Hillary Clinton and Donald Trump don’t agree on much. But, the two presidential candidates do share a common value when it comes to their proposed tax policies — to stimulate business and inspire economic growth. However, as it usually goes in politics, Clinton and Trump have decidedly different theories on how to accomplish that goal.
It should be noted, a 60-second political speech rarely ends up translating into a 60-page tax law. That would require Congress to agree with the code variations in Clinton or Trump’s proposals, and then follow through with a majority vote to pass them through as law. Even if Congress did agree with aspects of either proposal, the final version would likely look much different than what was originally touted on the campaign trail.
While the chances are slim Americans will see any significant changes to the tax code following the November election, it’s still important to understand the differences between the two proposals, and prepare for whatever changes could come.
Nominee Proposals
On the Democratic side, Clinton’s policy proposes tax increases for high-income taxpayers, new rules that would make it harder for businesses to move overseas, a repeal on fossil fuel tax incentives and an increase to estate and gift taxes. While Clinton’s policy does not propose significant impacts to American small businesses, those businesses will see a slight increase of their taxes. Clinton’s aim with her proposed policy is to improve the country’s economic health by increasing economic revenue by about $1.1 trillion over the next decade.
Another item in Clinton’s tax policy is pointed at closing tax loopholes that reward companies who shift profits and jobs overseas. Instead, she will charge an “exit tax” for companies leaving the U.S., while also adding incentives and rewards to businesses that stay and invest in jobs here.
Trump’s tax policy puts even more focus on the small business marketplace, with the largest impact coming from a reduction in tax rates. If Trump takes the White House in November, his tax proposal would reduce business tax rate from 35% to 15%, while also eliminating most tax subsidies and setting the pass-through income at 15%, as well. Trump’s plan would also impose a one-time transition tax of up to 10% on existing foreign income of U.S. companies, with future profits of foreign subsidiaries of U.S. companies being taxed each year as profits are earned.
It is anticipated that people at all income levels would benefit from Trump’s tax cuts, with the largest benefactors to those cuts being the highest-income households.
But, when broken down, Trump’s tax plan — unless accompanied by huge spending cuts — could increase the national debt by nearly 80% by 2036, essentially offsetting some or all of the incentives he is proposing.
Conversely, but not surprisingly, nearly all of Clinton’s individual tax increases would fall on the top 1% of earners, with the remaining 95% of taxpayers seeing little to no change. Marginal tax rates would increase, reducing incentives to work, save and invest, and the tax code would become more complex. Details within the program do not address a forthcoming proposal to cut taxes for low-and middle-income families.
The Problem with Promises
While Trump’s tax proposal policy seems to be more business friendly and generally would put more money into the pockets of taxpayers, and Clinton’s promises to ease the tax burdens of middle-class Americans, both candidates and their grandiose tax reform plans flounder in practicality.
What American taxpayers and especially business owners are yearning for is simplicity. In nearly every presidential election of the modern era, candidates tout ideas of simplifying the staggering complexities of the tax code. The reality is, most proposed policies come with promises of simplicity, but really only add unnecessary layers to an already complicated system.
For America’s CPAs, this becomes an even bigger point of importance. Ideally, those in the industry would like to see simplification of tax policies for pass-through entities. These types of companies — S corporations and partnerships — make up a significant amount of the small business marketplace and represent the majority of CPA clients.
CPAs long for the day when America’s tax code is finally simplified, providing them stability to most accurately advise clients and be the experts they are expected to be. When it comes down to that, Trump and Clinton, like many of their predecessors, miss the mark.
Roger Harris is president and COO of Padgett Business Services.
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