With election day rapidly approaching, we thought it would be good for us to provide a brief overview of the major candidates tax policies. Wolters Kluwer has prepared a 2016 Election Briefing highlighting the tax policies of the major candidates for president of the United States.
Americans go to the polls November 8, 2016, to elect the 45th President of the United States. The next President will play a key role in shaping tax policy and possibly reforming the entire Tax Code. This special briefing describes the tax policies of the candidates of the two major parties: Hillary Clinton, the Democratic candidate for President, and Donald Trump, the Republican candidate for President.
Between the date of publication of this briefing and Election Day, the positions of the candidates may change. Wolters Kluwer has based this briefing on what it considers accurate, nonpartisan and unbiased information at the time of publication.
The candidates are presented in alphabetical order.
Both candidates have proposals related to individual tax rates, credits and deductions.
Income Tax Rates
Under current law, individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent.
Clinton: Clinton has proposed a four percent “Fair Share Surcharge” on the “top 0.02 percent of taxpayers on their incomes over $5 million per year.” Clinton also has endorsed the so-called “Buffett Rule,” to ensure that “no millionaire would pay a lower effective rate than their secretary.” Clinton has also stated that she will raise taxes on those individuals making over $250,000 per year.
Trump: Trump has proposed three individual tax rates: 12, 25 and 33 percent.
Alternative Minimum Tax
For federal tax purposes, a parallel tax structure, the AMT, exists to ensure that individuals, corporations, estates, and trusts with substantial income do not avoid tax liability.
Clinton: Clinton’s campaign materials do not describe any changes to the AMT.
Trump: Trump has proposed to eliminate the AMT.
Net Investment Income (NII) Tax
The Affordable Care Act (ACA) imposes a 3.8 percent tax on net investment income (NII tax) of qualified taxpayers with income above certain threshold amounts.
Clinton: Clinton has expressed her support for the ACA, and presumably this includes the NII tax.
Trump: Trump has proposed to repeal the ACA, and has not mentioned any specific carryover of the NII tax.
Additional Medicare Tax
The ACA imposes an Additional Medicare Tax on qualified taxpayers with income above certain threshold amounts.
Clinton: Clinton has expressed her support for the ACA, and presumably this includes the Additional Medicare Tax.
Trump: Trump has proposed to repeal the ACA, and presumably this includes the Additional Medicare Tax.
Federal Estate Tax
For estates of decedents dying after December 31, 2012, the maximum federal estate tax rate is 40 percent with an inflation-adjusted $5 million exclusion (inflation-adjusted to $5.45 million in 2016).
Clinton: Clinton has proposed to restore the federal estate tax to the parameters in effect in 2009 (a maximum estate tax rate of 45 percent with a $3.5 million exclusion).
Trump: Trump has proposed to repeal the federal estate tax.
INDIVIDUAL TAX INCENTIVES
Both candidates have proposed measures addressing certain individual tax deductions and credits.
Child Tax Incentives
Both candidates have proposed tax incentives for taxpayers with children.
Clinton: Clinton has proposed up to a $1,200 tax credit for caregiver expenses. The Democratic Party platform has proposed that the “child tax credit should be expanded, for example, by making more of it refundable, or indexed to inflation.”
Trump: Trump has proposed to “help reduce the cost of childcare by allowing parents to fully deduct the average cost of childcare spending from their taxes.”
Education incentives include the American Opportunity Tax Credit (AOTC), the Lifetime Learning credit, the tuition and fees deduction, the deduction for student loan interest and, among others.
Clinton: Clinton’s campaign materials do not describe any specific changes to the AOTC or other education incentives. However, Clinton has called for tax relief from college costs for middle-income families.
Trump: Trump’s campaign materials do not specifically discuss the AOTC or other education incentives over and above capping deductions and credits based upon tax bracket.
A deduction is available to individuals for their qualified charitable contributions, subject to certain rules and limitations.
Clinton: Clinton has proposed no changes to the charitable giving deduction.
Trump: Trump has proposed no changes to the charitable giving deduction.
Mortgage Interest Deduction
Qualified mortgage interest may be deductible if it is paid or accrued during the tax year on acquisition and/or home equity indebtedness secured by the taxpayer’s principal or second residence, subject to certain limitations.
Clinton: Clinton has proposed no changes to the current mortgage interest deduction.
Trump: Trump has proposed no changes to the current mortgage interest deduction.
Pease Limitation/Personal Exemption Phaseout
The Pease limitation reduces the total amount of a higher-income taxpayer’s otherwise allowable itemized deductions, subject to certain limitations. The Personal Exemption Phaseout (PEP) reduces the total amount of exemptions that may be claimed by higher-income taxpayers.
Clinton: Clinton has proposed to limit the value of itemized deductions to 28 percent for higher-bracket taxpayers.
Trump: Trump has proposed to “steepen the curve of the Personal Exemption Phaseout and the Pease Limitation on itemized deductions.”
Both candidates have a number of proposals related to business taxation.
Corporate Tax Rate
The maximum corporate tax rate currently tops out at 35 percent.
Clinton: Clinton’s campaign materials do not describe any specific change to the corporate tax rate. Clinton has called for unspecified measures to “broaden the tax base” in order to lower the rate as a necessary component to being more competitive in the global economy.
Trump: Trump has proposed to reduce the maximum corporate tax rate to 15 percent. Trump would also tax all business income at the 15 percent rate, including income passed through from S corporations and partnerships, or earned by freelancers.
Both candidates have tax proposals for small businesses.
Clinton: Clinton has stated that she will release new plans to “simplify tax filings for millions of small businesses.”Clinton would also promote immediate expensing for small businesses.
Trump: Trump has proposed a new “business income tax rate within the personal income tax code that matches the 15 percent corporate tax rate.”
BUSINESS TAX INCENTIVES
Both candidates have proposed reforms to some business tax incentives as well as proposing new incentives.
Clinton: Clinton has proposed a tax credit for businesses that hire apprentices at $1,500 per apprentice and a “bonus on that tax credit to businesses providing opportunities specifically for young people.” Clinton also has proposed a“Manufacturing Renaissance Tax Credit.”
Trump: Trump has proposed “reducing or eliminating some corporate loopholes that cater to special interests, as well as deductions made unnecessary by the new lower tax rate on corporations and business income.” Additionally, Trump has proposed “to allow businesses to immediately expense new business investments.”
Various tax incentives promote energy production, efficiency and conservation.
Clinton: Clinton has proposed to extend and expand the New Markets Tax Credit (NMTC) program “to all communities suffering from a decline in coal production or a coal plant closure.” Additionally, Clinton has proposed “closing tax loopholes for oil and gas companies” to pay for a clean-energy plan.
Trump: Trump’s campaign materials do not discuss specific tax proposals related to energy.
The candidates address international tax in several ways.
The American Jobs Creation Act of 2004 (AJCA) temporarily allowed U.S. companies to repatriate earnings from their foreign subsidiaries at a reduced tax rate, subject to certain limitations.
Clinton: Clinton’s campaign materials do not discuss any specific repatriation tax proposals.
Trump: Trump has proposed a one-time deemed repatriation of “corporate cash held overseas at a discounted 10 percent tax rate.” Additionally, Trump has proposed to end the deferral of taxes on corporate income earned abroad. The foreign tax credit, however, would remain, according to Trump’s campaign materials.
Both candidates have broadly discussed “in-sourcing” jobs.
Clinton: Clinton has proposed “to provide support for companies that move jobs and production back to the U.S. from abroad.”
Trump: Trump’s campaign materials do not specifically discuss “in-sourcing” from the tax perspective although a major campaign theme is to “bring jobs back to the United States.”
TAXES AND HEALTH CARE
Since passage of the Affordable Care Act (ACA), taxes and health care have become more intertwined than in previous years. The ACA created a number of new taxes and fees.
Clinton: Clinton would retain the ACA but change certain parts. Clinton would, among other things, support Medicare buy-ins for people over 55 years old; lower copays and reduce the cost of prescription drugs; incentivize states to expand Medicaid; and repeal the excise tax on high-dollar health plans (so-called “Cadillac plan” tax).
Trump: Trump would repeal the ACA, although also saying that he would keep “the good parts.” Trump has also indicated that he would address the rising cost of prescription drugs.
“Tax reform” has been a label placed upon a variety of proposals recently, both in scope and scale. Both candidates characterize their proposed changes to the Tax Code as “tax reform.” More frequently in the spotlight, however, have been changes to the tax rates and tax benefits aligned with the candidates’ overall positions. Tax reform, whether part of a “grand bargain” of sweeping scope or part of a patchwork of improvements to the existing system, will turn on a number of variables.
We hope this helps simplify some of the major differences between the candidates on their respective tax policies. Don’t forget to vote on November 8th.