Grading the Candidates’ Tax Plans: What Will Clinton and Trump Do for You? Grading the Candidates’ Tax Plans: What Will Clinton and Trump Do for You? On Oct. 13, 2016, CSLF and FRC hosted a special presentation analyzing what Hillary Clinton’s and Donald Trump’s tax plans will mean for you and the U.S. economy. The experts discussed the major features of each presidential candidate’s plan, including changes to personal income tax and corporate tax, implications for federal tax revenue, changes to tax burdens across income groups and more

Smeal, Lucia

English

Georgia State University

THE PRESIDENTIAL CANDIDATES’
TAX PLANS

ScholarWorks @ Georgia State University

Georgia State University ScholarWorks @ Georgia State University CSLF Working Papers Center for State and Local Finance 10-13-2016 THE PRESIDENTIAL CANDIDATES’ TAX PLANS Lucia Smeal Georgia State University Follow this and additional works at: https://scholarworks.gsu.edu/ays_cslf_workingpapers Recommended Citation Smeal, Lucia, "THE PRESIDENTIAL CANDIDATES’ TAX PLANS" (2016). CSLF Working Papers. 25. https://scholarworks.gsu.edu/ays_cslf_workingpapers/25 This Article is brought to you for free and open access by the Center for State and Local Finance at ScholarWorks @ Georgia State University. It has been accepted for inclusion in CSLF Working Papers by an authorized administrator of ScholarWorks @ Georgia State University. For more information, please contact scholarworks@gsu.edu. THE PRESIDENTIAL CANDIDATES’ TAX PLANS Lucia N. SmealPROPOSED CHANGES FOR INDIVIDUALS2INDIVIDUAL TAX RATESCLINTON Add a 4% “fair share surcharge” on incomes over $5 million, to provide 43.6% top marginal rate  Minimum tax imposed on individuals with incomes over $1 million (“Buffet rule”) Collapse tax rates into three brackets: 12%, 25%, and 33%: SinglesTaxable Income                       RateLess than $37,500                    12%More than $37,500but less than $112,500             25%More than $112,500                  33%Married Filing JointTaxable Income                       RateLess than $75,000                   12%More than $75,000but less than $225,000            25%More than $225,000                 33%TRUMP3CURRENT 2016 INDIVIDUAL TAX RATESIf Taxable Income Is: The Tax Is:Not over $18,550 10% of the taxable incomeOver $18,550 but not over $75,300$1,855 plus 15% of the excess over $18,550Over $75,300 but not over $151,900$10,367.50 plus 25% of the excess over $75,300Over $151,900 but not over $231,450$29,517.50 plus 28% of the excess over $151,900Over $231,450 but not over $413,350$51,791.50 plus 33% of the excess over $231,450Over $413,350 but not over $466,950$111,818.50 plus 35% of the excess over $413,350Over $466,950 $130,578.50 plus 39.6% of the excess over $466,950If Taxable Income Is: The Tax Is:Not over $9,275 10% of the taxable incomeOver $9,275 but not over $37,650$927.50 plus 15% of the excess over $9,275Over $37,650 but not over $91,150$5,183.75 plus 25% of the excess over $37,650Over $91,150 but not over $190,150$18,558.75 plus 28% of the excess over $91,150Over $190,150 but not over $413,350$46,278.75 plus 33% of the excess over $190,150Over $413,350 but not over $415,050$119,934.75 plus 35% ofthe excess over $413,350Over $415,050 $120,529.75 plus 39.6% of the excess over $415,050MARRIED INDIVIDUALS FILING JOINT RETURNSSINGLE INDIVIDUALS4CAPITAL GAINS, INVESTMENT INCOME, AND CARRIED INTERESTSTRUMP Increase the holding period for long-term capital gains to 6 years and phase in long-term rate:  39.6% (held 1-2 years) 36%  (held 2-3 years) 32% (held 3-4 years) 28% (held 4-5 years) 24%  (held 5-6 years) 20% (held more than 6 years)    Taxes carried interests as ordinary income Include some passthrough income in 3.8% NII tax. Retains capital gains structure with a maximum rate of 20%: SinglesIncome                   Capital Gains RateLess than $37,500                0%More than $37,500but less than $112,500       15%More than $112,500             20%Married Filing JointIncome                    Capital Gains RateLess than $75,000                 0%More than $75,000but less than $225,000        15%More than $225,000              20% Taxes carried interests as ordinary income Repeal 3.8% net investment income taxCLINTON5STANDARD DEDUCTION AND ITEMIZED DEDUCTIONSCLINTON No change to standard deduction Limit the benefit of itemized deductions for high-income taxpayers to 28% (except for charitable contributions). TRUMP Increase standard deduction from $6,300 to $15,000 for singles and from $12,600 to $30,000 for joint returns.  Cap itemized deductions for high-income taxpayers at $200,000 for joint filers and $100,000 for single filers. 6PERSONAL EXEMPTIONS/FILING STATUSTRUMP No provision  Eliminates personal exemptions and the head-of-household filing status.CLINTONALTERNATIVE MINIMUM TAX No provision  Repeal individual AMTINCREASE SOCIAL SECURITY WAGE BASE No provision Increase social security wage base so higher-income taxpayers pay social security tax on more of their compensation. ($250,000) Current wage base is $118,500.  7CHILD AND ELDER CARE COSTSCLINTON Double the existing child care tax credit from $1,000 to $2,000 for  children age 4 or younger.  Eliminate $3,000 minimum earnings requirement. Increase refundable amount for children under age 5. 20% credit for elder care up to $1,200.TRUMP Above-the-line deduction for child care for children under age 13 capped at the state average, and for care of elderly dependents. Note: Deduction allowed even if stay at home parent provides care.  Limited to 4 children per family and eldercare deduction limited to $5,000 per year.  Not available to taxpayers with incomes over $500,000 for joint returns and $250,000 for singles. Spending rebates.  Up to $1,200 for childcare expenses of low-income taxpayers provided through the Earned Income Tax Credit (EITC).   Tax-favored, Dependent Care Savings Accounts limited to $2,000 per year.  Government would match 50% of contributions up to $1,000 per year if parents are low-income. 8ESTATE AND GIFT TAXESCLINTON Increase estate and gift tax rate to 45%* and reduce the exemption to $3.5 million per person with a $1 million gift tax exemption. Limit step-up in basis for inherited assets—tax asset appreciation. Eliminate indexing of exemption.*Current rate 40% with $5,450,000 exemption per person. TRUMP Repeals estate and gift taxes, but requires a carry-over basis for inherited assets, with a $5 million exemption per person.  Disallows contributions of appreciated assets to a private charity established by the decedent or the decedent’s relatives.9PROPOSED CHANGES FOR BUSINESS10BUSINESS TAX RATESCLINTON No rate changesTRUMP Reduce the “business tax rate” from 35 percent to 15 percent. Passthroughs can elect flat 15% rate or individual income tax rates. Tax distributions to “large passthroughs” as dividends. Trump plan states that this rate will be available to “all businesses, both big and small, that want to retain the profits within the business.”.11CORPORATE TAX EXPENDITURESCLINTON No provisionTRUMP Eliminate the corporate AMTCORPORATE ALTERNATIVE MINIMUM TAX Limits deductions for executive compensation and fossil fuels. Eliminates most corporate  tax breaks except for the Research and Development credit.LIKE-KIND EXCHANGES Limit capital gains deferral to $1 million per taxpayer per year for both real and personal property  Excludes art and collectibles from eligibility. No provision12DEPRECIATION, EXPENSINGand CORPORATE INTEREST EXPENSECLINTON Allow $1 million of immediate expensing for small businesses.TRUMP Business could elect immediate expensing of all capital investments or the corporate interest deduction. Election is revocable for three years only, then becomes irrevocable. 13SMALL BUSINESS INCENTIVESCLINTON Design new standard deduction for small businesses as an alternative to itemizing their business deductions.  Quadruple the deduction for business start-up expenses (from $5,000 to $20,000). Enable small businesses with gross receipts under $ 1 million to use "checkbook accounting.” Allows businesses with up to $25 million in gross receipts to use cash method accounting.  (Currently $5 million Expand and make permanent the New Markets Tax Credit.TRUMP No specific provisions except business rate changes.14INTERNATIONALCLINTON Exit tax on inverting companies’ accumulated offshore earnings. Broaden definition of inversions by changing required % of new owners.   Restrict interest deductions for U.S. affiliates of multinational companies to deter “earnings stripping.”TRUMP One-time 10 percent tax on deemed repatriated corporate profits now held offshore, payable over 10 years. 15EXECUTIVE COMPENSATIONCLINTON Revise deduction rules for performance-based compensation of highly-paid executives at public companies.TRUMP No provision Impose “risk fee” on the liabilities of large financial institutions with more than $50 billion in assets. Charge a transaction tax on cancelled orders in high-volume trading. No provisionFINANCIAL INSTITUTIONS AND TRANSACTIONS16FOSSIL FUELSCLINTON Eliminate tax incentives for fossil fuels, including expensing of intangible drilling costs, percentage depletion, and the deduction for domestic manufacturing for production of oil, natural gas and coal.TRUMP No provision17OTHER IMPORTANT DETAILS18HEALTH CARE CREDITCLINTON Expand the small business health care credit. Repeal tax on “Cadillac plans”TRUMP Repeal the Affordable Care ActEMPLOYER-PROVIDED CHILD CARE FACILITIES No provision Increase the credit for employer-provided child care facilities from  $150,000 to $500,000 Credits for acquiring, constructing, rehabilitating, or expanding facilities are subject to recapture for 5 years, rather than 10 years. 19TAX-FAVORED RETIREMENT ACCOUNTSCLINTON Prohibit additional contributions to high-balance,  tax-favored retirement accountsTRUMP No provisionTAXATION OF DERIVATIVES CONTRACTS Require that derivative contracts be marked-to-market annually, with resulting gain or loss treated as ordinary income.  No provision20COMMUNITY DEVELOPMENT AND INFRASTRUCTURECLINTON Provide tax credits for businesses that invest in community development and infrastructureTRUMP No provisionPROFIT-SHARING AND APPRENTICESHIPS Provide tax credits for businesses that implement profit-sharing and apprenticeships. No provision21GARY JOHNSON, LIBERTARIAN Replace all income and payroll taxes with a single consumption tax. Similar to Fair Tax national sales tax with a rebate for the amount spent on basic necessities. 22JILL STEIN, GREEN PARTY Rewrite the entire tax code to be more progressive. Make Wall Street, big corporations, and the rich pay their “fair share” of taxes. Require full disclosure of corporate subsidies including corporate tax subsidies.   Remove the cap on social security taxes above a certain level of income. End all subsidies for fossil fuels and impose a greenhouse gas fee/tax to charge companies that pollute. Prohibit the use of Low Income Housing Tax Credits to increase low income housing in already segregated neighborhoods.23HOUSE GOP PLAN – “A BETTER WAY”SPEAKER PAUL RYAN (R-WISC.)24INDIVIDUAL TAX CHANGES Tax Rates. Collapses the current seven tax brackets into three, 12%, 25%, and 33%. Capital Gains, Dividends, and Interest Income. Provides a 50% exclusion for capital gains, dividends, and interest income, with a maximum 16.5% rate.   Standard Deduction Increase. Increases the standard deduction from $6,300 to $12,000 for singles, from $12,600 to $24,000 for married couples filing jointly, and from $9,300 to $18,000 for heads of household.  No Personal Exemption, Refundable Dependent Credit. Replaces the $4,050 personal exemption with a $500 nonrefundable credit for dependents who are not children. Child Tax Credit. Increases the Child Tax Credit to $1,500 per child and raises the income phase-out threshold. Limits the refundable amount of the credit to $1,000.  Most Itemized Deductions Gone. Eliminates all itemized deductions except the mortgage interest deduction and the charitable contribution deduction.  Health Insurance Exclusion. Caps exclusion for employer-provided health insurance.  AMT. Eliminates the individual alternative minimum tax.25BUSINESS TAX CHANGES Corporate Tax Rate. Reduces the corporate income tax rate from 35% to 20%.  Tax Rate on Pass-through Income.  Sets a maximum 25% tax rate on income from pass-through entities. No Corporate AMT. Abolishes the corporate alternative minimum tax. Territorial Tax System. Changes the U.S. worldwide tax system to a territorial system which only taxes economic activity within a country’s borders. This change would exempt 100 percent of dividends from foreign subsidiaries from U.S. income tax. Low Rate on Repatriation of Foreign Earnings.  Taxes offshore accumulated foreign profits of U.S. multinationals at a rate of 8.75 percent for cash and cash-equivalent profits and 3.5 percent on other profits. Border-Adjustable Income Taxes. Makes business income taxes border-adjustable by imposing a “destination-based cash flow tax.” No tax on exports but tax on imports, which is similar to what other countries do with the VAT tax. 26HOUSE GOP’S DESTINATION-BASED CASH FLOW TAX Revises the corporate income tax to be border-adjustable.  Only revenue raised from business transactions in the U.S. would be taxed.  The tax is levied based on where the good ends up (destination), rather than where goods are produced (origin). Revenue from sales to nonresidents would not be taxable, and the cost of goods purchased from nonresidents would not be deductible.  Example: If a business purchases $100,000 in goods from an overseas supplier, the cost of those goods would not be deductible against the corporate income tax. If the business sells goods to a foreign person, the revenues would not be included in the corporation’s taxable income. 27MORE BUSINESS TAX CHANGES Eliminates Depreciation, Allows All Expensing. Businesses would be allowed to immediately deduct the entire cost of all both tangible and intangible assets rather than be required to depreciate or amortize these expenditures over time.   No Net Interest Expense Deduction. Disallows a current deduction for net interest expense. Allows net interest expense to be carried forward indefinitely and be deducted against net interest income in future years. NOLs. Restricts net operating losses so they can only offset 90 percent of net taxable income. Eliminates NOL carrybacks but allows an unlimited carryover period and indexes NOLS for inflation.   Domestic Production Deduction, Other Incentives. Eliminates the Sec. 199 domestic production activities deduction and all other business credits, except for the research and development (R&D) credit.28ESTATE AND GIFT TAXES Repeals the federal estate, generation-skipping, and gift taxes. 29IRS ADMINISTRATION Reorganizes the IRS into three major units: families and individuals, businesses, and an independent “small claims court” unit.   Families and Individuals Unit. Customer service to taxpayers. Business Unit. For businesses of all sizes and types, including  specialists with expertise on the issues facing start-up entrepreneurs and small businesses and specialists with expertise on the issues facing large domestic companies and American-based global corporations.   New Small Claims Court Unit. A “small claims court” unit to handle disputes with taxpayers would be created and would be independent of the IRS. 30A LOOK  AT ONE CONGRESSIONAL VAT PROPOSAL:REP. JIM RENACCI (R-OHIO)31SIMPLIFYING AMERICA’S TAX SYSTEM (SATS) Reduce individual income tax rates to 10%, 25%, and 35%. (Highest rate applies  on income above $750,000 for singles and $1,500,000 for married couples). Increase standard deduction so no tax liability for families up to $50,000.  Eliminates all itemized deductions except two, charitable contributions and mortgage interest up to $500,000 of debt. Expands the Earned Income Tax Credit (EITC). Eliminates the AMT. Replaces corporate income tax with a 7 percent value-added tax (VAT). Imposes a one-time tax on accumulated foreign earnings held abroad of  8.75% for profits held as cash and cash-equivalents and 3.5% on other assets.32QUESTIONS?33Grading the Candidates’ Tax Plans:WHAT WILL CLINTON & TRUMP DO FOR YOU?David L. SjoquistOct. 13, 201635Background InformationFederal Expenditures (in billions)Interest on Debt $223.2 6%Mandatory Expenditures $2,297.2 62%Discretionary ExpendituresDefense $583.3 16%Nondefense $584.7 16%TOTAL $3,688.3 100%Federal Revenue (in billions)Income Taxes + Miscellaneous $2,184.6 58%Payroll Taxes $1,065.3 29%Borrowing $438.4 13%TOTAL $3,688.3 100%Source: Congressional Budget Office (FY 2015)3610-Year Annual Avg.10-Year AnnualAvg.Clinton TrumpTax Foundation +$498.0 +$49.8 -$5,906.0* -$590.6Tax Policy Center+$1,363.8 +$136.4 -$6,150.4 -$615.0Revenue Effect – Static Estimate (in billions)* -$4,368 if pass-through income is not taxed at 15 percent.37Distributional Analysis% Change in After-Tax IncomeClinton TrumpPercentile TPC TF TPC TF0-20 +0.7 0 +0.8 +1.220-40 +0.4 0 +1.2 +0.840-60 +0.2 0 +1.8 +1.360-80 +0.1 0 +2.2 +1.980-90-2.60+6.6+6.5*90-100 -0.7 +8.3*99-100 -7.4 -1.7 +13.5 +16.0**4.4%, 5.4%, and 10.2% if pass-through businesses are not taxed at 15 percent.38Economic Effects• Savings• Investment• Labor/Work• Economy (macro effects)39Four ExamplesCurrent Clinton TrumpSingle parent, one child under 3, $8,000 in earned income-$3,470 -$4,720 -$3,776Single individual, $30,000 in earned income$2,484 $2,483 $1,800Married couple with two children (one under 3), earnings of $61,000, capital gains and dividends of $2,000 each$1,902 $1,202 -$1,160Single individual, $200,000 in earning, $50,000 in itemized deductions$33,903 $33,903 $35,625Negative values are rebates.400.00%5.00%10.00%15.00%20.00%$0 $20,000 $40,000 $60,000 $80,000 $100,000Married Filing JointlyTrump Proposal Current Tax RatesTaxes as Percent of Taxable Income 410%5%10%15%20%25%30%35%$0 $100,000 $200,000 $300,000 $400,000 $500,000Single IndividualTrump Proposal Current Tax RatesTaxes as Percent of Taxable Income 42Clinton Child Care ProposalChild Care Credit: Current program: credit = $1,800Proposed program: credit = $4,000Assume two children under 5, earnings of $15,00043Tax Value of Trump “Child Care Deduction”Adjusted Gross IncomeOne worker, one childMarried, one worker, one childOne worker, twochildren$25,000 $765 0 $956$30,000 $765 0 $956$35,000 $982 $600 $1747$40,000 $1,200 $1,200 $1,965$45,000 $1,200 $1,200 $1,58244The BIG DifferencesIssue Clinton TrumpTax Revenue Small increase Large decreaseTax Rates on High-Income FilersLarge increase Large decreaseEstate Tax Increase EliminateTaxes on Business No real change Large decrease45The Good, the Bad, and the UglyThe GoodClinton TrumpSmall business simplification Cut marginal tax ratesEliminate subsidies for fossil fuelEliminate carried interestEliminate carried interestThe Bad/UglyClinton TrumpMinimum 30% tax 15% rate on pass-through incomeHolding period for capital gainsState of residence exemptions

https://scholarworks.gsu.edu/cgi/viewcontent.cgi?article=1024&amp;context=ays_cslf_workingpapers

THE PRESIDENTIAL CANDIDATES’ TAX PLANS

Abstract

Similar works

Full text

Available Versions

Georgia State University

ScholarWorks @ Georgia State University