The tax plans proposed by the candidates are perhaps the most conventional element in an unconventional election year as both plans hew closely to their parties' proposals. In the broadest sense, Secretary Clinton's tax plan, if adopted, will increase taxes on high-income Americans and impose additional tax rules making it less advantageous for companies to relocate overseas. Taxes raised through these changes will go to fund Clinton's broader policy agenda. Mr. Trump's tax policy agenda, if adopted, will, according to the Tax Policy Center, provide middle-income Americans (third and fourth quintile) with a roughly four percent tax cut and progressively larger tax cuts to higher-income Americans. Mr. Trump's proposal would lower corporate tax rates from the current rate of 35 percent to 15 percent. Regardless of who wins the election, Speaker Paul Ryan (R-WI) has released his own tax reform proposal and is expected to push for its adoption in the coming year.
Individual Taxes – Clinton
Secretary Clinton's plan for individual taxes is focused on raising revenue in order to pay for new and expanded federal government programs. In fact, according to the Tax Policy Center, Clinton's most recent proposals will have little impact on taxes for the bottom 90 percent of taxpayers. For wealthier taxpayers, Secretary Clinton proposes to create a four percent surcharge on incomes greater than $5 million, effectively instituting a new top tax bracket of 43.6 percent. Those earning more than $1 million per year would be subject to a minimum 30 percent tax rate (commonly known as the Buffett Rule). Clinton's proposals also include capping total itemized deductions at 28 percent of income, though she has indicated the 28 percent cap would not apply to charitable contributions. The Clinton campaign has indicated it will propose a tax cut for low- and middle-income Americans at some point in the future.
In regards to the "carried interest" rate, Secretary Clinton has proposed taxing carried interest (investment firm compensation reported as long-term capital gain) as regular income (as high as 43.6 percent), rather than as capital gains (23.8 percent).
On the estate tax, Secretary Clinton has announced a proposal to increase the rate from 40 percent to 45 percent and lower the threshold for triggering the tax to $3.5 million for individuals and $7 million for married couples. Currently, the estate tax is triggered at $5.45 million for individuals and $10.9 million for married couples.
Individual Taxes – Trump
Mr. Trump's individual tax proposals are, in the words of the campaign, focused primarily on spurring economic growth through tax cuts for high-income Americans and simplifying the tax code for middle income earners. Trump's plan, which is similar to Speaker Paul Ryan's "Better Way" proposal, would cut the top income tax bracket from its current level of 39.6 percent to 33 percent. For middle income earners, Trump's plan would reduce the seven tax brackets in current law to three; 12 percent, 25 percent and 33 percent. According to the Tax Policy Center, the plan would raise income for most earners (first through fourth quintiles) by between one and five percent. Mr. Trump's plan would also increase the standard deduction to $25,000 for single filers and $50,000 for joint filers (from $6,300 and $12,600, respectively) and index additional increases to inflation.
Mr. Trump's proposed plan would eliminate the carried interest rate, but would allow the funds to be classified as business income which would be subject to a new lowered rate of 15 percent.
Mr. Trump has proposed eliminating the estate tax.
Business Taxes – Clinton
Secretary Clinton's proposals leave corporate taxes as they currently are today, at a base rate of 35 percent with a complex range of deductions. Secretary Clinton seeks to implement a number of changes to the code in order to dissuade companies from moving operations overseas to avoid paying U.S. taxes. First, the plan would treat foreign firms used by American companies as inversion partners as U.S. firms for tax purposes. Second, Clinton's proposal would fight earnings stripping by limiting the deductibility of interest if it is used as a tool to avoid American taxes. Third, the proposal would implement an exit tax on companies that relocate outside the U.S. before they are allowed to repatriate funds earned by foreign subsidiaries.
A number of Secretary Clinton's proposals target particular industries. One proposal would prevent insurance companies from avoiding U.S. taxes through reinsurance arrangements with foreign affiliates, while another would impose a special tax on high-frequency traders. Others include implementing taxes aimed at curbing risk in the financial sector, eliminating subsidies for fossil fuels and implementing tax breaks for some companies that provide on-the-job training.
Business Taxes – Trump
Mr. Trump's proposal would lower corporate tax rates from the current rate of 35 percent to 15 percent and would apply that rate to partnerships that currently pass along profits to individuals. Simultaneously, Mr. Trump's plan would end most corporate tax exemptions – including ending the deferral of income from controlled foreign subsidiaries – and would tax pass-through business income for partnerships, such as law firms, at a rate of 15 percent. Mr. Trump's proposal also caps the deductibility of interest expenses for businesses and repeals the corporate alternative minimum tax. Mr. Trump has said that his steep cut in the corporate tax rate would discourage corporate inversions and would encourage companies that earn money overseas to repatriate the money, pay the lower tax and reinvest it in the United States.
Takeaway: Mr. Trump and Secretary Clinton's tax plans are diametrically opposed in many ways. Though Donald Trump's most recent proposal has not yet been fully analyzed, a previously released similar plan would, according to the Committee for a Responsible Federal Budget (CRFB), reduce federal revenues by $10.5 trillion over the next ten years. According to the CRFB, Secretary Clinton's plan would increase federal revenue by $1.2 trillion over ten years.
