Any run for political office involves lots of promises, none more so than the run for president. Each presidential candidate pledges to improve the economy, jobs, education, healthcare, immigration, civil rights, and more. Like every one of the fifty-six presidential elections that have gone before, some of those promises will be realized, and some will fall by the wayside. What’s certain, though, is that no matter who gets elected come November, our nation’s tax laws will be affected. What does that mean for you?
Individual tax rates
Hillary Clinton has promised to lower tax rates for working families and add a 4% surtax on income over $5 million.
Donald Trump has promised to simplify the tax code by narrowing it to just four tax brackets instead of the seven brackets we have today. According to Trump’s plan, married couples earning less than $50,000 per year ($25,000 for single filers) pay no tax at all. All other taxpayers will fall into three tax brackets: 10%, 20%, and 25%. The top rate would apply to income over $150,000 for single filers and $300,000 for joint filers.
Clinton’s 4% surtax on income over $5 million would apply to capital gains as well as ordinary income. She also plans to raise rates on medium-term capital gains (investments held between one and six years) to between 24% and 39.6%.
Trump has promised to eliminate the net investment income tax which collects an additional 3.8% tax on investment income over certain thresholds.
Corporate tax rates
Clinton has not released a specific proposal for corporate income tax rates, but she has promised to lower taxes for businesses that share profits with their employees. For big corporations, she wants to end the “carried Interest” loophole which allows hedge funds, private equity firms, and venture capitalists to avoid billions of dollars in taxes each year.
There are not many issues upon which Clinton and Trump are united but carried interest is one of them. Trump has indicated his support for ending the loophole. He has also promised that no business of any size will ever pay more than a 15% tax rate.
Clinton has proposed increasing the top estate tax rate from 40% to 45% and lowering the estate tax exclusion to $3.5 million. For 2016, the estate tax exclusion is $5.45 million, adjusted annually for inflation.
Trump has promised to eliminate the estate tax entirely.
Clinton recommends capping the tax benefit of itemized deductions at 28% of the deduction.
Trump, again with a view of simplifying the tax code, has proposed phasing out all deductions except those for charitable contributions and mortgage interest.
Clinton’s tax plan includes expanding tax credits for middle-class families. She wants to create a new credit of up to $1,200 for caregivers to help ease the financial strain of families caring for aging relatives. She has also called for an extended tax cut of up to $2,500 per student to help with rising college costs.
Trump has not proposed any specific tax credits.
Alternative minimum tax
Clinton’s plan includes a revamp of the AMT, creating a new minimum 30% rate on individuals earning over $1 million.
Trump has promised to eliminate the AMT.
How will this play out in real life?
The Tax Policy Center, an independent tax policy research organization, analyzed Clinton’s tax proposal and concluded it would increase federal revenues by $1.1 trillion over the next decade. Nearly all of those tax increases would be shouldered by the top one percent. An increase in marginal tax rates would reduce “incentives to work, save, and invest, and the tax code would become more complex.”
Their analysis of Trump’s tax proposal concluded that it would reduce federal revenues by $9.5 trillion over a decade. They suggested the plan would “improve incentives to work, save, and invest. However, unless it is accompanied by very large spending cuts, it could increase the national debt by nearly 80% of gross domestic product by 2036.”
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