Clinton versus Trump on Taxes

I think we all can agree that this has been one of the most eventful and contentious presidential races in recent memory. The Democratic nominee, Hillary Clinton, and the Republican nominee, Donald Trump, could not be more diametrically opposed on a number of key issues. And, unfortunately, the bluster and bombast on the campaign trail and debate stage tend to cloud rather than illuminate the candidates’ positions. Meanwhile, decision day, November 8th, creeps closer.

Tax policy is one area where the two presidential hopefuls differ the most. The only commonality is that both candidates’ tax proposals mean the biggest changes for the wealthiest Americans. In simple terms, the country’s wealthiest families will get a tax increase if Hillary Clinton wins and a tax cut if Donald Trump wins. As William Gale, co-director of the Tax Policy Center, a joint project of the Brookings Institution and Urban Institute, said of the candidates’ tax policies, “Here, at least, they fall into very much traditional Democratic and Republican proposals.”

With thanks to the Tax Policy Center, the Tax Foundation, and the Center on Budget and Policy Priorities, we are providing the following outline of how Clinton and Trump compare on taxes. 

Taxes on High-Income Taxpayers

  • Clinton is proposing several tax increases on wealthier Americans, including a 4-percent surcharge on incomes above $5 million. This would effectively create a new top bracket of 43.6 percent. Those earning more than $1 million a year would be subject to a minimum 30-percent tax rate. She would also cap the value of many tax deductions for wealthier taxpayers. All the changes would increase taxes in 2017 for the richest 1 percent by $78,284, reducing their after-tax income by 5 percent, according to the Tax Policy Center.
  • Trump would reduce the top income tax bracket to 33 percent from its current level of 39.6 percent, which the conservative Tax Foundation said would help boost after-tax income for the wealthiest 1 percent of Americans by 5.3 percent.

Taxes on Middle-Income Taxpayers

  • Clinton will not raise taxes on the middle class. Her current proposals would have little impact on the bottom 95 percent of taxpayers, according to the Tax Policy Center.
  • Trump would reduce the current seven tax brackets to three: 12 percent, 25 percent, and 33 percent. Using the Tax Foundation’s evaluation of the House Republican plan, which includes the same brackets, the change would lift after-tax incomes for the bottom 80 percent of income earners—those earning less than about $195,000 a year—by just 0.2 percent to 0.5 percent.

Corporate Tax Rate

  • Clinton would not change the corporate tax rate.
  • Trump would cut the corporate rate from its current 35 percent to 15 percent. He would also cut taxes on “pass-through” business income from partnerships such as law firms to 15 percent. More than two-thirds of “pass-through” income flows to the richest 1 percent of taxpayers, according to the Center on Budget and Policy Priorities.

Capital Gains Tax Rates

  • With Clinton’s plan, a taxpayer earning more than $415,000 would have to hold a capital asset for 6 years before the top rate on capital gains would come down to 23.8 percent, where it stands for the highest wage earners under current tax law. Taxpayers with incomes greater than $5 million would pay an additional 4 percent surtax, for a top capital gains rate for assets held less than 6 years of 27.8 percent.
  • Trump’s plan will retain the existing capital gains rate structure (a maximum rate of 20 percent). In addition, he would repeal the 3.8 percent Medicare surtax tax on investment income.

Carried Interest Loophole

  • In one similarity, both Clinton and Trump want to do away with the “carried interest loophole” that allows wealthy hedge fund managers to pay taxes on their income at a discounted rate. As a National Public Radio program recently observed, “Eliminating the loophole wouldn’t generate that much revenue for the U.S. Treasury. But it’s a potent political symbol, and a way for two New York-based politicians to look as though they’re getting tough on Wall Street.”

Estate Taxes

  • Clinton initially suggested increasing the estate tax to 45 percent from 40 percent and applying it to more estates, starting with those worth $3.5 million ($7 million for married couples). Recently, she suggested raising the estate tax  to 65 percent.
  • Trump wants to repeal the estate tax that is currently levied on estates worth more than $5.45 million ($10.9 million for married couples).

Do any of these proposals have a chance of becoming law? That could depend on the outcome of key races in the House and the Senate. But whoever wins the presidency could be greeted with the now-familiar Washington gridlock. Whether Clinton or Trump secure the White House, the House of Representatives is likely to remain under Republican control. Meanwhile, Democrats have a chance of controlling the Senate if they can win a handful of the 34 seats that are up for grabs. So, whether President Clinton or President Trump is inaugurated in January 2017, partisan politics likely will limit what he or she can accomplish. That said, however, it is important to pay attention to the emerging details of the candidates’ tax reform plans because they give us insight into each candidate’s beliefs and how each might govern.

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