Trump vs. Clinton: Tax Proposals

Tax policy is a critical element of any presidential campaign, and this year is no different. Presumptive nominees Donald Trump and Hillary Clinton have proposed very different tax law changes, and it is not too early to take a look at the highlights of these proposed plans. Keep in mind that regardless of the outcome, neither candidate will have all of his or her proposals enacted into legislation.

The two plans have some distinct differences that are worth a closer look. Highlights are as follows:

Trump’s Tax Proposal

  1. Single taxpayers earning less than $25,000 and those married and filing jointly earning less than $50,000 will not owe any income tax.
  2. Simplify individual tax code with only four brackets – 0%, 10%, 20% and 25%.
  3. Eliminate marriage penalty and alternative minimum tax.
  4. Lower maximum business income tax rate to 15% from 35%, mitigating the need for corporate inversions.
  5. Eliminate the estate tax.
  6. Establish a one-time, repatriation corporate tax rate of 10% for overseas operations.
  7. Impose “reasonable cap” over time on deductibility of business interest expenses.

Trump Proposal for Income, Capital Gains and Dividend Tax Structure

Income Tax Rate

LTCG/Div.

Tax Rate*

Single

Married, Filing Jointly

Head of Household

0%

0%

$0 - $25,000

$0 - $50,000

$0 - $37,500

10%

0%

$25,001 - $50,000

$50,001 - $100,000

$37,501 - $75,000

20%

15%

$50,001 - $150,000

$100,001 - $300,000

$75,001 - $225,000

25%

20%

$150,001 +

$300,001 +

$225,001 +

*Long-term capital gains/dividend tax rate

Clinton’s Tax Proposal

  1. Extend tax cuts for students – up to $2,500 per student for college tuition.
  2. Create two-year tax credit for companies that share profits with employees – credit up to 15% of shared profits, capped at 10% on top of employees’ wages (phased out for higher-income workers).
  3. Cap itemized deductions.
  4. Impose Buffett Rule requiring high-income taxpayers to pay minimum 30%.
  5. Impose a 4% surtax on taxpayers whose incomes exceed $5 million.
  6. Raise tax rate for carried interest (LTCG earned in an investment partnership, allocated to a managing partner) from 23.8% (current) to 47.4%.
  7. Restructure capital gains rate structure to be significantly higher – based on the duration of time the taxpayer owns the asset being sold.

Proposed New Structure of Capital Gains Rates Under Clinton Plan

Ownership Duration of Asset

Top Tax Rate

Add $250,000 Surtax¹

Add $5 Million Surtax

Less than 2 years

39.6%

43.4%

47.4%

2 - 3 years

36%

39.8%

43.8%

3 - 4 years

32%

35.8%

39.8%

4 – 5 years

28%

31.8%

35.8%

5 – 6 years

24%

27.8%

31.8%

6 + years

20%

23.8%

27.8%

¹Assumes Married Filing Jointly.  This surtax is already in place in the current Tax Code.

Proposed Tax Brackets & Rates Under Clinton Plan

Ordinary Income

CG & Dividends²

Single

Married, Filing Jointly

Head of Household

10%

0%

$0 - $9,275

$0 - $18,550

$0 - $13,250

15%

0%

$9,276 - $37,650

$18,551 – $75,300

$13,251 - $50,400

25%

15%

$37,651 - $91,150

$75,301 - $151,900

$50,401  - $130,150

28%

15%

$91,151 - $190,150

$151,901 - $231,450

$130,151 - $210,800

33%

15%

$190,151 - $413,350

$231,451 - $413,350

$210,801 - $413,350

35%

15%

$413,351 - $415,050

$413,351 – $466,950

$413,351 - $441,000

39.6%

20%

$415,051 - $5M

$466,951 - $5M

$441,001 - $5M

43.6%

24%

$5M +

$5M +

$5M +

²Assumes capital assets are held for 6+ years.

The big question is how these tax policies would affect our nation’s already massive deficit. Both campaigns take the position that their plans would not increase the deficit. We naturally believe otherwise. Trump’s four-page plan promises tax cuts for everyone. He doesn’t mention, however, that the top 0.1% would see annual tax cuts of, on average, $1.3 million. Furthermore, his plan is estimated by the Tax Policy Center to increase the national deficit by at least $9.5 trillion over the next ten years.

Clinton’s plan has evolved into a much more progressive one than originally proposed due to influence from Bernie Sanders’ campaign efforts. She hinges her tax plan on a shift of the tax burden to the wealthiest taxpayers, estimating that the top 1% would pay for over 75% of the overall increases she is proposing.

Congress has spent a lot of time on hearings about tax reform. What the proposed legislation will look like for 2017 will depend on the political make-up of the presidency, the House and the Senate. My co-author, Brielle Pepper, and I will be blogging about tax issues for the HORNE Tax Legislation and Policy Group, and we will keep you updated on changes as the campaigns move forward.

 

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Brielle.Pepper.jpg

About the Co-Author:

Brielle Pepper, CPA, is a senior associate at HORNE LLP.  Her primary focus is in the area of tax compliance for public and middle market clients. Brielle joined Horne in 2013.

 

References:

Trump Online

CNN on Trump

Tax Foundation on Clinton

Forbes on Clinton

CNN on Clinton

Topics: Tax Rates, Tax Proposal, U.S. Deficit, Presidential Election

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