With the presidential race heating up, many candidates have finally given us tangible tax plans to mull over. Here are a few from some of the top polling candidates. These are listed in no particular order. If your favorite candidate isn’t listed, either they haven’t released a plan or they weren’t polling high enough for this space limited blog.
Jeb Bush (R). Mr. Bush calls for a “complete overhaul of the U.S. tax code,” including lower rates (28% maximum) and fewer tax brackets (three), nearly doubling the standard deduction, eliminating the marriage penalty, expanding the earned income tax credit (EITC), and ending the estate tax, alternative minimum tax (AMT), and employee’s share of the Social Security tax for older workers. According to Mr. Bush, “roughly 15 million Americans would no longer bear any income-tax liability.” He would also cut corporate taxes from 35% to 20%, end worldwide taxation, assess a one-time 8.75% tax on overseas profits (payable over 10 years), and allow for immediate deductions for new capital investments (coupled with an elimination of most corporate tax deductions).
Ben Carson (R). Dr. Carson’s campaign website doesn’t have a formal tax plan but does call for a “fairer, simpler, and more equitable system” and a tax form that can be “completed in less than 15 minutes.” He has also spoken about the flat tax, analogizing it to tithing, and has called it “very condescending” to poor people to tax their income at a different rate than the wealthy.
Chris Christie (R). He would lower the number of income tax brackets to three, set the top rate at a maximum of 28% and the bottom rate at an unspecified “single digit,” “eliminate or modify enough deductions, credits and targeted provisions in the code—both on the personal and the corporate side—to ensure that the plan, combined with other measures… is revenue neutral”, and retain the deductions for charitable contributions and home mortgage interest, at least for a first home. He also has spoken in favor of a one-time repatriation holiday where U.S. companies could repatriate overseas profits at an 8.75% rate.
Hillary Clinton (D). Ms. Clinton unveiled a capital gains proposal that would reflect a fairly major departure from the existing system, but only in respect to taxpayers in the highest tax bracket. Under existing law, favorable long-term capital gains treatment applies after an asset is held for one year. Ms. Clinton would implement a graduated holding period where the rate would decrease, from 39.6% to 20%, over a 6-year period. In addition, she would provide for zero capital gains tax on qualified small business stock held for more than five years, as well as on long-term investments in “hard-hit and low-income communities”. Her campaign website also says that she supports 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), enacting the Buffett rule (under which those making more than $1 million a year wouldn’t pay a smaller share of their income in taxes than middle class families pay), and making the American Opportunity Tax Credit permanent. Ms. Clinton has also called for tax reforms that are intended to empower workers, including a $1,500 “apprenticeship tax credit” for every new worker that a business trains and hires, and a new 15% tax credit for employers that share profits with their workers.
Mike Huckabee (R). Mr. Huckabee would replace the individual income tax (and associated credits, deductions, alternative minimum tax, payroll tax, etc.) with a 23% federal sales tax (the so-called “Fair Tax”), with rebates for lower-income taxpayers.
Rand Paul (R). Mr. Paul stated that the current code is “so corrupt, complicated, intrusive and antigrowth” that it cannot be fixed and should be repealed in full. He would offer in its place “The Fair and Flat Tax,” which would be a 14.5% flat tax on individuals and businesses. For individuals, the rate would apply equally to all personal income including wages, salaries, dividends, capital gains, rents, and interest. All deductions except for mortgage interest and charitable deductions would be eliminated. In addition, the first $50,000 of income for a family of four would not be taxed, and the EITC would be retained. However, he would eliminate what he refers to as “nearly every special-interest loophole,” as well as the payroll tax and the gift and estate taxes. For businesses, the 14.5% tax would be levied on revenues minus “allowable expenses,” for which he offered as examples the purchase of parts, computers, and office equipment. All capital purchases would be immediately expensed instead of depreciated.
Marco Rubio (R). Marco Rubio’s tax plan for individuals would: reduce the number of tax brackets to two (15% and 35%); “consolidate and enhance” the child tax credit (raising the amount from $1,000 to $2,500); reform the EITC; and eliminate capital gains taxes, taxes on dividends, estate tax, the standard deduction and personal exemption (replacing them with a “personal credit”), the additional Medicare tax, all itemized deductions except for a reformed home mortgage deduction and charitable deduction, and the AMT. For businesses, Mr. Rubio’s plan would, among other things: provide for full, immediate expensing of business capital investments; create parity in the tax treatment of corporations and pass-through entities and subject both to a 25% rate; eliminate “extraneous” business tax provisions and let the extender provisions stay expired; take various steps to “eliminate the pro-debt bias in the current code”; and transition away from the U.S.’s worldwide tax system to an international dividend exemption system, including a deemed repatriation at a 6% rate.
Bernie Sanders (D). Although he hasn’t introduced a campaign tax reform plan, Mr. Sanders has clearly stated his desire to raise taxes on the wealthy. He introduced the “Responsible Estate Tax Act” last fall, which would lower the estate tax exemption to $3.5 million, raise the top rate to 55% (with a 10% surtax on estates over $500 million), and lower the gift tax annual exclusion. He has also spoken out against certain corporate tax practices such as sheltering profits overseas. During his campaign, he has stated that he would raise the NIIT (from 3.8% to 10%). In recent years, he has also offered tax proposals that would, among other things, tax capital gains and dividends of the wealthiest 2% at the same rate as ordinary income.
Donald Trump (R). The “Trump Tax Plan” would exempt from income tax single taxpayers earning less than $25,000 and married taxpayers earning less than $50,000, reduce the tax rates (to a 25% maximum) and number of brackets (to four), reduce the corporate tax rate to a 15% maximum, and eliminate the estate tax and the AMT. He says that these reforms would remove “nearly 75 million households… from the income tax rolls,” and asserts that these tax cuts are fully paid for by eliminating deductions and loopholes—such as reforming the treatment of “carried interest”—and having a one-time deemed repatriation of overseas profits at a 10% rate. He would, however, retain deductions for charitable contributions and mortgage interest.
I’m sure we will update this information in a future blog as tax proposals expand and the field of candidates dwindles. Remember to follow your tax heart in the primaries and next November.
By Scott W. Clouse, CPA