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INCOME TAX, ACCOUNTING, CONSULTING AND BUSINESS ADVISORY SERVICES

 

SEPTEMBER 2016

 

William Behrens, CPA, ABV, CFF

 

INCOME TAX PLANS OF

CLINTON AND TRUMP

 

Donald Trump

 

Trump is proposing the largest middle class tax cut in history.  Trump is taking the 7 individual tax brackets and compressing them into 3 tax brackets while at the same time reducing the tax rate on each bracket down to 12%, 25% and 33%.  This is half way between current tax rates and Trumps first individual tax rate structure proposed a year ago.  This also corresponds with Paul Ryan’s plan in June.  This reduces the top bracket down from 39.6% to 33%.  Trumps is cutting corporate income taxes and pass through entity income taxes to 15% from 35% to compete in the global economy, encourage business that left the USA to return, and encourage new business to settle in the USA.  Trump is eliminating Estate Tax.  The tax plan is expected to significantly stimulate the economy and create new jobs.  The new Trump tax plan is estimated to cost $2.55 trillion over 10 years.  Trumps old plan was estimated to cost $10 Trillion over 10 years.

 

Individual tax reform.

The individual tax rates under Trump's tax plan would be reduced and provide a hugh middle class tax cut:

  • 0 percent for single filers earning up to $25,000, married filers earning up to $50,000, and heads of household earning up to $37,500;
  • 12 percent for single filers earning $25,001 to $50,000, married filers earning $50,001 to $100,000, and heads of household earning $37,501 to $75,000;
  • 25 percent for single earners earning $50,001 to $150,000, married filers earning $100,001 to $300,000, and heads of household earning $75,001 to $225,000; and
  • 33 percent for single filers earning $150,000 and up, married filers earning $300,001 and up, and heads of household earning $225,001 and up.

The long-term capital gains and dividends rates would be:

  • 0 percent for taxpayers in the 0 and 10 percent income tax rate brackets;
  • 15 percent for taxpayers in the 20 percent income tax rate bracket; and
  • 20 percent for taxpayers in the 25 percent income tax rate bracket.

 

Trump originally called to quadruple the standard deduction. This would take singles from $6,300 to $25,000. Trump calls for reducing or eliminating most deductions and loopholes available to the very rich.  His plan also calls for quicker phase out of itemized deductions and personal exemptions with higher income levels. Taxpayers in the 12 percent brackets would keep "all or most" of their current deductions, those in the 25 percent bracket would keep "more than half" of their current deductions, and those in the 33 percent bracket would keep "fewer" deductions. Two of the most popular deductions, charitable giving and mortgage interest deductions, would remain unchanged for everyone. Trump would also allow individuals to fully deduct health insurance premium payments.

Business tax reform. Trump's tax plan would cut the corporate tax rate to 15 percent and tax all pass-through income from S- corporations and partnerships at 15%. 

Other business tax reforms include:

  • Reducing or eliminating deductions and loopholes serving special interests.
  • Providing a one-time deemed repatriation of corporate cash held overseas at a 10 percent rate.
  • Ending deferral of taxes on corporate income earned abroad.
  • Reducing or eliminating corporate loopholes that "cater to special interests," as well as "deductions made unnecessary or redundant" by the new lower rates, and phasing in a "reasonable cap" on the deductibility of business interest expenses.

Estate tax reform. Trump's tax plan would eliminate the estate tax.

Miscellaneous tax reforms. Other reforms proposed by Trump include:

  • Ending the current tax treatment of carried interest.
  • Repealing the Affordable Care Act.

 

Hillary Clinton

Hillary’s tax plan largely maintains the status quo of our tax system.  The estimated tax increase of Hillary’s tax plan is $1.2 trillion over 10 years.   Individual rates remain the same except for an increase in capital gains tax.  Capital gains start at 39.6% and lower to 20% if held longer than 5 years.  Business rates remain the same at a rate of 35% .  Estate tax exemptions are lowered to $3.5 million.  Gift tax exemptions are lowered to $1 million.  The excess over the exemption will taxed at 45% up from the current 40%.

Individual tax reform. Clinton would reform individual taxes by:

•      Imposing the "Buffett rule" requiring taxpayers earning more than $1 million per year to pay at least 30 percent in taxes and "broadening the base of income subject to the rule."

•      Enacting the "Fair Share Surcharge" requiring taxpayers earning more than $5 million per year to pay an extra 4 percent surtax.

•      Cutting taxes for "hard-working families."

•      Establishing a 20 %"caregiver credit" up to a $1,200 credit.

•      Capital gains would begin at 39.6 for property held for less than one year and decrease to 20 percent if property is held over a six years.  This is to promote long-term investment.

•      Limiting the tax value of certain tax breaks to 28 percent.  This is a tax increase

Business tax reform. Clinton's business tax proposals include:

  • Restricting corporate inversions by increasing foreign ownership in US companies from currently 20% to 50% in order for an American company to be considered foreign.
  • Imposing an "exit tax" on companies that undergo an inversion to ensure U.S. taxes are paid on unrepatriated earnings held overseas.
  • Crack down on earnings stripping.  It is a tactic used by multinational corporations to transfer taxable income to countries with lower tax rates. It is done by using interest deductions in high tax rate counties and recording interest income in lower tax rate countries.  Treasury passed regulations in April 2016 already to address this.
  • Creating a $1,500 "apprenticeship tax credit" for every new worker hired and trained.
  • Providing a new 15 percent tax credit for employers that share profits with their workers.
  • Creating tax incentives for communities that have faced or are about to face significant manufacturing job losses.
  • Simplifying tax filing
  • Provide targeted tax relief for small businesses.
  • Imposing a risk fee on large banks and financial institutions. Greater than $50 billion in assets).
  • Imposing a tax on high-frequency trading.
  • Ending "wasteful tax subsidies" for oil and gas companies.

Estate tax reform. Clinton would modify the estate and gift tax system by:

  • Exempting the first $3.5 million (currently $5.45 million) of an individual's estate from estate tax
  • Exempting the first $7 million (currently $10.9 million) for married couples. 
  • Increasing the top rate to 45% (currently 40%).
  • Capping the lifetime gift tax exemption at $1 million (currently $5.45 million).

Miscellaneous tax reforms. Other tax reform proposals of Clinton include:

  • Up to a $5,000 credit (per family) for people buying health coverage on exchanges.
  • Enhancing the premium tax credit.
  • Ending the "carried interest" loophole (under which private equity and hedge fund managers are taxed at capital gains rather than ordinary income rates on fund income).
  • "Asking the wealthiest to contribute more to Social Security by increasing the FICA wage limit and taxing more of their income not currently taken into account by the Social Security system.

 

 

 

 

 

 


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