Clinton and Trump on Taxes

Did you watch the Presidential Debate last night? Most Americans agree that this has been one of the most eventful and contentious Presidential races in recent memory. And many Americans believe both candidates are flawed. Nevertheless, these are the candidates that rose to the top in each party’s primary process.

The Democratic nominee Hillary Clinton and the Republican nominee Donald Trump could not be more diametrically opposed on a Tax Loss Harvesting.Blog.2015.12.14number 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.”

Here, with thanks to the Tax Policy Center, Tax Foundation and Center on Budget and Policy Priorities is an 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, effectively creating 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 cut 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.
  • Both candidates favor eliminating the carried interest exemption private equity fund managers enjoy. Eliminating it would mean those managers would pay taxes at effective federal rates of up to 44 percent compared to rates up to 25 percent today.

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 seven tax brackets in current law to three, at 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 six 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.

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 President Clinton or President Trump is inaugurated in January 2017, partisan politics likely will limit what they 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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