wage for tipped workers is $2.13 an hour at the federal level. So we’re talking about a ridiculously low wage in 2024.

Anna Helhoski:

It seems like either candidate will struggle to bring forth most of these proposals if there’s not enough support in Congress. Either Harris’s or Trump’s proposals, what do you see there being congressional support for? And is there anything that Harris or Trump could do unilaterally?

Amy Hanaeur:

Obviously, a lot depends on the composition of Congress. So if either side gets a trifecta, if we have Republicans taking both Houses and the presidency, I would expect that former President Trump would be able to again cut taxes on billionaires and again cut taxes on corporations. I don’t think his Social Security proposals would go through under any party because Social Security is sort of famously the third rail of American politics, and it really does disrupt our social structures to think about reducing the funding available to pay for Social Security.

For Vice President Harris, if she were to get a trifecta, I think she would probably succeed in getting some of those revenue raisers. I could see her getting through the extensions of the individual tax cuts for those earning less than $400,000 but getting rid of them for those earning more. And in the perhaps most likely situation where we have divided government, I think a lot of this would be up for debate, and I think we’d end up seeing some mishmash of these two approaches.

Anna Helhoski:

Amy, what have we not seen Kamala Harris or Donald Trump weigh in on that you think is an oversight?

Amy Hanaeur:

There are pieces that are in Kamala Harris’s written proposals that don’t get a lot of attention. And one of the big ones is something very obscure called stepped-up basis. Sometimes people call it buy, borrow, and die. That basically says that for very wealthy people, if they acquire stocks or other assets that really grow in value over the time that they own those assets, that if they pass those on to heirs without selling them first, nobody ever pays taxes on the difference in value. So that’s always something that I think should get more attention. But it’s complicated to explain. As you can see with my efforts to explain it, it’s just complicated. And it’s easier to say, “We’re going to raise the corporate tax rate or we’re going to lower the corporate tax rate.” I think that’s something that could get more attention.

Anna Helhoski:

Is there anything else you want to call out about Harris or Trump’s tax plans?

Amy Hanaeur:

I would just say the big picture is: The Harris approach raises more revenue. It raises it primarily from the wealthiest and corporations. The Trump approach puts us deeper in debt and gives a lot more away to wealthy people and corporations. And both of them, I think, have some proposals that would help middle-class families on the tax side.

Anna Helhoski:

All right. Amy Hanaeur, thank you again for talking with me today.

Amy Hanaeur:

Yeah, thank you so much.

Anna Helhoski:

Sean, I want to emphasize one thing before we wrap up, and that’s how much authority the Executive Branch has to change taxes. The president does technically have the power to tax, but they generally don’t exercise that. What they do is press Congress to pass policies that they want. What we don’t know right now is what campaign promises will have bipartisan appeal once we have both a new administration and a new congressional makeup.

Sean Pyles:

You know, Anna, tax is a funny thing, where you make one change in one area and it can have drastic, sometimes unintended ripple effects in other areas. Two examples that come to mind are how Harris providing a tax credit for first-time home buyers could drive up home prices, and how Trump’s tax cuts exacerbated racial and wealth inequality. And these examples underscore how complicated and confusing tax policy can be. But it’s really, really important for all of us to engage with this since a number of components of the Tax Cuts and Jobs Act of 2017 will sunset in 2025. So we have a unique opportunity right now to reshape taxes and our votes will have a hand in that.

Anna Helhoski:

And one thing that Amy Hanaeur didn’t delve too deeply into is the no tax on tips policy that both Trump and Harris are endorsing. But fortunately, listeners, we did go into no tax on tips in a previous episode. So have a listen to our August 21st episode on that topic, which we’ll also link to in today’s show notes.

Sean Pyles:

Anna, tell us what’s coming up in the fourth and final episode of the series.

Anna Helhoski:

Sean, we’re going to talk about two specific areas of policy that affect a large swath of voters: student loans and healthcare.

Eliza Haverstock:

The fate of the repayment plan is now largely in the hands of the courts. However, the president can influence the situation by directing the Justice Department how to proceed with appeals. Harris would likely continue to vigorously defend the SAVE plan in court. Meanwhile, Trump is not likely to defend SAVE.

Anna Helhoski:

For now, that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That’s (901) 730-N-E-R-D. You can also email us at [email protected]. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

Sean Pyles:

This episode was produced by Tess Vigeland and Anna. I helped with editing. Rick VanderKnyff and Amanda Derengowski helped with fact-checking. Megan Maurer mixed our audio. And a big thank you to NerdWallet’s editors for all their help.

Anna Helhoski:

And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean Pyles: