On Super Tuesday — and as the income tax filing deadline approaches — it's important to take a look at the presidential candidates' tax policies, which vary widely on their economic impacts and actual costs, with measures ranging from eliminating the estate and alternative minimum taxes to implementing the Buffet Rule.
A dozen states — Alabama, Arkansas, Georgia, Massachusetts, Minnesota, Oklahoma, Tennessee, Texas, Vermont and Virginia – vote Tuesday for both Republicans and Democrats.
Work began in earnest among lawmakers last July on measures to advance comprehensive tax reform in five areas: individual income tax; business income tax; savings & investment; international tax; and community development & infrastructure.
A recent report by the Tax Council and EY's quantitative economics and statistics practice finds that 61% of U.S. business tax professionals expect tax reform to happen in 2018 or earlier.
Read on to see how the Tax Foundation, an think tank that supports reforming the tax code, laid out the presidential candidates' tax plans, as well as how their plans will impact the economy. To make these projections, it used its proprietary model, which it describes as "a 'neoclassical' model that measures the effects of tax policy changes on the cost of capital and the supply of labor."
Here's how six of the presidential candidates' tax policies break down:
Hillary Clinton (D):
Clinton's tax plans include increasing the marginal tax rates for taxpayers with incomes of more than $5 million, a new 30% minimum tax (the Buffett Rule), and the restoration of the estate tax to its 2009 parameters.
Economic Impact:
- Raise tax revenue by $498 billion over the next decade on a static basis. However, the Tax Foundation says, the plan would end up collecting $191 billion over the next decade when accounting for decreased economic output in the long run.
- A majority of the revenue raised by Clinton's plan would come from a cap on itemized deductions (the Buffett Rule) and a 4% surtax on taxpayers with incomes over $5 million.
- Clinton's proposals to alter the long-term capital gains rate schedule would actually reduce revenue on both a static and dynamic basis due to increased incentives to delay capital gains realizations.
- The plan would reduce GDP by 1% over the long term due to slightly higher marginal tax rates on capital and labor.
- On a static basis, the tax plan would lead to 0.7% lower after-tax income for the top 10% of taxpayers and 1.7% lower income for the top 1%. When accounting for reduced GDP, after-tax incomes of all taxpayers would fall by at least 0.9%.
Sen. Bernie Sanders, I-Vermont
Among his proposals includes increasing the top marginal income tax rate to 54.2%, taxing capital gains and dividends as ordinary income, and moving the U.S. toward a worldwide tax system by ending the deferral of foreign-source business income.
Economic Impact:
- The Democratic candidate's plan would raise tax revenue by $13.6 trillion over the next decade on a static basis. However, the plan would end up collecting $9.8 trillion over the next decade when accounting for decreased economic output in the long run.
- A majority of the revenue raised by the Sanders plan would come from a new 6.2% employer-side payroll tax, a new 2.2% broad-based income tax, and the elimination of tax expenditures relating to health care.
- The plan would significantly increase marginal tax rates and the cost of capital, which would lead to 9.5% lower GDP over the long term.
- On a static basis, the plan would lead to 10.56% lower after-tax income for all taxpayers and 17.91% lower after-tax income for the top 1%. When accounting for reduced GDP, after-tax incomes of all taxpayers would fall by at least 12.84%.
Donald Trump (R)
- Consolidates the current seven tax brackets into four, with a top marginal income tax rate of 25%.
- Taxes long-term capital gains and qualified dividends at a top marginal rate of 20%.
- Creates a substantial zero bracket for lower income individuals.
- Steepens the curve of the Personal Exemption Phase-out (PEP) and the Pease Limitation on itemized deductions.
- Eliminates the Alternative Minimum Tax.
- Eliminates the Net Investment Income Tax of 3.8%, which was passed as part of the Affordable Care Act.
- Taxes carried interest at ordinary income tax rates instead of capital gains and dividends tax rates.
- Phases out the tax exemption on life insurance interest.
- Cuts the corporate income tax rate from the current 35% to 15%.
Economic Impact:
