It’s the Silly Season again. This year’s election cycle is bringing its own special brand of silly. Unless you live under a rock or are just waking up from a year long coma you know that Donald Trump and Hillary Clinton will be dueling it out this November to become the next President of the United States.
Let that sink in for a moment.
Ok now that I am done crying for my future grandkids I think it would be useful to look at both candidates proposed tax plans. This information is summarized from each candidates website and is certainly not meant to be an all inclusive analysis of which tax plan is best. It is not voting advice it is purely sharing the pertinent facts from each candidate. As we all know the Congress will have significant input into what proposals become our next tax bills regardless of who wins the Presidency. No matter who wins the election it is obvious that personal and business tax reform will be on the agenda for the Congress in 2017.
The Trump Tax Plan:
Individual Income Taxes
- Consolidates the current 7 tax brackets into 4 brackets (0%, 12%, 25% and 33%) with a top marginal rate of 25%. The top marginal rate of 25% would be for married filers with taxable income of $300,000 and single filers with taxable income of $150,000
- Long term capital gains and qualified dividends taxed at rates of 0%, 15%, or 20% depending on taxable income. Gains would be taxed at 0% for married filers with taxable income of $100,000 and single filers up to $50,000. The 20% rate would be for married filers with taxable income of $300,000+ and single filers with income of $150,000+
- Eliminates the personal Alternative Minimum Tax (AMT)
- Eliminates the passive investment income tax of 3.8% which is part of the Affordable Care Act (ACA)
- Taxes carried interest for hedge fund traders at ordinary income tax rates instead of capital gains and dividend rates.
- Cuts the corporate income tax rate from the current top rate of 35% to a top rate of 15%
- Enact a one time repatriation tax of 10% on all foreign corporate profits that are currently deferred.
- Taxes pass-through business entities (S Corps and LLCs) at a maximum personal rate of 15% on K-1 profit which is commensurate with the proposed top rate for C-corporations.
- Eliminates the federal estate tax
The Clinton Tax Plan:
Individual Income Taxes
- Keeps the current 7 tax brackets (10%, 15%, 25%, 28%, 33%, 35%, 39.6%) with a top marginal bracket of 39.6%
- Creates a 4% “surcharge” on high income taxpayers which effectively adds an additional marginal tax rate of 43.6% (39.6% + 4%) for taxable incomes over $5,000,000
- Creates a 4% “surcharge” on capital gains and dividends for incomes over $5,000,000 which effectively adds an additional marginal rate of 24% (20% + 4%)
- Enacts the so-called “Warren Buffett Rule” which would establish a 30% minimum tax on taxpayers with adjusted gross income (AGI) over $1,000,000.
- Puts a cap on all Form 1040 Schedule A itemized deductions at a tax value of 28%.
- Preserves the passive Investment Income Tax of 3.7% and the Medicare surtax on earned income of 0.9% which were part of the Affordable Care Act.
- Limits the account value of tax deferred and tax free retirement accounts. Excess account values above the threshold would be forced out as a taxable distribution.
- Taxes carried interest for hedge fund traders at ordinary income rates instead of capital gains and dividend rates
- Makes no significant changes to the current business tax rates. Keeps the top corporate rate at 35% for C Corps.
- Keeps taxes on K-1 profits for pass through entities (S-corps and LLCs) at personal income tax bracket as high as 39.6%
- Restores the federal estate tax to the 2009 levels. This would increase the estate tax rate to 45% and reduce the estate tax exemption to $3,500,000 ($7,000,000 married).
Now after reading all of that I am sure your eyes have glazed over. That is certainly part of the problem with the IRS tax code. Today the tax code takes up 74,680 pages! Think about that for a second. Our tax code takes almost 75,000 pages to explain it. Something needs to change. Both candidates have ideas that are good and bad when it comes to tax planning. It is also hard to determine what impact each candidates tax plans would have on the US economy because we don’t know how each candidate plans to address the spending side of this equation.
Taxes are an important part of every voters lives. Make sure you educate yourself before you enter the voting booth in November.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your specific individual situation. The opinions expressed and material provided are for general information.