Tax brackets
Trump’s initial proposal reduced the current seven tax brackets to four, with the top rate dropping from 39.6% to 25%, and no tax due for individuals with incomes under $25,000 ($50,000 for married couples filing jointly). Trump has recently announced changes to this proposal further reducing the number of brackets to three: 12%, 25%, and 33%. The Clinton campaign’s tax plans do not reflect changes to existing tax brackets, but add a new 4% “fair share surcharge” on taxpayers with an adjusted gross income (AGI) exceeding $5 million.
Long-term capital gains and qualified dividends
Currently, lower tax rates generally apply to qualified dividends and to capital gains from the sale of investments held longer than one year. Clinton’s campaign recommends increasing the holding period for long-term capital gains to two years and adding medium-term holding periods that gradually reduce the top long-term rate down to 20% for assets held for more than six years. Plans initially released by the Trump campaign indicated no changes to the current rules.
Alternative minimum tax (AMT)
The AMT is a separate tax calculation that imposes an additional tax on high income taxpayers with a disproportionate share of write-offs. The AMT is set at 26 to 28 percent and kicks in when the net regular tax is lower. The Trump campaign has called for elimination of the AMT while the Clinton plan would add a new layer, imposing a minimum tax of 30% on those with incomes exceeding $1 million.
Deductions, exemptions, and exclusions
Tax proposals released by both candidates would limit itemized deductions for higher-income filers. The Clinton plan would limit the benefit of itemized deductions to 28% (meaning that the benefit of these deductions would be reduced for individuals in higher tax brackets). Charitable deductions would be excluded from this limitation. The Trump plan would accelerate the limitation of itemized deductions and the phase-out of personal exemptions for higher-income filers, while the treatment of deductions for charitable giving and mortgage interest would remain unchanged.
Estate tax
The two campaigns have very different views of the existing federal estate tax. The Clinton campaign proposes increasing the top estate tax rate from 40% to 45%, and decreasing the estate tax exclusion from $5.45 million to $3.5 million. The Trump campaign proposes eliminating the federal estate tax.
Summary
The tax proposals of the two candidates differ as would be expected. Clinton’s plan raises taxes on high income taxpayers, while Trump’s plan would drastically reduce taxes on high income taxpayers. One side will generate additional Federal funding while the other would reduce it. Voters will need to consider tax proposals in context with other aspects of each campaign’s platform when making their decisions.
