2016 Presidential Tax Platforms
Regardless of who you like or dislike, either Hillary Clinton or Donald Trump will be the 45th president of the United States effective January 20, 2017.
By becoming the most powerful man or woman of the free world, our new president will be setting economic and tax policy for at least the next four years – subject to congressional cooperation (or opposition), depending on how the balance of power falls in the House and Senate.
Both candidates released their tax policy platforms earlier this year, and Trump refined his proposed economic and tax plan earlier this week, so there is little mystery of what each candidate will be promoting in the way of tax reform once they take office.
In summary, Hillary Clinton is proposing at least a $1 trillion tax increase over 10 years, namely by increasing taxes on the wealthy and certain businesses: including the imposition of a 4% surtax on individual taxpayers with more than $5 million of Adjusted Gross Income (AGI), and a new six-stage holding period for tax capital gains - resulting in an increase in maximum long-term capital gains from a current maximum of 23.8% to 47.4% for assets held two years or less. Clinton would also increase the Alternative Minimum Tax (AMT) rate from a current maximum rate of 28% to 30%. She, as would Trump, would also tax the “carried interest” element of private equity firms at ordinary rates (max 47.4% = 43.4% + 4%) vs. the current capital gain characterization (max 23.8%). Clinton has also proposed to roll back the current $5.45 million estate tax exclusion to the $3.5 million 2009 levels, increase the estate tax from 40% to 45% and also limit cumulative lifetime gifts to $1 million dollars per taxpayer. On the business taxation side, she would provide various tax credits and incentives for domestic job creation and domestic investment. However, Clinton has threatened to eliminate most tax breaks such as depletion and intangible drilling costs for the petroleum industry. She would also impose an “exit tax” on companies moving operations offshore and expand the criteria for classifying foreign reincorporation (e.g. “inversion transactions”). Finally, she would limit certain qualified retirement plan deductions.
In stark contrast, Donald Trump is proposing a massive tax reduction package that is estimated to reduce federal revenue by $7 to $10 trillion in the first decade, followed by an additional 15 trillion in years 11 – 20. The majority of the tax reductions would flow to individual taxpayers, but approximately a third would benefit businesses. Concerns about the Trump plan involve the impact on the national debt as a result of the lower tax collections. Dramatic government cuts would likely be needed to avoid a ballooning federal debt; however, economic stimulus via the tax reductions could increase overall tax collections even with the lower rates.
Trump would reduce the current seven individual rate brackets – ranging from 10% to 39.6% down to three brackets of 12%, 25%, and 33%. He would increase the standard deduction to $25,000 for single filers and $50,000 for joint filers, and would scale back the itemized deductions for wealthy taxpayers. He would repeal the individual and business AMT and the 3.8% Obamacare Net Investment Income Tax, as well as the federal estate and gift taxes. He also plans on phasing out certain itemized deductions, other than home mortgage interest and charitable contributions for higher income taxpayers. This week “The Donald” added an expansive childcare deduction/credit for working taxpayers but did not provide specific details. On the business side, he plans on eliminating a number of business “loopholes” (to be specified at a later date), reducing the corporate tax rate to 15%, and also will limit individual taxes on flow-thru income from S corps., LLC’s/partnerships to 15% - thereby benefiting small business owners. He would offer an attractive 10% tax for international companies that bring foreign profits back onshore to the U.S.
Hillary Clinton’s tax increases would fall primarily on the Top 1 percent of earners (those making $428,000 or more) and certain businesses (energy and certain foreign operators). The Tax Policy Center think tank predicts that 95% of taxpayers (147 million individual filers in 2015) will see little change in their net tax liabilities.
Donald Trump’s proposal, with the much lower rates, larger standard deduction, and personal exemption amounts would reduce taxes (and filing requirements) on lower income taxpayers and result in only an estimated 14% of taxpayers itemizing their deductions on Schedule A after the aforementioned changes.
Attached below is a summary of the major provisions in both candidate’s tax platforms. Please note that due to lack of details from the respective campaigns, certain assumptions have been made, including the income ranges that the Trump rates will apply to.
Whether Congress will adopt any or all of the candidate’s proposed provisions depends on numerous factors including whether the democrats or republicans control the House and Senate in 2017.
Regardless, year-end tax planning will be critically important this year since there will likely be either significant marginal tax increases on both ordinary and capital gain income under a Clinton Administration or marginal tax decreases under a Trump Administration. Therefore savvy taxpayers will evaluate the benefits of accelerating income into 2016, and defer certain expenses into 2017 (if Clinton becomes president) or defer income and accelerate certain tax expenses (if Trump prevails).
In the meantime, enjoy the political circus.
Blake is a tax partner with over 35 years of public accounting experience. Blake is a thought leader and is a frequent contributor to leading industry related publications. TaxConnections.com named Blake as one of the Top 50 Tax Bloggers in the US. Blake is a contributing columnist for the AICPA CPA Insider, a past columnist for the AICPA Corporate Tax Insider Newsletter as well as CEG/Elite Advisors Newsletter. Blake was named by the National Academy of Public Accounting Professionals as one of the 2015 Top Public Accounting Professionals. David Pham is a staff accountant with HCVT, a top 50 national CPA firm with deep experience in personal and business tax planning. HCVT has offices in California, Utah, and Texas. For more information on HCVT, including career opportunities, please log on to www.hcvt.com.