What You Should Know About the Presidential Candidates’ Tax Plans

boxing-gloves-democrat-republicanThis has been one of the most contentious and unusual election cycles in modern U.S. history. Whatever your opinion might be of the two candidates, Hillary Clinton and Donald Trump have run highly disparate campaigns that have brought on criticism from both sides of the aisle.

For Trump, it’s his inability to stick to a position on just about any topic, including the major platform that he’s been running on since day one, immigration. His caustic language, outlandish gaffes, and a penchant for taking to Twitter to air out his numerous grievances have many critics saying he doesn’t look Presidential and any other candidate would have been disqualified by now had they said some of the things that have come out of Trump’s mouth.

The critiques of Hillary are that she hasn’t been in the public eye very often and her lack of press conferences have made some wonder why she’s not campaigning more. Not to mention the ongoing email scandal that questions her honesty and trustworthiness as voters and pundits alike speculate about what was marked as classified and what was not when thousands of them were allegedly mishandled and later deleted from a private server.

However, despite all of the banter back and forth between the two candidates and their supporters, this election is still about some very basic core issues that those who are undecided would still like to know more about. With the Presidential debates still to come, this segment of voters is eager to address how each candidate plans on handling some of the toughest challenges facing the country.

Among the most pressing of these is the economy and comparing presidential tax reform proposals is a good start towards getting a clearer picture of each candidate’s vision for the country.  One of these two candidates is going to lead our country come January 20th, 2017 and we should understand their major policy proposals and plans for the country’s future.

One might argue that Clinton has a more comprehensive and thorough plan for the economy.  Her plan incorporates keeping many facets of the current tax code intact but also focuses on some increases for the wealthy. These increases were also put forth in a tax plan by her main primary opponent, Bernie Sanders.

Clinton is also the more experienced of the two candidates in terms of her years in public service.  She has been part of domestic and international policy-making for over twenty years and her bona fides in public office have extended from her time in the White House as First Lady to her seat as Senator of New York and more recently her position as Secretary of State under the current administration of President Obama. Her plans for the economy come with specific details for dealing with a list of issues facing the American people and her tax plan is chief among them.

Trump has made it to the candidacy of the Republican party through a more unconventional and unorthodox path. He is entirely new to politics, a self-described ‘outside’, and that seems to have made him more popular and engaging to a GOP base who have grown tired of what they believe is “business as usual” in Washington D.C.  In their view, Trump’s self-styled outsider attitude is just what this country needs to get back on track. He’s said inflammatory things about women, minorities, the disabled, just to name a few, and this political incorrectness has only seemed to bring him more popularity instead of less.

However, many are saying that his over-the-top style and flamboyant approach are a collective smokescreen that only serve to obscure the fact that he lacks real substance on his plans for trade, the economy, and even his tax plan. He seems to offer up more in the way of platitudes and a grand vision than actual details.  Many of the facts he does offer in speeches and his own website tend to remain broad and lack much depth.

To his credit however, he has provided some insight into how he views the problems even if he doesn’t provide a detailed account of how he plans on fixing or addressing many of them. He has gone on record, however, as to what he believes he could do for taxes were he to win the highest office in the land, even if a barrage of analysts aren’t quite sure how his numbers add up.

A Quick Side by Side Comparison

When it comes to their respective economic visions for the country, the two Presidential candidates have drastically divergent views.  This is particularly the case surrounding taxes, the minimum wage, income inequality, and regulating Wall Street. Clinton seems to have specifics on addressing most of these issues while Trump has offered a stance or sharp criticism to the current approach on many of these topics instead of outlining his own plans for change.

On taxes in particular, Clinton’s plan mostly favors small adjustments to keep the current codes the same, retain the Obamacare surtax, keep the estate tax rate the same, and place a greater emphasis on taxing the wealthier among us.

Trump is claiming he would cut taxes to every level of income, repeal Obamacare, effectively bring the estate tax to nil, and steepen the phase out on itemizing deductions. The only problem with Trump’s proposals is that they would almost systematically add not billions, but trillions to the federal deficit over a span of ten years. It’s also no surprise that these same non-partisan analysts claim that the wealthiest individuals would see some of the greatest tax cut under Trump’s plan.

Here’s how things break down among the two candidates, with a little help from the smart folks over at the Tax Foundation Center.

clinton-1356667_640Hillary Clinton’s Economic Vision

The overall game plan for Hillary Clinton’s economic vision focuses on raising taxes on both individual and business income in a bid to raise approximately $498 billion over the span of the next ten years. Much of the revenue coming in under Clinton’s plan would be as a result of three things: a maximum on the number of itemized deductions permitted, a 4% surtax on earners making over $5 million annually, and implementation of the Buffett Rule.

Originally proposed by the Obama administration in 2011, the Buffett Rule would apply a 30% flat tax to anyone making more than $1 million a year and impact an estimated 0.3% of taxpayers living in the United States.

Tax Brackets – Clinton Tax Plan

Bracket Single Filer

$0 to $9,275 taxed at 10%
$9,275 to $37,650 taxed at 15%
$37,650 to $91,150 taxed at 25%
$91,150 to $190,150 taxed at 28%
$190,150 to $413,350 taxed at 33%
$413,350 to $415,050 taxed at 35%
$415,050 to $5 million taxed at 39.6%
$5 million and above taxed at 43.6%

Bracket Married Filer

$0 to $18,550 taxed at 10%
$18,550 to $75,300 taxed at 15%
$75,300 to $151,900 taxed t 25%
$151,900 to $231,450 taxed at 28%
$231,450 to $413,350 taxed at 33%
$413,350 to $466,950 taxed at 35%
$466,950 to $5 million taxed at 39.6%
$5 million and above taxed at 43.6%

Bracket Head of Household

$0 to $13,250 taxed at 10%
$13,250 to $50,400 taxed at 15%
$50,400 to $130,150 taxed at 25%
$130,150 to $210,800 taxed at 28%
$210,800 to $413,350 taxed at 33%
$413,350 to $441,000 taxed at 35%
$441,000 to $5 million taxed at 39.6%
$5 million and above taxed at 43.6%

Tax Increases – Clinton Tax Plan
Earning Increase (in dollars)
Less than $23,099 = $4
$23,099-45,153 = $15
$45,153-80,760 = $44
$80,760-142,601 = $143
$142,601-209,113 = $246
$209,113-295,756 = $642
$295,756-732,323 = $2,673
$732,323-$3,769,396 = $78,284
More than $3,769,396 = $519,741

Clinton has put forth some proposals for a range of government initiatives and programs that would require a focus on generating enough revenue to cover these programs through the next decade. In addition to some of the new tax reforms, Clinton is seeking to make changes to the long-term capital gains tax, put a limit on the itemized deductions for individual taxpayers to 28%, severely limit or do away with similar deductions for corporations, and turn back the clock on the estate tax rate to 2009, bringing it from the current 40% to the old rate of 45%.

Under Clinton’s tax plan, the Tax Foundation Center estimates that GDP would fall by about 1% breaking down to a 0.8% wage drop and 311,000 less full-time jobs. These changes would also translate to an $191 billion increase in collected taxes through 2026.

trump-1356668_640Donald Trump’s Economic Vision

Trump’s tax plan seems to have taken a page from some of the plans that his Republican colleagues were suggesting in the primary, focusing on simplifying the tax codes and bringing down the current seven income brackets to just four. This would reduce the highest rate from 39.6% to 25% and create a sizable zero bracket for individuals making low incomes.

He is also claiming he will cut taxes among every bracket from top to bottom and, despite some promises that the rich would be paying more under his plan, it is the wealthiest among us who would be receiving the most breaks.

Trump is not only planning to lower individual income taxes but he insists he will drop corporate taxes as well. His plan also aims to entirely phase out the estate tax, the alternative minimum tax, the marriage penalty, and taxes associated with Obamacare. However, with so many cuts and reductions in taxes, his plan would produce a $10 billion deficit in every capacity, even as it would increase the incentives for working and investment and grow the size of the economy to the tune of 11% over the long term.

The strategy would result in 6.5% higher wages and a rise in capital stock of 29%.  This would be achieved due to the reduced tax rates on corporations and so-called “pass through” businesses such as sole proprietorships, partnerships, and S-Corporations. The decrease of marginal tax rates on the income of individuals would incentivize employment and bring about an estimated 5.3 million full-time jobs in the country in a dynamic result.

While Hillary Clinton has decades of experience in making policy as part of the Washington D.C. power structure, Trump is a novice who has won over supporters through his reputation as a successful CEO and businessman. The name Trump brings with it some level of achievement, despite many failed ventures that failed to take off.

Yet, his supporters would rather focus on the prestige associated with his brand and that means putting an emphasis on his fortunes as a captain of industry.  His tax plan seems to reflect his industrial prowess in putting people back to work. With 5.3 million jobs created by his plan, it has brought some undecided voters to his side of the aisle.

Tax Brackets – Trump Tax Plan

Bracket Single Filer

$0 to $25,000 taxed at 0%
$25,000 to $50,000 taxed at 10%
$50,000 to $150,000 taxed at 20%
$150,000 and up taxed at 25%

Bracket Married Filer

$0 to $50,000 taxed at 0%
$50,000 to $100,000 taxed at 10%
$100,000 to $300,000 taxed at 20%
$300,000 and up taxed at 25%

Bracket Head of Household

$0 to $37,500 taxed at 0%
$37,500 to $75,000 taxed at 10%
$75,000 to $225,000 taxed at 20%
$225,000 and up taxed at 25%

Tax Decreases – Trump Tax Plan
Earning Decrease (in dollars)

Less than $23,099 = -$128
$23,099-45,153 = -$969
$45,153-80,760 = -$2,732
$80,760-142,601 = -$5,369
$142,601-209,113 = -$7,731
$209,113-295,756 = -$11,476
$295,756-732,323 = -$27,657
$732,323-$3,769,396 = -$275,257
More than $3,769,396 = -$1,302,887

Trump’s plan is appealing because it’s not complicated and consolidates the number of brackets to numbers that are easy to understand and remember. Capital gains and dividends would be capped at a top marginal rate of 20%. He also seeks to trim the corporate income tax rate from 35% to 15% and put an end to income deferral from foreign subsidiaries, although it also keeps the foreign tax credit intact. In a bid to bring additional revenue under the business portion of his plan, a one-time 10% tax would be applied to foreign revenue that is currently being deferred under the existing tax code.

Let’s face it, everyone loves the idea of paying less taxes and Trump’s plan certainly brings an emphasis on doing just that for every income level. As mentioned previously, the wealthy would benefit the most at about 37% of the cuts going directly to the top 1% of earners. The middle-class would see about $2,700 less in their tax bill which comes to a 4.9% decrease. The lowest earners would get a reduction of $128 or about 1% in their income after taxes. However, the biggest difference that comes with Trump’s plan is the amount of households that would pay no income tax, raising that tally from 77 million to nearly 110 million households nationwide.

A Side by Side Comparison of Revenue Impact Over a Ten Year Period

Before we compare the two plans, a word about the impact of each on a static and a dynamic basis. When we analyze the impact of tax cuts on the government, the cost of decreased revenue is measured in both “basic” and “dynamic” calculations. For the former, it goes by the presumption that the proposed cuts will prove no dramatic difference in the economic behavior of those who are affected by the cuts.

Static measurements assume that after a tax reduction is implemented and the cost of that revenue resolved, the resulting behavior on the part of individuals would go largely unchanged. Dynamic, however, takes into account the types of changes that would be seen on the economic behavior of individuals should a tax rate be decreased or a capital gains tax is cut.

Under the dynamic supposition, it would be assumed that people might have more incentive to work more or pursue greater capital gains because with those rates having been lowered more people would be able to keep more of their money. Their economic behavior would thus shift and their altered routines could then end up driving up revenue because more people are spending and putting more of their money into the economy. The dynamic impact could prove to be further positive in the long run.

In Hillary Clinton’s tax plan, the federal revenue would have a static increase of $498 billion over the next decade. That would account for a large segment of revenue from taxes on individuals, likely to produce around $381 billion in that time. The adjustments to the estate tax as part of Clinton’s plan could equal another $106 billion with the extra $11 billion coming from an increase in corporate taxes.

As to the economic impact of the Clinton plan, there would be $191 billion raised in ten years as the size of the economy is reduced at a modest increment. This, in turn, would result in lesser wages and a narrow gain of revenue from income tax changes for individuals at an overall tally of $173 billion. The slightly decreased payroll tax revenue would yield $80 billion over the next ten years.

With the highest earners being expected to pay more, the most revenue would come as a result of the Buffett Rule being implemented, the 28% cap on itemized deductions, and a 4% surtax on much of the wealthiest 1% for an aggregate total of roughly $755 billion in revenue for a static impact throughout the next decade. The dynamic measurement comes in at around $521 billion as a result of the impact these changes would have on the supply of capital and on labor.

The Clinton plan would also have an impact on long-term capital gains. She has proposed a higher rate on those assets that are held in the two to five year range which would end up driving most people to realize them much later on and thus result in a loss of $374 billion on a static basis. The move would bring fewer realizations and, despite the increase in rates, the amount of revenue that would be lost could be dramatic. On a dynamic basis, the amount of lost revenue would increase to as much as $409 billion because there would be a small yet significant impact on the costs reflected in capital.

Ten Year Impact of Clinton Plan (in billions)
Tax Static Impact (2016-2025), Dynamic Impact (2016-2025)
Individual Income Taxes $381, $173
Payroll Taxes $0, $80
Corporate Income Taxes $11, $12
Excise Taxes $0, $7
Estate and Gift Taxes $106, $102
Additional Revenue $0, $8

Total $498, $191

Trump’s plan would have a static impact of lowering federal revenue by $11.98 trillion over the next decade. Much of that loss comes from his proposed tax cuts on individual income taxes, which are estimated to drop revenues by roughly $10.20 trillion in that same time-frame. Trump is also proposing those corporate income tax reductions as well which contribute another $1.54 trillion and the remaining $238 billion would come as a result of his doing away with the estate tax.

In terms of economic growth, Trump’s tax plan would also drop revenue by $10.14 trillion for the next ten years.  The plan would result in a growing economy through increased wages, it would also reduce revenue due to changes on income tax for individuals at about $666 billion and increase payroll tax revenue at approximately $839 billion. The rest of the recouped revenue could be brought about through a variety of other tax sources.

Ten Year Impact of Trump Plan (in billions)
Tax Static Impact (2015-2024), Dynamic Impact (2015-2024)
Individual Income Taxes -$10,201, $9,535
Payroll Taxes $0, $839
Corporate Income Taxes -$1,541, $1,371
Excise Taxes $0, $69
Estate and Gift Taxes -$238, $238
Additional Revenue $0, $101

Total -$11,980, $10,135

Our Final Thoughts

When you’re about to step into that voting booth this November, there are a wide range of things to consider before you yank that lever. Clinton and Trump vary greatly on their plans for just about everything from immigration to national security to taxes. Where the latter is concerned, the way you vote may just depend on how much you make a year because if you’re earning over $100,000 annually your tax bill could be close to four figures. Earn more and it could jump to a much higher tax cost to you.

Voters don’t always rely on their bank accounts to make their decisions, but it’s no secret that we all want to keep more money in our pocket. The question you have to ask yourself pertains to the numbers we’ve discussed.  While Clinton wants to make minor adjustments to the tax code and put additional responsibility on the high-income earners, Trump’s cuts across the board beg the question of where the money is going to come from to fund programs and other government necessities. He’s talking about increasing the size of our military exponentially. That’s going to cost money. So where is that going to come from exactly? Hard to tell.

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