For the thousands in attendance and the millions watching around the world––ladies and gentlemen––let’s get ready to talk about TAXESSSSSSS!
Eight rounds, for the undisputed heavyweight title of the world:
Introducing first: from the blue corner, hailing from the Democratic Party, former First Lady of Arkansas, former First Lady of the United States, former United States Senator from New York, former United States Secretary of State… Hillary “Stronger Together” CLINTON!
In the red corner, representing the Republican Party, a shrewd businessman, and real estate mogul, in his first formal running for a political position, Donald “Make America Great Again” TRUMP!
Round 1 – Income Tax Rates
Hillary plans to maintain the current personal income tax rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. She also plans to tack on a 4% surtax on taxpayers with income over $5 million. Trump proposes to create new tax brackets with only four rates: 0%, 10%, 20%, and 25%. Trump’s campaign website provides us with the following table:
|Income Tax Rate||Single Filers||Married Filers||Heads of Household|
|0%||$0 to $25,000||$0 to $50,000||$0 to $37,500|
|10%||$25,001 to $50,000||$50,001 to $100,000||$37,501 to $75,000|
|20%||$50,001 to $150,000||$100,001 to $300,000||$75,001 to $225,000|
|25%||$150,001 and up||$300,001 and up||$225,001 and up|
|Income Level*||Average Tax Increase/(Decrease) Under Clinton Plan||Average Tax Increase/(Decrease) Under Trump Plan|
|Less than $23,000||$4||($128)|
|$23,000 – $45,000||$15||($969)|
|$45,000 – $81,000||$44||($2,732)|
|$81,000 – $143,000||$143||($5,369)|
|$143,000 – $209,000||$246||($7,731)|
|$209,000 – $296,000||$642||($11,476)|
|$296,000 – $732,000||$2,673||($27,657)|
|$732,000 – $3,769,000||$78,284||($275,257)|
*Income level amounts are rounded to the nearest thousand and expressed in 2015 dollars.
As you can see, Clinton’s tax dollar increases don’t look like they’ll break the bank (until you go beyond that $732,000 mark), but Trump’s plan shows significant tax savings.
Round 2 – Corporate Tax Rate
The current max corporate tax rate is 35%. While Hillary has not yet given a specific proposal on the corporate tax rate, The Donald aims to lower the max rate to 15% to stimulate entrepreneurs who would normally shy away from the high corporate tax rate and double taxation.
Round 3 – Itemized Deductions
Clinton would set a limit of 28% on the benefit of itemized deductions. Trump would maintain the current Pease limitation structure that phases out the benefit of itemized deductions for wealthier taxpayers, but he would steepen the curve of the phase out.
Round 4 – Alternative Minimum Tax (AMT)
Hillary’s plan for the AMT is to implement the Buffett Rule: taxpayers with income exceeding $1 million must pay a minimum tax of 30%. Trump wants to eliminate the AMT completely.
Round 5 – Capital Gains Tax
The current capital gains tax structure is as follows: short-term gains (held less than one year) are taxed at the taxpayer’s ordinary tax rate plus the 3.8% net investment income tax; long-term gains (held longer than one year) are taxed at 20% plus the 3.8% surtax.
Clinton would increase the capital gains tax for wealthy taxpayers and introduce a complex “sliding scale” tax structure for long-term capital gains. Gains with a holding period of two years or less would be subject to the ordinary income tax rate; gains with a holding period of two to three years would be taxed at 36%; and gains with a holding period of longer than three years would experience a tax rate decline of 4% per year until 20% is reached at year six. Each rate would be subject to the 3.8% investment surtax.
Trump plans to keep the current structure (with his new ordinary income tax rates, short-term capital gains tax would be capped at $25%) and appeal Obamacare, which would eliminate the 3.8% net investment income surtax.
Round 6 – Estate Tax
Currently, the max estate tax rate sits at 40% and the exemption is $5,450,000. Hillary would raise the rate to 45% and lower the exemption to $3,500,000. The Donald intends to do away with the estate tax (and gift tax) altogether.
Round 7 – Tax Credits
Hillary proposes a new tax credit of 20% (up to $1,200) to taxpayers who pay for caregivers for their elderly family members. This would mean taxpayers with caregiver expenses could spend up to $6,000 and receive a benefit for those costs. Trump has not specifically outlined a tax credit proposal, but he has mentioned possibly adding more tax credits for families with children.
Round 8 – International Taxes/Tax Inversion
Hillary’s main point regarding international taxes is to impose an exit tax on companies entering tax inversion mergers, which occurs when a company with operations based in the US incorporates or reincorporates in a lower-tax foreign country. Trump would enact a one-time, 10% tax on repatriation of corporate cash held outside of the United States, and to stop the deferral of taxes on income earned in foreign countries.
The jury is still out. There is a lot of time left and speeches to be made. We will see who will take home the belt on November 8, 2016. Until then, like my Facebook page and follow me on Twitter for updates on the presidential race, tax news, tips and advice, and, of course, random thoughts.
The photo used for the featured image of this blog post, “Election 2016”, is copyright (c) 2016 DonkeyHotey and made available under an Attribution 2.0 Generic (CC BY 2.0) license.
Nick Aiola is a CPA located in New York, NY. Nick provides tax and accounting services to a wide range of clients, including individuals, businesses, and fiduciary entities.