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Here’s how Donald Trump and Hillary Clinton’s tax plans add up

Let's get ready to file!


Aaron Sankin


Posted on Jun 28, 2016   Updated on May 26, 2021, 1:11 pm CDT

In light of what Ben Franklin said about life’s only two certainties—and considering there’s a good chance neither  Donald Trump nor Hillary Clinton will be able to drive the country into a rapid death spiral before introducing their first slate of legislation—the new president will spend much of his or her first term talking about taxes.

In terms of tax reform, both presumptive presidential nominees largely echo their party’s standard lines. Trump’s plan generally adheres to Republican orthodoxy stretching back generations. It would cut taxes across the board, but with the overwhelming majority of the benefit going to the wealthy. Unless it were accompanied by an enormous cut in expenditures, Trump’s plan would trigger a significant expansion of the national debt. Interestingly, Trump’s current plan is vastly different from the one he proffered the last time he ran for president, which includes an enormous tax hike on the richest subset of the richest 1 percent of Americans.

Conversely, Clinton’s vision for the tax system doesn’t appear to substantially differ from that of President Barack Obama. Where Trump’s plan is sweeping, Clinton’s ideas for changing the tax code are far more incremental. Her plan, as it is currently laid out, involves leaving the tax code largely the same for the vast majority of Americans, while hiking rates and closing loopholes for very rich.

Trump’s tax plan

In the rundown of Trump’s tax plan posted on his campaign website, the candidate lists the four broad priorities that form the basis of his plan: tax relief for middle-class families, simplify the tax code, grow the American economy—all without adding to the debt and deficit.  

If enacted, Trump’s tax plan would cut taxes by $11.98 trillion over the next 10 years.

It would exempt from all federal income taxes all single people earning less than $25,000 and all households bringing in under $50,000. This group of Americans being taxed at the zero percent rate would comprise one of the four tax brackets in Trump’s plan—down from the current system of seven. The other three brackets will be set at rates of 10, 20 and 25 percent. Trump’s plan would also eliminate the “marriage penalty,” which occurs when the combined tax burden for a newly married couple filing jointly is higher than what they would pay individually, as well as the Alternative Minimum Tax, which was created in the late 1960s as a way to prevent the extremely wealthy from using loopholes to winnow their tax bills down to basically nothing, and the so-called “death tax,” a tax assessed on very large estates being passed down from one generation to the next.

The plan also involves closing a number of loopholes and deductions primarily exploited by the very rich and large corporations—such as phasing out the tax exemption on life insurance interest for high-income individuals and ending the controversial carried interest loophole for speculative partnerships, which allows executives of Wall Street firms to have their income taxed at a considerably lower rate than most Americans.

The corporate tax rate would be lowered from 35 percent down to 15. It would also institute a one-time tax holiday on the repatriation of corporate income earned overseas, taxing any money brought back during this window at 10 percent. Trump argues the high international rate, which applies to income U.S. companies earn overseas, is pushing companies to amass money abroad rather than reinvesting it in their businesses domestically. While the U.S. corporate rate is the highest in the world, the tax code has so many loopholes and deductions available that the effective rate for most corporations repatriating income is closer to 28 percent.

While Trump claims his tax plan is revenue neutral, that assessment was disputed in a detailed analysis conducted by the non-partisan Tax Foundation.

The Tax Foundation found that the plan would end up reducing federal tax revenues by $10.14 trillion over the next decade, even after accounting for economic growth sparked by the change. As a result of this decrease in tax revenues, the debt would grow substantially as both the gap between revenues and expenditures as well as the interest payments on the debt increased.

Overall, the Tax Foundation estimated Trump’s reforms would, over the long term, boost GDP by 11 percent—on the assumption that the tax cut could be appropriately financed—and create 5.3 million full-time equivalent jobs.

In a broad sense, it would cut taxes for people at all income levels. However, the plan is most favorable to the wealthy. The bottom 10 percent of the income distribution would see their after-tax income rises by an estimated 0.6 percent, while the top 10 percent would experience a boost of 21.6 percent.

The Tax Policy Center, a collaboration between the Urban Institute and the Brookings Institution, reached a similar conclusion in its own analysis of the Trump plan. It found that Trump would reduce federal revenue by $9.5 trillion over its first decade and, unless accompanied by massive spending cuts, would increase the national debt by 80 percent of GPD, thereby “offsetting some or all of the incentive effects of the tax cuts.”

Trump’s old tax plan

Other than in a few minor aspects, such as the elimination the carried interest loophole and merely reducing the U.S.’s global corporate tax rather than scrapping it altogether, Trump’s plan doesn’t deviate all that much from current mainstream GOP thinking on taxes.  Yet, it’s a world away from the one he put forth back 2000. At the time, Trump was considering the presidential run on the Reform party ticket and published a book of public policy proposals called The America We Deserve.

The disjointed set of proposals in the book run the gamut from letting Trump simultaneously serve as president and U.S. Trade Representative to holding a national lottery to pay for the War on Terror. The book’s most fleshed-out idea is a radical tax-reform plan that marries long-term middle-class tax cuts with a gigantic one-time tax on the wealthy.

“I would impose a one-time 14.25 percent tax on individuals and trusts with a net worth over $10 million,” Trump wrote. “That would raise $5.7 trillion in new revenue, which would we use to pay off the national debt. … We would save $200 billion in interest payments, which would allow us to cut taxes on middle-class working families by $100 billion a year.”

Income from the proposed tax hike, which would have been the single largest tax increase in American history if it were enacted, would be directed toward shoring up the looming budget holes in the Social Security trust fund, Medicare, and Medicaid. He would also eliminate all capital gains taxes, pay down national debt to zero, and end the practice of issuing U.S. government bonds.

When the Daily Dot ran Trump 2000-era plan past a trio tax policy experts from across the ideological spectrum, all agreed it was both utterly unworkable and suggested Trump had little grasp on how the global economy functions.

“To think that it’s a good idea to confiscate trillions of dollars of the wealth of high earners is completely crackpot. For a businessman like Trump to propose it is even more crazy,” Chris Edwards, director of tax policy studies at the libertarian Cato Institute, told the Daily Dot. He added that the sudden imposition of such an enormous tax obligation would cause financial markets to tank as wealthy individuals and estates sell off assets to pay their tax bills. “He clearly doesn’t realize that the issue isn’t just the gross unfairness of the retroactive taxation of trillions of dollars after these folks have already earned it.”

If enacted, Trump’s 2000 plan would have had the effect of encouraging more people to hold their assets outside the United States, experts said. “Trump’s plan would likely constitute the largest tax increase in American history,” Edwards charged. “For Trump not to recognize that business people are forward-looking is a classic example of how he seems to just shoot from the hip without actually trying to think things through.”

Edwards added that Trump’s belief that a one-time cash infusion would have any lasting effect with regard to the health of Social Security indicates a lack of familiarity with how the system is actually structured. “The Social Security trust fund is not a big pool of savings in the bank. It’s just an accounting entry,” he said. Rather than simply use the money on Social Security, Edwards said, “the government would have an extra $100 billion sitting around and would spend it on other stuff.”

Trump’s plan attracted different, albeit no less vociferous, criticism from experts on the other side of political spectrum. The primary goal of Trump’s tax was to pay down the national debt, but, in 2000, the national debt was already in the process of being paid down as a result of a government budget surplus. That surplus would soon be erased by a tax cut targeted primarily at the wealthy and pair of foreign wars, but Trump had no way of knowing that at the time.

For Frank Clemente, executive director of the left-leaning Americans for Tax Fairness, Trump’s insistence that, once the national debt was entirely paid down, the country would stop issuing debt similarly indicated an ignorance of government finance. The current “level of interest rates and Treasury bond rates” makes it a “phenomenal” time for the U.S. government to “borrow money to make the economy more productive and create a hell of a lot more,” Clemente said. “He’s a business person who borrows money all the time to make investments, for crying out loud. He, more than anybody, knows the value of borrowing money to make you more productive.”

Clinton’s tax plan

Unlike Trump’s sweeping proposals, Clinton’s reforms are considerably more targeted and integrated into a larger vision for restricting the economy. Whereas Trump’s campaign website dedicates a page solely to taxes, Clinton’s tax plan is just one part of “A plan to raise American incomes.”

On the whole, Clinton’s plan would increase taxes on wealthy Americans and create a number of incentives targeted by boosting the fortunes of the poor and middle class. While Trump’s plan views tax cuts as an end in and of themselves, the increased government revenue garnered by the targeted tax increases in Clinton’s plan are presented in the context of paying for expanded social programs elsewhere in the government.

In addition, it’s important to note that Clinton’s tax plan is, as her campaign insists, incomplete. What she’s made public so far doesn’t include a proposal for low- and middle-class tax cuts, which is reportedly still in the works.

In its analysis of Clinton’s plan, the Tax Foundation predicted it would increase tax revenue by nearly half a trillion dollars over the next decade; however, actual collection would only be $191 billion due to the tax increase’s impact on overall economic growth. In contrast, the Tax Policy Center’s review estimated that Clinton’s proposals would increase revenue by $1.1 trillion over the same period of time, with almost the entirety of that new tax burden falling on the pocketbooks of the wealthiest 1 percent of Americans.  

The core of Clinton’s plan involves shifting rules regarding how the wealthy are taxed. Currently, the top marginal rate for individuals is set at 39.6 percent. By imposing a 4 percent surcharge on households earning over $5 million a year, Clinton would effectively create a new bracket above the one currently sitting at the top, with a rate of 43.6 percent. Whereas Trump wants to entirely repeal the estate tax, which only affects about 0.2 percent of Americans, Clinton would increase it to the pre-2009 level.

As a way to ensure the wealthy don’t use loopholes to end up with an effective rate considerably below the rate at which they’re supposed to be taxed, Clinton would cap itemized deductions at 28 percent and enact a policy labeled the “Buffet Rule” after billionaire investor Warren Buffett, which would install a 30 percent tax floor for people earning over $1 million a year.

She would also end the carried interest loophole that allows many hedge fund, venture capital, and private equity fund managers to pay a taxes at a 20 percent rate rather the considerably higher rate they would have to pay if their compensation was treated as regular income. In addition, Clinton’s plan involves increasing the tax on income from capital gains as a way to incentivize investors to hold their investments for longer terms rather than buying and selling in a quick, speculative flurry.

Clinton has called for making permanent a temporary $2,500 per student tax credit for parents paying for their children to go to college. She would also put in place tax incentives for businesses that have programs to share profits with their employees.

By the Tax Foundation’s estimates, if implemented, Clinton’s plan would reduce GDP by 1 percent over the long term and result in about 300,000 fewer full-time equivalent jobs. However, if Clinton’s tax plan is put into the context of a larger iniative to use government programs to boost job growth, those numbers could change.

While Trump’s plan would almost certainly cause the national debt to skyrocket, Clinton’s changes to the tax code would shrink the national debt by $1.1 trillion over the course of 10 years and another $2.1 trillion the decade after.

The former Secretary of State hasn’t called for a temporary tax holiday aimed at enticing foreign companies to repatriate their earnings on the 2016 campaign trail, like Trump has. However, while in the Senate, Clinton did vote in favor of the 2004 American Jobs Creation Act, which had just such a provision. What happened in the interim? Maybe the Democratic Party has shifted to the left when it comes to corporate tax policy since then? Or maybe it was the 2011 release of a Senate report calling the $3.3 billion tax holiday “a failed tax policy.”

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*First Published: Jun 28, 2016, 8:00 am CDT