Trump v. Clinton Tax Plans
Darren J. Pluth
American taxpayers will vote for the next president this November 8th and each candidate has wildly different tax plans. Trump stands by the Republican’s view of fiscal conservativism with a smaller government and less taxes. Clinton’s plan, on the other hand, mimics that of the values associated with the Democratic Party, with an increase in taxation, especially for the wealthy. The next president will likely vote on a long overdue Internal Revenue Code reform while in office. The current iteration of the tax code was enacted in 1986 and has been amended and tweaked every year since then. This has left a patchwork of rules that hobbles along, but is not very efficient in today’s world. An all-encompassing reform of the Internal Revenue Code would hopefully update the rules to meet the needs of today’s taxpayers and eliminate the irrelevant ones. Let’s dive into what each presidential candidate plans to offer in the future.
Trump’s Tax Plan
Trump’s tax plan would substantially lower individual income taxes and the corporate income tax. This would be accomplished by consolidating the current seven tax brackets into four, with a top marginal income tax rate of 25 percent, instead of 39.6 percent. Taxes on long-term capital gains and qualified dividends would both be at 20 percent. The plan would also reform the business tax code by reducing the income tax on all businesses to 15 percent, from 35 percent. In addition, the plan would eliminate the estate tax and the alternative minimum tax. In true Republican form, the Net Investment Income Tax (NIIT) of 3.8 percent, which was passed as part of the Affordable Care Act (ACA), would be eliminated.
On the international side, the plan ends the deferral of income from controlled foreign subsidiaries, but preserves the foreign tax credit. It would also enact, as a transitional revenue raiser, a one-time deemed repatriation tax of 10 percent on all foreign profits currently deferred.
Clinton’s Tax Plan
Clinton’s tax plan would increase income taxes and would keep the current tax brackets, but add a new bracket on taxpayers with incomes above $5 million at 43.6 percent. Additionally, Clinton would enact the so-called “Buffett Rule,” which establishes a 30 percent minimum tax on taxpayers with an adjusted gross income (AGI) in excess of $1 million. There would be a limit on itemized deductions to a tax value of 28 percent. The plan also expands the Child Tax Credit by providing an additional $1,000 for children under 5 years old and a 20 percent credit for caregiver expenses. There would also be a possible $5,000 in tax relief for excessive healthcare costs.
Another significant part of Clinton’s plan is the expansion of the estate tax by reducing the exclusion from the current $5.45 million ($10.9 million for couples) to $3.5 million ($7 million for married couples) and adds progressive tax rates on estates with a top rate of 65 percent for estates worth $1 billion.
Long-term capital gains rates would be raised and tax deferred retirement accounts would be limited for higher income earners. 1031 like-kind exchanges would be limited, but businesses expensing under Section 179 would be expanded. The business startup deduction would also be increased to $20,000 and small businesses would have a “standard deduction.” The ACA credit for small businesses would be expanded along with a broadening of the NIIT to include more business income. Clinton’s plan is the mirror opposite to that of Trump.
Clinton’s plan will make the Internal Revenue Code more complex than it already is. There will also be a detriment to the economy, because businesses will have to pay additional taxes, which discourages them from hiring workers or purchasing new equipment.
Trump’s plan on the other hand will boost the economy, because businesses will have additional capital to purchase new equipment, make new investments and hire more workers. Trump will pair his tax plan with an increase in infrastructure projects which would lead to a boost in good paying construction jobs.
These tax plans could be put to the test if a recession hits during the next presidential term. If Clinton’s plan is in place during a recession, the Federal Government will be forced to rush through tax cuts as well as new tax credits to stimulate the economy which would look more like Trump’s current plan. The only question now is what will the voters decide November 8th?
– Darren J. Pluth is an Associate Attorney at Calone & Harrel Law Group, LLP who concentrates his practice in all manners of Taxation, Real Estate Transactions, Corporate, Partnership and Limited Liability Company law matters. Mr. Pluth may be reached at 209-952-4545 or djp@caloneandharrel.com.