No matter your political orientation, most would agree that this year’s presidential contest is shaping up to be one of the most interesting in recent memory. Tax reform is an issue which all of the current candidates have addressed in one form or another. Here are the material elements of proposed changes by the current frontrunners for each party.
Individual Tax Rates
Clinton – Would institute a new 4 percent surtax on income above $5 million and a sliding scale increase in capital gains tax for investments held less than 6 years. A 30 percent effective tax rate would apply to taxpayers making more than $1 million.
Trump – Reductions in tax rates at every income level by collapsing the current seven brackets - ranging from 10 percent to 39.6 percent - to three brackets of 10 percent, 20 percent, and 25 percent. Dividends and capital gains would be taxed at maximum rate of 20 percent. The alternative minimum tax would be repealed, as would the 3.8 percent net investment income tax.
Individual Tax Deductions
Clinton – The tax value of exemptions and specified itemized deductions would be limited. Taxpayers with high balances in tax-favored retirement accounts would not be permitted to make additional contributions.
Trump – The tax value of exemptions and specified itemized deductions would be limited. The standard deduction would be increased to $25,000 for single filers and $50,000 for joint filers.
Clinton – Current corporate rates would not change. Provisions aimed at limiting multinational corporations’ ability to take advantage of “inversions” and “interest stripping” would be tightened, and an “exit tax” would be imposed on accumulated untaxed earnings of a foreign subsidiary of a U.S. company that voluntarily leaves the U.S. or is acquired by a foreign company. As yet unspecified tax relief would be provided for small businesses.
Trump – The corporate tax rate would be reduced to 15 percent. The individual tax rate on pass-through businesses would also be reduced to 15 percent. Many tax breaks for businesses would be eliminated. The corporate alternative minimum tax would be repealed. A 10 percent deemed repatriation tax would be applied on accumulated profits of foreign subsidiaries of U.S. companies, payable over 10 years, and future profits would be taxed as earned.
Estate and Gift Taxes
Clinton – The tax rate would increase from 40 percent to 45 percent and the exemption amount would decrease from $5.45 million to $3.5 million.
Trump – The Federal estate and gift tax would be repealed.
Any significant level of change to our current tax system will require bipartisan compromise and agreement. Absent a material change in the control of the House or Senate, and/or a change to Washington’s ability to work together more effectively, that may be difficult. But stayed tuned for future developments!
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