Trump vs. Clinton: Tax Policies

Amid the many other differences between presidential nominees Donald Trump and Hillary Clinton, the two have proposed very different tax law changes. As opposed to trying to make sense of the many subjective differences between the candidates, understanding how each candidate could impact tax policy may be the best way for businesses and individuals to compose an informed plan for the future.

Keep in mind that regardless of which candidate is elected into office, only a select few of these proposals will be executed. Many will have evolved by the time the candidate takes office. Others won’t be enacted into legislation. Nonetheless, HORNE encourages our clients to be informed about the proposed plans.

We have outlined the distinct policy differences that are worth monitoring.

Trump Tax Proposal

• Single taxpayers earning less than $25,000 and those married and filing jointly earning less than $50,000 will not owe any income tax
• Simplify individual tax code with only four brackets – 0%, 10%, 20% and 25%
• Eliminate marriage penalty and alternative minimum tax
• Lower maximum business income tax rate to 15% from 35%, mitigating the need for corporate inversions
• Eliminate the estate tax
• Establish a one-time, repatriation corporate tax rate of 10% for overseas operations
• Impose “reasonable cap” over time on deductibility of business interest expenses

Trump Proposal for Income, Capital Gains and Dividend Tax Structure

*Long-term capital gains/dividend tax rate

Clinton Tax Proposal

• Extend tax cuts for students – up to $2,500 per student for college tuition
• Create two-year tax credit for companies that share profits with employees – credit up to 15% of shared profits, capped at 10% on top of employees’ wages (phased out for higher-income workers)
• Cap itemized deductions
• Impose Buffett Rule requiring high-income taxpayers to pay minimum 30%
• Impose a 4% surtax on taxpayers whose incomes exceed $5 million
• Raise tax rate for carried interest – long term capital gains (LTCG) earned in an investment partnership, allocated to a managing partner rises from 23.8% (current) to 47.4%
• Restructure capital gains rate structure to be significantly higher, based on the duration of time the taxpayer owns the asset being sold

Clinton Proposed Structure of Capital Gains Rates

¹Assumes Married Filing Jointly.  This surtax is already in place in the current Tax Code.

Clinton Proposed Tax Brackets & Rates

²Assumes capital assets are held for 6+ years.

The tax policy proposals raise a few natural questions. One of the biggest among them is how the tax policies will affect the already massive national deficit. Both campaigns claim that their plans would not increase the deficit.

Trump’s four-page plan promises tax cuts for everyone. He doesn’t mention that the top 0.1% would see annual tax cuts of, on average, $1.3 million. The Tax Policy Center estimates that his plan will increase the national deficit by at least $9.5 trillion over the next 10 years.

Clinton’s plan has become much more progressive than originally proposed due to influence from Bernie Sanders’ campaign efforts. She hinges her tax plan on a shift of the tax burden to the wealthiest taxpayers, estimating that the top 1% would pay more than 75% of the overall increases she is proposing.

Congress has already spent a lot of time on hearings about tax reform. Looking forward, legislation will depend on the political make-up of the presidency, House and Senate. For now, most people are content to focus on how the proposals will impact his or her bank account. Particularly if you have clients of your own, it’s important to keep an eye on how these policies will evolve over the coming months.

We will continue to work with the HORNE Tax Legislation and Policy Group to monitor and report about these evolving tax issues. If you’re not already subscribed to the HORNE Banking blog, do so now to receive updates the changes as the campaigns move forward.

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