The presidential election is coming up in less than 6 months and even though it is still too early to know what party will control the White House, we have been asked many times by clients “How will the election change the tax code and the financial landscape?” This article is not about any preference as to what party wins, but what changes in the tax code may be proposed based upon whether the Republican or Democratic Party winning. Some of the high level changes from an individual filer perspective that have been proposed by the present leading candidates are detailed below (http://taxfoundation.org/)
Proposed Plan by Democratic Candidate Hilary Clinton
- Creates a 4% “surcharge” on high-income taxpayers, which effectively add an additional marginal tax rate of 43.6 percent for taxable income over $5 million and a 24% top marginal tax rate for qualified dividend and long-term capital gain income.
- Enacts the “Buffett Rule,” which would establish a 30% minimum tax on taxpayers with adjusted gross income (AGI) over $1 million. The minimum tax would phase-in between $1 million and $2 million of AGI.
- Caps all itemized deductions at a tax value of 28 percent.
- Adjusts the schedule for long-term capital gains by raising rates on medium-term capital gains to between 27.8% and 47.4%.
Limits the total value of tax-deferred and tax-free retirement accounts.
- Taxes carried interest at ordinary income tax rates instead of capital gains and dividends tax rates.
Proposed Plan by Republican Candidate Donald Trump
- Consolidates 7 brackets into three: 10%, 20%, and 25%.
- Increases the standard deduction to $25,000 for single filers and $50,000 for married filers. •
- Steepens the curve of the personal exemption phase-out and the Pease limitation on itemized deductions.
- Eliminates the Alternative Minimum Tax, the 3.8 percent Net Investment Income Tax, and the Estate Tax.
- Taxes carried interest as ordinary income.
Each candidate will tout the benefits of their respective plan, but what is proposed by either party (depending on the November 2016 outcome) has to go through both the Senate and the House of Representatives and be passed in order to take effect. We’ll address what this means for you in part II of this blog post.
