Now that the two conventions – and all of the hoopla around them – have drawn to a close, it’s time to get down to basics and take a closer look at the tax plans that Hillary Clinton and Donald Trump are proposing.
As in all elections, candidates view adjustments to the nation’s tax policy as a way of reining in or expanding taxes they feel either harm or benefit their various constituencies. This year is no different—we are not surprised that the two main candidates have widely disparate points of view on taxes. Here is a look at how the two candidates square off on the main issues, as well as their overall approach to taxes.
Hillary Clinton wants to reform the tax code to ease the burden on the middle class by having the wealthiest pay more taxes. Her largest increase would be on those earning the top one percent, or more than $732,000 a year, while holding the line on all other incomes levels. Her plan would generate slightly over $1 trillion in additional revenue over 10 years and another $2 trillion over the next 20 years.
Clinton wants to reform international tax rules for corporations, and increase estate and gift taxes.
No surprise here—Trump’s tax perspective is counter to Clinton’s. He wants to cut taxes at all income levels for individuals and businesses, with the greatest breaks going to those with the highest income. Trump has repeatedly said that he favors a tax cut for the middle class. On the corporate side, he has called for “massive business tax cuts.”
Trump also wants to increase the standard deduction to nearly four times its current amount. Trump’s tax approach would cost $10 trillion over 10 years.
Issue #1: Tax Brackets
- No change in tax brackets
- Clinton would impose the “Buffet Rule” requiring taxpayers earning more than $1 million per year to pay at least 30% in taxes
- Further, she proposed a 4% “Fair Share Surcharge,” on those with incomes over $5 million a year, aimed at those she deems most likely to avoid paying their fair share of taxes by exploiting tax loopholes
- Top 10% (over $3.8 million) would pay roughly $520,000 more per year
- Top 20% ($209,000 or more per year) would pay roughly $4,500 more per year
- Middle class ($80,000 to $142,000) would pay $44 more per year
- Bottom 20% ($23,000 or less) would pay $4 more per year in 2017
Three tax brackets:
Issue #2: Individual and Corporate Alternative Minimum Tax (AMT)
Clinton: Creates a new minimum 30% rate on individuals earning over $1 million
Issue #3: Estate and Gift Tax
- Exempt the first $3.5 million of an individual estate; $7 million for married couples
- Increase the top estate tax rate to 45%, lower the estate tax exclusion to $3.5
- Cap lifetime gift tax exemption at $1 million
Issue #4: Deductions
- Limit the value of non-charitable deductions and exemptions to 28%
- Favors a $1,500 apprenticeship tax credit for every new worker a business trains and hires
Trump: Retain both the charitable giving and mortgage interest deductions
Issue #5: Capital gains, dividends and interest income
- End the carried interest loophole
- Raise rates on medium-term capital gains (investments held for less than six years) to between 24% and 39.6%
- No change in the long-term rate
- Tax carried interest as ordinary income
Trump: Eliminate the net investment income surtax
Issue #6: Corporate Income Tax
Clinton: No specific proposal
- Cut top corporate tax rate to 15%
- Create a new business income tax rate for freelancers within the personal tax code for pass-through businesses that would match the 15% corporate tax rate
Issue #7: International Income
- Restrict corporate inversions by increasing from 20% to 50% the post-merger threshold of foreign shareholder ownership for an American company to be considered foreign
- Impose an exit tax on companies that undergo an inversion to ensure U.S. taxes are paid on un-repatriated earnings held overseas
- Provide a one-time deemed repatriation of corporate tax held overseas at a 10% rate
- End deferral of taxes on corporate income held overseas but preserve the foreign tax credit
Issue #8: Affordable Care Act
Clinton: Uphold and establish a 20% caregiver credit to help taxpayers offset up to $6,000 in caregiving costs for elderly family members
At Skoda Minotti, we will continue to monitor news and events surrounding election-related tax issues and keep you apprised of the latest developments. If you have questions concerning any of this information, please reach out to Skoda Minotti’s Tax Planning & Preparation group.