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Economic Effects of Different Presidential Candidates Tax Plans

Jun 3rd 2016
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A Comparison of Presidential Candidates Tax Reform Plans and Their Economic Effects


The 30th anniversary of the Tax Reform Act of 1986 is this year.  1986 was also a very important election year.  Things were different in 1986, however, because the nation witnessed what had since been deemed an impossibility: a bipartisan effort, on the part of the president and Congress, to implement sweeping tax reforms.  

In a sense, history is repeating itself:

  • 2016 is an election year

  • 2016 is year where tax reform is a huge issue

However, unlike 1986, the existing Congress and the president are almost lending a blind eye to tax reform.  Where tax reform is actually being addressed is on the campaign trail where we see a wide and disparate variety of tax reform suggestions.  The differences in each candidate’s approach are tremendous.  Let’s take a look at each party’s leading candidate’s approach.

The Republican Approach

Donald Trump is the clear frontrunner for the Republican 2016 election ticket but it is also important to understand the broad Republican approach.  In a nutshell, practically all Republicans agree that the existing tax code is in dire need of a drastic makeover so that the following (and more) can be achieved:

  • Increased investment

  • Increased economic growth

  • Increased American companies competitiveness

Critics argue that the drastic makeover that Republicans suggest will lead to even more debt, higher deficits and a reduction of the revenue collected by the federal government.  This line of thinking is particularly true of Donald Trump’s ideas which suggest to opposers that his plan would add trillions of dollars to the national debt.  Mr. Trump is also being criticized for stating in an April 3, 2016 town hall that "the very rich are going to end up paying more", which simply is not in sync with the nitty gritty details of his proposal.

What Does Donald Trump Propose?

Donald Trump is asking and promising massive tax cuts across all demographics- everyone will save in taxes, according to his plan.  Among the most prominent details of his tax proposal are:

  • Eliminate the existing seven income tax brackets, which range from 10 to 39.6%, and replace them with three tax bracket rates of 10, 20 and 25%.

  • Eliminate the marriage penalty

  • Eliminate the estate tax

  • Eliminate the Affordable Care Act taxes

  • Eliminate the alternative minimum tax (AMT)

  • Protect Social Security

  • Protect Medicare

  • Increase standard deductions and phase out most itemized deductions:

    • Single filers: grant an increase to $25,000 from $6,300

    • Joint filers: grant an increase to $50,000 from $12,600

These are just the personal tax reforms that Trump proposes though...he also favors corporate tax changes such as:

  • Eliminate the existing seven income tax brackets, which range from 15 to 35%, and replace them with a flat tax of 15%

  • Encourage working from home

So, here is the breakdown on who benefits and who doesn’t benefit from Trump’s proposed tax policies.  37% of Trump’s tax cuts would benefit the top 1% of the population.  The middle class would pay $2,700 less in taxes which is equal to a 4.9% tax reduction.  Those in the lower class would see about a 1% decrease in taxes.  However, Trump’s tax proposal would increase the number of household paying no taxes at all.  Presently, 77 million households do not pay taxes; under Trump’s plan, this number would increase to 110 million.  

The Democratic Approach

As opposed to Republicans, the Democratic party has had a history of using tax laws to promote what it calls “economic fairness.”  This means that Democrats believe they are collecting taxes to generate additional revenue, at the expense of high-income earners, that would fund government programs they deem important.  High-income earners, Democrats believe, should have less access to itemized deductions.  Some highlights of the Democratic approach include:

  • Easier availability to higher education

  • Easier access to healthcare

  • Access to create better infrastructure

While many people consider Hillary Clinton the frontrunner for the Democratic nomination, Bernie Sanders is also very popular among voters.  Critics look at these two nominees and see a large disagreement on tax policy.  Sanders tends to look at the big picture with more broad-based proposed taxes.  Hillary, on the other hand, clearly favors tax increases for the wealthy to fund her agenda.  Critics look at Hillary and ask her what she is actually going to change, as Clinton’s tax code is almost identical to the existing tax code. This article is focusing more on Hillary than Bernie because it seems that she is most likely to be the Democratic nominee.    

What Does Hillary Clinton Propose?

As mentioned, Secretary Clinton is not offering voters a tax code policy that is drastically different from existing tax policy.  Among her largest proposed changes are the following:

  • Put a cap on itemized deductions at 28%

  • Raise tax rates on medium-term capital gains to between 27.8% and 47.4%

  • Limit the value of retirement accounts in the tax-deferred arena

  • Increase the highest estate tax rate to 45%

  • Develop a 4% surcharge on incomes exceeding $5 million

  • Implement a 30% minimum tax rate on adjusted gross incomes over $1 million

  • Implement a new caregiver tax credit not to exceed $1,200

Clinton favors the following corporate tax changes:

  • Penalize excessive risk taking in the business sector

  • Reform the tax tax code so it takes better aim at multinational businesses

  • Provide incentives to businesses that can offer help in distressed areas

So, here is the breakdown on who benefits and who doesn’t benefit from Clinton’s proposed tax policies.  Actually, the general consensus is that Clinton’s policies offer barely any change.   


As a voter and taxpayer, it is essential to understand reforms to the American tax code. How will each candidate’s tax policy plans affect your small business, the broader economy and the country?  Tax codes affect the size of the economy, the number of jobs, wage consequences, federal revenue and your income.


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