Trump vs. Clinton: How the Candidates Tax Plans Impact Business

Candidates Tax Plans

The Republicans in the House of Representatives released their tax plan earlier this year with far-reaching changes for the commercial real estate industry.  Overall, their plan would reduce individual, corporate and pass-through (partnerships and LLCs) business tax rates, reduce the corporate income rate from 35 percent to 25 percent, allow full expensing of business costs, eliminate the corporate alternative income tax, and eliminate the deductibility of business debt interest payments. How this new tax plan is received will depend on the presidential election results and how they will be viewed by the winning candidate.

Both Hillary Clinton and Donald Trump have released their own broad policy proposals for revising the tax code, which have widely divergent views on how to  stimulate the economy. Donald Trump agrees with the Republican approach for the most part to reduce rates and broaden the tax base by eliminating preferences to stimulate the economy. Mr. Trump’s plan (donaldtrump.com) would:

  • Collapse the current seven tax brackets down to three, with a taxable income rate of 12 percent for income less than $75,000, 25 percent for incomes more than $75,000 , and 33 percent for incomes more than $225,000;
  • Retain the existing capital gains tax rate of 20 percent, and eliminate the Obamacare tax of 3.8 percent;
  • Increase the standard deduction for joint filers to $30,000 from $12,000, and to $15,000 from $6,300 for singles;
  • Eliminate the alternative minimum tax;
  • Reduce the business income tax rate from 35 to 15 percent; and
  • Tax carried interest compensation at ordinary income rates rather than as capital gains.

Hillary Clinton’s tax proposals would go along with the Democratic Party agenda to achieve its policy objectives.  Sen. Clinton’s tax plan would:

  • Impose higher taxes on high income individuals (4 percent surcharge on adjusted gross income (AGI) over $5 million to address income inequality;
  • Impose a 30 percent tax on individuals with an income above $ 1 million;
  • Limit by 28 percent the value of specified deductions and exclusions;
  • Create a new schedule for capital gains with rates declining based on duration of holding period (if less than two years taxed at ordinary income rates and if held at least six years taxed at 23.8 percent rate):
  • Tax carried interest at ordinary income tax rates; and
  • Maintain current corporate tax rates and eliminate plans to reduce corporate taxable income.

Further details have yet to be put forth by either candidate, but both have released broad tax plans to appeal to their respective political bases.

Source: New York Times, “Conflicting Policy from Trump; To Keep and Remove, Tax Cut,” Binyamin Applebaum, September 16, 2016

Source: New York Times, “Clinton’s Complex Tax Plan” James B. Stewart, September 15, 2016

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