Regardless of who you like or dislike, either Hillary Clinton or Donald Trump will be the 45th president of the United States effective January 20, 2017.
Both candidates released their tax policy platforms earlier this year, so we have a relatively clear picture of what they will pitch to Congress in 2017.
Blake Christian, a tax partner whose firm Holthouse Carlin & Van Trigt LLC (HCVT) works with a number of port and transportation companies, has concerns regarding the upcoming presidential election’s potential impact on the financial services industry. (Photograph courtesy of HCVT)
In summary, Hillary Clinton is proposing at least a $1 trillion tax increase over 10 years, namely by increasing taxes on the wealthy and certain businesses: including the imposition of a 4% surtax on individual taxpayers with more than $5 million of Adjusted Gross Income (AGI), and a new six-stage holding period for long-term capital gains – resulting in an increase in maximum long-term capital gains from a current maximum of 23.8% to 47.4% for assets held two years or less. Clinton would also increase the Alternative Minimum Tax (AMT) rate from a current maximum rate of 28% to 30%. She, along with Trump, would also tax the “carried interest” element of private equity firms at ordinary rates vs. current capital gain rates. Clinton has also proposed to roll back the current $5.45 million estate tax exclusion to the $3.5 million 2009 levels, increase the estate tax from 40% to 45% and also limit cumulative lifetime gifts to $1 million dollars per taxpayer.
On the business side, she would provide various tax credits and incentives for domestic job creation and domestic investment. However, Clinton has threatened to eliminate most tax breaks for the petroleum industry. She would also impose an “exit tax” on companies moving operations offshore. Finally, she would limit certain qualified retirement plan deductions.
In stark contrast, Donald Trump is proposing a massive tax reduction package that is estimated to reduce federal revenue by $7 trillion to $10 trillion in the first decade, followed by an additional 15 trillion in years 11 to 20. Robust economic growth projections and cost-cutting are baked into Trump’s plan. The majority of the tax reductions would flow to individual taxpayers, but approximately a third would benefit businesses.
Trump would reduce the current seven individual rate brackets – ranging from 10% to 39.6% down to three brackets of 12%, 25%, and 33%. He would increase the standard deduction to $25,000 for single filers and $50,000 for joint filers, and would scale back the itemized deductions for wealthy taxpayers. He would repeal the individual and business AMT and the 3.8% Obamacare Net Investment Income Tax, as well as the federal estate and gift taxes. He also plans on phasing out certain itemized deductions, other than home mortgage interest and charitable contributions for higher income taxpayers. A broad child/ elder-care program has also been proposed.
Trump’s child and elder-care proposal would provide a tax deduction for families making less than $250,000. The deduction would be available on up to 4 children or parents and capped at the average cost of care in the taxpayer’s respective state of residence. Low-income taxpayers would receive a child-care rebate up to $1,200 per family through the current Earned-Income Tax Credit Program.
Dependent Care Savings Accounts are also part of the Trump proposal, which would allow taxpayers to make tax-deductible contributions to fund future child-care, school enrichment and/or elder-care services. Earnings on the account would accrue tax-free.
Trump’s plan would also include up to six weeks of paid leave and employer incentives for providing on-site care.
On the business side, he plans on eliminating a number of business “loopholes” (to be specified at a later date), reducing the corporate tax rate to 15%, and also will limit individual taxes on flow-thru income from S corps., LLC’s/partnerships to 15% – thereby benefiting small business owners. He would offer an attractive 10% tax for international companies that bring foreign profits back onshore to the U.S. and penalize “offshoring” businesses.
Hillary Clinton’s tax increases would fall primarily on the Top 1 percent of earners (those making $428,000 or more).
Donald Trump’s proposal, with the much lower rates, larger standard deduction, and personal exemption amounts would reduce taxes (and filing requirements) on lower income taxpayers.
This link will take you to a full article and a matrix comparing the rates for various types of income: http://www.hcvt.com/insights-articles-44.html.
(Blake Christian, a tax partner with HCVT, has more than 35 years of public accounting experience. HCVT has offices in California, Utah, and Texas. He can be reached at: blakec@hcvt.com or 562/216-1800. For more information on HCVT, including career opportunities, please log on to www.hcvt.com.)