imagesThough tax poli­cies haven’t received top billing in this year’s pres­i­den­tial elec­tion dia­logue, they’re still part of the con­ver­sa­tion. Here’s a quick review of each can­di­date’s tax pro­pos­als based on infor­ma­tion released by their cam­paigns. Keep in mind that regard­less of who wins in Novem­ber, any changes to tax pol­i­cy would require con­gres­sion­al action.

On August 8, 2016, Don­ald Trump announced a revised tax plan. Full details of the new plan were not imme­di­ate­ly avail­able on the cam­paign’s web­site. The fol­low­ing sum­ma­ry is based on the orig­i­nal plan announced by the Trump cam­paign and what we cur­rent­ly know about the revised plan.

Tax brack­ets

Plans released by the Trump cam­paign ini­tial­ly pro­posed reduc­ing the cur­rent sev­en tax brack­ets to four, with the top rate drop­ping from 39.6% to 25%, and no tax due for indi­vid­u­als with incomes under $25,000 ($50,000 for mar­ried cou­ples fil­ing joint­ly).1 Trump has recent­ly announced changes to his tax pro­pos­al, includ­ing a con­sol­i­da­tion to three tax brack­ets: 12%, 25%, and 33%.2 This change moves the Trump cam­paign’s plan clos­er to the tax reform plan announced by House Repub­li­cans in June of this year.3 The Clin­ton cam­paign’s tax plans do not reflect changes to exist­ing tax brack­ets, but do sup­port a new 4% “fair share sur­charge” on tax­pay­ers with an adjust­ed gross income (AGI) exceed­ing $5 mil­lion.4

Long-term cap­i­tal gains and qual­i­fied div­i­dends

Cur­rent­ly, low­er tax rates gen­er­al­ly apply to qual­i­fied div­i­dends and to cap­i­tal gains result­ing from the sale of assets held longer than one year. Plans released by the Clin­ton cam­paign rec­om­mend adjust­ing the hold­ing peri­od sched­ule for long-term cap­i­tal gains, increas­ing the min­i­mum hold­ing peri­od from one to two years and adding medi­um-term hold­ing peri­ods that grad­u­al­ly reduce the top long-term rate down to 20% for assets held for more than six years.5 Plans ini­tial­ly released by the Trump cam­paign indi­cat­ed that the top rate of 20% would con­tin­ue to apply, with no change to cur­rent hold­ing require­ments.6

Alter­na­tive min­i­mum tax (AMT)

The AMT is a sep­a­rate, par­al­lel fed­er­al income tax with its own rates (26% or 28%, depend­ing on income) and rules. It is intend­ed to ensure that tax­pay­ers who use cer­tain strate­gies to reduce their tax lia­bil­i­ty pay a min­i­mum amount of tax. The Trump cam­paign has called for elim­i­na­tion of the AMT.7 The Clin­ton tax plan would pre­sum­ably add a new tax lay­er, impos­ing a min­i­mum tax due of 30% on those with incomes exceed­ing $1 mil­lion.8

Deduc­tions, exemp­tions, and exclu­sions

Pro­pos­als released by both can­di­dates would lim­it item­ized deduc­tions for high­er-income fil­ers. The Clin­ton team’s plan would lim­it the ben­e­fit of item­ized deduc­tions and cer­tain items that are exclud­ed from income (e.g., tax-exempt inter­est) to 28%, which means that the ben­e­fit of these items would be reduced for indi­vid­u­als in high­er tax brack­ets; char­i­ta­ble deduc­tions would be exclud­ed from this lim­i­ta­tion.9The Trump team’s plan would accel­er­ate the lim­i­ta­tion of item­ized deduc­tions and the phase­out of per­son­al exemp­tions for high­er-income fil­ers, though the treat­ment of deduc­tions for char­i­ta­ble giv­ing and mort­gage inter­est would remain unchanged. The orig­i­nal Trump cam­paign tax plan also indi­cat­ed that the abil­i­ty to exclude earn­ings in life insur­ance con­tracts from income would be phased out for high-income indi­vid­u­als.10

Estate tax

The two cam­paigns have very dif­fer­ent views of the exist­ing fed­er­al estate tax. The Clin­ton cam­paign pro­pos­es increas­ing the top estate tax rate from 40% to 45%, and decreas­ing the estate tax exclu­sion from $5.45 mil­lion to $3.5 mil­lion.11 The Trump cam­paign pro­pos­es elim­i­nat­ing the fed­er­al estate tax.12

 

1, 6, 7, 10) “Tax Reform That Will Make Amer­i­ca Great Again,” donaldjtrump.com/positions (July 2016)

2, 12) “Out­line of Don­ald J. Trump’s Eco­nom­ic Vision: Win­ning The Glob­al Com­pe­ti­tion,” donaldjtrump.com/positions (August 12, 2016)

3) Kyle Pomer­leau, “Details and Analy­sis of the 2016 House Repub­li­can Tax Reform Plan,” Tax Foun­da­tion, July 5, 2016

4, 9, 11) “Invest­ing in Amer­i­ca by Restor­ing Basic Fair­ness to Our Tax Code,” hillaryclinton.com/briefing (July 2016)

5) Kyle Pomer­leau and Michael Schuyler, “Details and Analy­sis of Hillary Clin­ton’s Tax Pro­pos­als,” Tax Foun­da­tion, Jan­u­ary 26, 2016 (The 20% rate would be increased by the 3.8% net invest­ment income tax, as well as the 4% sur­tax, if applic­a­ble.)

8) Richard Aux­i­er, Len Bur­man, Jim Nunns, and Jeff Reheel, “An Analy­sis of Hillary Clin­ton’s Tax Pro­pos­als,” Tax Pol­i­cy Cen­ter, March 3, 2016

 

Con­tent pro­vid­ed by:  Fore­field Advi­sors

August 2016