Key Candidate Positions on Tax Policy :

 

Democratic Candidate Hillary Clinton

According to the Tax Policy Center, Hillary Clinton’s proposed tax policy would primarily consist of tax revenue generated by raising taxes on the top one percent of Americans. Her key policy proposals also include increasing the child tax credit, modifying taxation of multinational corporations, reforming capital gains taxes, and increasing estate and gift taxes.

Individual Income Tax:

  • Clinton advocates for a 4% “fair share surcharge” on adjusted gross income of anyone earning over $5 million ($2.5 million for married couples filing separately).
  • Strengthening the “Buffet Rule” which ensures anyone making over $1 million (AGI) pay an effective tax rate of at least 30%.
  • A limit of 28% on the tax benefits from itemized deductions like charitable donations.
  • Increasing the child tax credit from $1,000 to $2,000. Clinton also proposes eliminating the minimum earnings requirement, currently set to $3,000.
  • Closing the “step-up loophole” or step-up in basis at death for capital gains taxes. This step-up basis currently allows individuals who have inherited a stock, bond, real estate, or other investment property to have the “basis” value of the inherited property calculated at the date of death, not the day the investment was purchased. This allows the basis to be “stepped up” to the current value and the heir does not pay tax on the capital gains.
  • Closing the “Romney Loophole” which affects the amount an individual can put into their IRA.

Capital Gains:

  • Clinton advocates taxing “carried interest” as ordinary income. Carried interest is compensation received as a share of a successful fund’s profits for private equity and hedge fund partners, which is usually taxed as a capital gain. Capital gains taxes vary by income but are typically currently taxed at a lower rate than income taxes.

Estate Tax:

  • Clinton advocates for returning to the 2009 estate tax parameters. This would include lowering the exemption for estate tax from $11 million and raising the estate tax rate. Estate taxes would increase to 50% for estates worth over $10 million per person, 55% for estates over $50 million, with up to a 65% rate on estates valued over $500 million.

Business Taxes:

  • Clinton has proposed simplifying tax filings for small businesses. She has yet to put her proposal in concrete details but has campaigned on allowing small businesses to take a standard deduction instead of deducting specified business expenses and allowing small businesses to write off investments.

Corporate Income Tax:

  • Clinton’s corporate income tax policy makes executing “tax inversions” for multinational corporations more difficult. Currently, a corporate inversion is commonly understood as a tactic a large U.S. corporation can use to be taxed under a lower foreign tax rate by merging with a smaller business in another country with a lower tax rate. So long as the corporation owns at least a 20% stake in that overseas company, they can pay a lower tax rate abroad. Clinton proposes raising this threshold to 50%.
  • An “Exit Tax” on what corporations owe on their unrepatriated overseas earnings.
  • Closing the “earnings stripping” loophole. Earnings Stripping is another form of a corporate inversion that allows interest payments to be made from a U.S. subsidiary to a foreign parent and taxed abroad at a lower rate.

 

Republican Candidate Donald Trump

Donald Trump’s proposed tax policy would primarily consist of tax cuts at all levels of income and simplifying the tax code. His key policy proposals include restructuring current income tax brackets, increasing standard deductions and capping itemized deductions, deductions for childcare services, and repealing the estate tax.

Individual Income Tax:

    • Trump proposes restructuring the current seven tax brackets into three brackets:
      • Less than $75,000: 12%
      • More than $75,000 but less than $225,000: 25%
      • More than $225,000: 33%

(for Married-Joint filers. Single filers are ½ these amounts):

  • Trump has put forward that he would like to increase the standard deduction for joint filers from $12,600 to $30,000 ($15,000 for single filers). According to the Tax Policy Center, this would likely increase the number of filers opting for the standard deduction.
  • Eliminates personal exemptions and head-of-household filing status.
  • Itemized deductions will be capped at $200,000 for joint filers and $100,000 for single.
  • Trump proposes an above-the-line childcare deduction for all incomes under $500,000 joint ($250,000 single) for children under age 13. The cap will be set to the state average for the age of the child and can be used for up to four children per taxpayer. The plan also outlines a deduction for eldercare, which would be capped at $5,000 per year and increase with the rate of inflation.
  • In addition to the aforementioned childcare deductions, Trump’s plan suggests a spending rebate for childcare expenses through the Earned Income Tax Credit (EITC) equaling 7.65% of the remaining eligible childcare expenses.
  • Trump has promised to strip out the Net Investment Income Tax, part of the Affordable Care Act, which is currently 3.8%.

Capital Gains:

  • Trump’s plan is to keep the existing capital gains structure at the current amounts (20% max).
  • Carried interest will be taxed as ordinary income with an exception for hedge funds and private equity partnerships, which would qualify for a special 15% business tax rate.

Estate Tax:

  • Trump’s plan would repeal the estate tax. He has also proposed an exemption for capital gains held until death and valued over $5 million ($10 million for married filers).

Business Taxes:

  • Trump’s business tax plan would decrease the corporate tax rate from 35% to 15%.
  • Eliminates the corporate Alternative Minimum Tax.

Corporate Income Tax:

  • Trump’s plan includes a tax on existing unrepatriated overseas earnings for U.S. firms’ foreign subsidiaries at a rate of 10%.

If you’re wondering how new tax policies could possibly affect your tax strategy or would like to strengthen your tax strategy before November, our Certified Public Accountants can help keep you informed and take the necessary steps.

Sources:

http://taxfoundation.org/sites/default/files/docs/TaxFoundation-FF496.pdf

http://www.taxpolicycenter.org/publications/updated-analysis-hillary-clintons-tax-proposals/full

https://www.hillaryclinton.com/briefing/factsheets/2016/01/12/investing-in-america-by-restoring-basic-fairness-to-our-tax-code/

https://www.hillaryclinton.com/briefing/factsheets/2015/12/08/ending-inversions-and-investing-in-america/

http://www.taxpolicycenter.org/publications/analysis-donald-trumps-revised-tax-plan/full

https://www.donaldjtrump.com/policies/tax-plan

http://taxfoundation.org/article/details-and-analysis-donald-trump-s-tax-plan