The first Presidential Debate is scheduled for September 26. At that time we will see Hillary Clinton and Donald Trump square off against each other. In the meantime, both candidates are beginning to fill in the details of their platforms. Tax policy is a hot topic that underscores differences between the candidates given its influence on economic growth and job creation.
At the most basic level, Donald Trump says he wants to cut taxes across the board while Hillary Clinton wants to raise rates and limit write-offs for upper-income taxpayers. However, neither the Democratic or Republican candidate wants to change payroll taxes for Social Security and Medicare.
To provide more detail on Trump’s tax plans, he says he favors reducing the current six individual federal income tax brackets to just four: 0%, 12%, 25% and 33%. Given that the top current rate is 39.6%, that means a reduction in taxes for the top earners. Other Trump proposals include eliminating the alternative minimum tax, as well as estate and gift taxes. He would tax capital gains at a maximum rate of 20%. He also says anyone earning $100,000 or less would pay no more than 10%.
The Clinton tax plan would raise taxes and limit deductions for high net-worth taxpayers. In addition to capping itemized deductions for high net-worth taxpayers, she favors a 4% “fair share” surtax on income above $5 million. That would raise the top marginal rate from 39.6% to 43.6%. Also, anyone earning more than $1 million annually would be subject to the “Buffett Rule,” — a minimum effective tax rate of 30%. She also says she would increase the top rate on dividends on capital gains to 28%, up from 20%.
As for the estate tax, Clinton would return to the 2009 law and close loopholes. That would restore the 45% rate on estates with just a $3.5 million exemption and limit gifting to $1 million over the course of a lifetime.
Of course, before you react to these proposals, it is likely that neither one stands much chance of passing. There is potential for Congress to remain divided–the Democrats could take over the Senate, but chances are strong that the Republicans will retain control of the House. And that means the gridlock that has gripped Washington for the last two years has a great chance of continuing! If you are worried about changing tax policies, consider this: President Obama had plenty of tax proposals of his own and didn’t make much headway even when his party controlled the House and the Senate. Therefore, the status quo is likely to continue.