Even though the next
presidential election is still more than a year away, the political season is
in full swing. Among the significant distinctions between the candidates are
their tax plans. In this column, I’ll cover what the (arguably) top four GOP candidates
have said on the subject. Next week, I’ll do the
same for the top three Democrats, including the still-undecided Joe Biden.
Donald Trump’s tax
plan
For individuals, Trump
proposes fewer tax brackets and lower rates: 0%, 10%, 20% and 25% (versus
current rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%). The top 25% rate
would kick in at income of $300,001 for married joint-filing couples and
$150,001 for singles. Married couples earning $50,000 or less and singles
earning $25,000 or less would pay no federal income tax.
Trump’s plan would
also cut the corporate tax rate from the current 35% to 15%. Good idea! I’ve
advocated the same thing. The 15% rate
would also apply to business income from sole
proprietorships and business income passed through to individuals from S
corporations, LLCs, and partnerships. Business tax-deferral schemes would be
eliminated. Ditto for business interest deductions.
Trump would abolish
the federal estate tax and the dreaded alternative minimum tax (AMT). Some
existing individual write-offs would be sacrificed, but deductions for home
mortgage interest and charitable donations would be retained.
According to an analysis by the Tax Foundation, a nonprofit, non-partisan tax research group
in Washington, D.C., Trump’s plan would reduce federal tax revenues by $11.98
trillion over 10 years. But it would also improve incentives to work and
invest, which could increase gross domestic product (GDP) by 11% over the long
term. The increased GDP could translate into 6.5% higher wages and 5.3 million
new jobs, according to the analysis. After accounting for increased tax
revenues generated by higher wages and more jobs, Trump’s plan would reduce tax
revenues by $10.14 trillion over 10 years.
Carly Fiorina’s tax
plan
Unlike Trump, Carly
Fiorina has not yet put forward a detailed tax plan. However, she has issued
some important clues. She says the current tax system is in desperate need of
reform and simplification. To accommodate a smaller and simpler tax system,
Fiorina advocates “zero-based budgeting,” which would mean that all government
funding discussions would start from a base budget of zero and build from there
(as opposed to the current practice of starting with the previous year’s
spending and going up). [Source: PBS News Hour “2016 Candidate Stands” May 4,
2015.]
Fiorina also staked
out some tax positions in her 2010 run for a California Senate seat. To
paraphrase, she said the federal tax burden is too high and must be lowered to
get the economy growing again. That translates into making actual cuts in
federal spending. Source: Hogue News 1380 KTKZ coverage of 2010 CA Senate
debate, March 7, 2010. Fiorina signed the Americans for Tax Reform Taxpayer
Protection Pledge promising that she would not vote for any new or increased
taxes. [Source: 2010 Senate campaign
website (Dec. 25, 2009).]
Ben Carson’s tax plan
Like Fiorina, Ben
Carson has not put forward a detailed tax plan. However, his
website says (to
paraphrase) the Internal Revenue Code is too long, too complex, too burdensome,
and too riddled with tax shelters and loopholes that benefit only a few at the
expense of the many. He advocates wholesale tax reform which he says won’t be
accomplished by career politicians. Carson says you should be able to complete
your tax form in less than 15 minutes, which would eliminate the need for the
IRS.
In interviews, Carson
has advocated a flat tax which he calls a proportional tax system. “You make
$10 billion, you pay a billion. You make $10, you pay $1. And everybody gets
treated the same way. And you get rid of the deductions, you get rid of all the
loopholes.” [Source: Fox News/Facebook Top Ten First Tier debate transcript,
August 6, 2015.]
Marco Rubio’s tax plan
• Consolidate the
existing seven individual tax brackets into two brackets: 15% and 35%.
• Eliminate or reform
deductions, especially those who disproportionately benefit the privileged few
at everyone else’s expense.
• Eliminate the
marriage penalty.
• Level the playing
field for working parents by augmenting the current child tax credit of $1,000
with an additional $2,500 credit which could be used to offset both the federal
income tax and federal payroll taxes.
Stay tuned for the tax
plans of the top Democrats
What a Democratic president could mean for your taxes
By Bill Bischoff Published: Oct 20, 2015 12:36 p.m. ET
The next presidential
election is still more than a year off, but the political season is well
underway.
Among the significant
distinctions between the candidates are their tax plans. In this column, I’ll
cover what the top Democratic candidates have said on the subject. As you will
see, there are large differences from the tax plans advocated by the top GOP candidates,
which I
covered last week.
Hillary Clinton’s tax
plan
In a recent speech at
New York University, Hillary Clinton proposed higher capital gains taxes. The
proposal is intended to combat short-term investing, which Clinton argues
diverts capital away from more productive alternatives. Clinton’s plan calls
for a sliding scale of rates, with shorter-term investments taxed at higher
rates than they are now. Under the current rate system, short-term capital
gains from assets held for one year or less are taxed at ordinary income rates,
which can be as high as 39.6%. High earners will also usually owe the 3.8%
Medicare surtax for a combined top tax rate of 43.4% on short-term gains. The
current maximum rate on long-term gains from assets held for more than one year
is 23.8%.
Under Clinton’s plan,
the top rate on short-term gains would remain at 43.4%. For assets held for
more than one year, rates would drop on a sliding scale before reaching the
current long-term gain rates after a holding period of more than six years. The
biggest impact would be on assets held for more than one year but not more than
two years. Tax rates on gains from those assets would nearly double.
Economists on the left
have long criticized the relatively low tax rates on long-term gains as
providing a subsidy to the wealthiest Americans. There is some truth to that. A
report by the Congressional Budget Office found that
68% of the tax-saving benefits from lower rates on
long-term gains and dividends go to the top 1% of earners.
According to her website, Clinton would also cut taxes for families
to increase their take-home pay as they face rising costs for child care,
health care, and sending their kids to college. She supports enacting the
so-called “Buffett Rule,” which would ensure that millionaires don’t pay lower
effective tax rates than their secretaries and close tax loopholes and breaks
that benefit the wealthiest taxpayers.
Clinton says she would
also provide tax relief for small businesses and would create a new 15% tax
credit for companies that share profits with workers on top of wages and pay
increases.
In last Wednesday’s
debate, Clinton didn’t say much about taxes except that the rich will have to
cough up more to pay for lots of government-provided goodies — like “free” college.
And I thought Bernie Sanders was supposed to be the Socialist.
Bernie Sanders’ tax
plan
Under the current
federal income tax regime, the top marginal rate on ordinary income from
working is 39.6%, but the top rate on corporate dividends and long-term capital
gains is “only” 23.8%. Sanders proposes taxing capital gains and dividends at
the same rates as ordinary income from working.
Sanders has not
proposed anything specific about changing individual tax rates on ordinary
income from working.
Sanders also proposes
restarting the 12.4% Social Security tax on wages or self-employment income in
excess of $250,000. Under our current system, the Social Security tax cuts out
above an inflation-adjusted ceiling ($118,500 for 2015 and 2016). Under Sanders’s
“doughnut hole” approach, there would be a Social-Security-tax-free zone
between $118,500 and $250,000.
Sanders would lower
the threshold for the federal estate tax to $3.5 million (versus the current
$5.43 million). He would also increase the estate tax rate to 50% for estates
over $10 million, to 55% for estates over $50 million, and to 65% for estates
over $1 billion (the current federal estate tax rate is a flat 40%).
As for corporate
taxes, Sanders says he would end current rules that allow U.S. corporations to
defer paying federal income tax on offshore profits. He would also eliminate
tax breaks for oil and gas and coal companies.
Finally, Sanders would impose a new financial transactions
levy that would tax stock trades at 0.5%, bond trades at 0.1%, and
derivatives trades at 0.005%. For example, a $10,000 stock trade would be hit
with a $50 tax.
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