Trump vs. Clinton: The Tax Plans

Taxes Blog - JLFranklin Wealth Planning

The two major party candidates for president this year come from vastly different backgrounds and champion divergent agendas and policies. Their competing tax plans can offer an entry point into rational discussion.

Hillary Clinton

The Washington Post says this about Hillary Clinton’s tax proposal: “This is likely the most explicit and ambitious plan to tax the rich ever laid out by a major-party presidential nominee.”

Her plan includes the following:

  • Clinton wants no family to pay more than 10% of their income for childcare.
  • She would keep Obamacare in effect but nix the 40% excise tax on employer-sponsored “Cadillac” health plans that is slated to begin in 2020.
  • A 4% additional tax on those who earn $2.5 million or more per year.
  • A new minimum effective tax rate of 30% for individuals earning $1 million or more.
  • A limit on the value of itemized deductions, other than charitable contributions, on high earners.
  • Increasing the estate tax to 45%, but for estates with asset values over $500 million the rate would be 65% (the top rate is now 40%). She also proposes a lower exemption amount of $3.5 million per individual (it is currently $5.45 million).

Donald Trump

Donald Trump’s plan continues to evolve. According to the Washington Post, “The Trump plan blows a hole in the federal budget that only massive budget cuts and/or rapid economic growth could patch.”

Here are some specifics:

  • Three individual tax rates: 12%, 25%, and 33%. The top rate of 33% would kick in at $225,001 for married folks and $112,501 for single filers.
  • The top capital gains tax rate would remain at 20%.
  • The surtaxes of 0.9% and 3.8% for upper-income taxpayers, along with the alternative minimum tax, would be eliminated.
  • Standard deductions would go up to $30,000 for joint filers and $15,000 for single filers, allowing millions of very low income Americans to pay no income taxes.
  • Personal exemptions and head of household filing status would go away.
  • Dependent care is a major focus of Trump’s tax plan. Working and stay-at-home parents could take a deduction for the average cost of care for up to four children under age 13 and elderly dependents. The break is capped at $5,000, and upper-income taxpayers—those earning above $62,400 ($31,200 if single)—are not eligible.
  • While the estate tax would be repealed, Trump takes a backdoor approach to taxing estates by taxing unrealized capital gains that occur before death, subject to a $10 million per couple exemption. This effectively limits the step-up in basis for those who inherit appreciated assets.
  • Obamacare would be repealed.