The election cycle is in full swing now that both the Republican and Democratic Conventions have ended and the parties have nominated their candidates. There are stark policy contrasts between the candidates that, when combined with each candidate’s personal appeal (or lack thereof), will challenge the decision each of us will face when we finally get into the voting booth. One area where there are clear differences that will impact all of us is the tax policies of each party. Here’s a rundown on the tax platforms (and where, in some cases, the party nominee is not necessarily in full agreement). Many of these policies should come as no surprise to you.
Republican Platform 2016.
The platform states that the current tax code “is rightly the object of both anger and mockery” and calls for “start[ing] anew.” The platform says that tax rates that “penalize thrift or discourage investment” must be lowered, “special interest provisions and loopholes” should be eliminated, and calls for changing provisions that disincentivize economic growth. The platform also stated that any value added tax (VAT) or national sales tax “must be tied to the simultaneous repeal of the Sixteenth Amendment” (which authorizes the federal income tax).
Other proposals in the platform include:
- lowering the corporate tax rate;
- switching to a territorial system of taxation;
- repealing the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting (FBAR) requirements, and “chang[ing]…residency-based taxation for U.S. citizens overseas;”
- considering “all options” to preserve Social Security (but still opposing any tax increases);
- “making the federal tax code so simple and easy to understand that the IRS becomes obsolete and can be abolished”;
- removing all marriage penalties from the Code;
- opposing any carbon tax;
- adopting a Balanced Budget Amendment, including “ requiring a super-majority for any tax increase, with exceptions only for war or legitimate emergencies”; and
- repealing the Affordable Care Act (ACA) and replacing it.”
Donald Trump’s tax plan contains many similar themes but his plan does stray from the platform in several ways. He calls for creating a new “business income tax rate” of 15% for pass-through entities taxed under individual rates and retaining the worldwide system of taxation but ending “deferral of taxes on corporate income earned abroad,” whereas the platform advocated for switching to a territorial system.
2016 Democratic Party Platform.
The platform calls for the following:
- taxing “some of the income of people above $250,000” to help fund Social Security;
- closing “tax loopholes that benefit millionaires and billionaires”;
- establishing a “multimillionaire surtax to ensure millionaires and billionaires pay their fair share”;
- “restor[ing] fair taxation on multimillion dollar estates”;
- providing tax relief to families caring for aging relatives or family members with chronic illnesses or disabilities;
- expanding the earned income tax credit (EITC) program for low-wage workers not raising children;
- expanding the child tax credit (CTC);
- making sure that “law-abiding Americans living abroad are not unfairly penalized,” by “finding the right” FATCA and FBAR solutions for them;
- “claw[ing] back tax breaks for companies that ship jobs overseas…and crack down on inversions and other methods companies use to dodge their tax responsibilities”;
- end deferral on foreign profits;
- supporting small businesses by providing unspecified “tax relief and tax simplification”;
- supporting a financial transactions tax on Wall Street (with the caveat that “there is room within our party for a diversity of views on a broader financial transactions tax”);
- continuing to support the interest tax exemption on municipal bonds;
- making permanent and expand the New Markets Tax Credit;
- eliminating “special tax breaks and subsidies for fossil fuel companies” and extend tax incentives for energy efficiency and clean energy;
- ensuring that new spending and tax cuts are offset; and
- repealing the ACA’s excise tax on high-cost health insurance.
Hillary Clinton supports similar positions but her plan goes into more specifics. She also proposes (not in the platform) modifying the capital gain rules by implementing a graduated holding period where the rate decreases, from 39.6% to 20%, over a 6-year period, to promote long-term investment.
As you can see, the tax policies of the two parties draw clear distinctions and promote very different visions for the role of our government in the future.