The Clinton Tax Plan - What We Know So Far

As I have done with the remaining Republican candidates, I wanted to post an article on a comparison of the tax plans for Ms. Clinton and Mr. Sanders.  I have used analyses from the Tax Policy Centre (TPC) at the Brookings Institute and Citizens for Tax Justice (CTJ) as my source material for this posting.  Because of the rather lengthy analysis of the two tax plans, I will split this posting into two parts; you can find Ms. Clinton's tax plan right here and you can find Mr. Sanders' much more detailed tax plan here.

In a nutshell, so far, it looks like Ms. Clinton's tax plan is attempting to appeal to the 99.99999 percent of American voters who don't make hundreds of thousands of dollars every time they give a speech to Corporate America.  Her plan proposes to raise taxes on high-income Americans, reform international tax rules for Corporate America, repeal fossil fuel tax incentives and increase taxes on estates and gifts.  Let's look at a more detailed breakdown:

1.) Individual Income Taxes:  Clinton has proposed a four percent surcharge on adjusted gross incomes (AGI) greater than $5 million or $2.5 million for couples filing separately.  She would also impose a minimum tax of 30 percent on filers with AGI greater than $1 million.  Clinton would also limit the tax benefits from certain deductions to 28 percent, reducing the tax benefits of deductions for taxpayers in the 33 percent and above brackets.  Taxes on capital gains investment income would also change; rather than paying ordinary tax rates on investments held for less than one year (maximum of 43.4 percent) and a top rate of 23.8 percent on assets held longer than one year, Clinton proposes that assets held for less than two years would be taxed at ordinary rates and would reduce by 4 percentage points per year until a minimum top tax rate of 23.8 percent is reached for assets held longer than six years as shown on this table:

Clinton's tax plan will also close down three tax loopholes that are available to everyone but are only used by the wealthiest among us; ending the carried interest loophole that allows investment managers to misclassify their earnings as capital gains, eliminating the reinsurance loophole that allows the super-wealthy to use derivatives that allow them to pay the lower rate on short-term capital gains and eliminate the "Romney Loophole" which allows wealthy families to use retirement accounts to shelter their incomes from the IRS.

Here is a summary of the revenue raised by Hillary Clinton's personal tax plan over a ten year period according to the analysis by Citizens for Tax Justice:

Obviously, the changes that have been announced by the Clinton campaign so far will only impact the ultra wealthy.  Clinton has proposed a tax credit for qualified expenses for elder care that would benefit middle-income families, however, her campaign states that it will release details on its program to cut taxes for lower- and middle-income families later in the campaign.

2.) Business Taxes:  Rather than cutting the headline corporate income tax rate that Corporate America rarely pays, Ms. Clinton has proposed a program that will achieve specific goals.  First, she will discourage multinational companies from using inversions to lower or avoid U.S. taxes by lowering the 80 percent U.S. shareholder ownership rate to 50 percent (i.e. the company must be at least 50 percent foreign-owned to be classified as foreign in the eyes of the IRS rather than the current 20 percent).  She will prevent "earnings stripping" by limiting a company's U.S. interest deductions if the company's share of net interest expenses for U.S. tax purposed exceeds its share on its financial statements.  Her plan will also levy an "exit tax" on multinational companies that leave the United States before recognized earnings are subjected to U.S. taxes.  On the financial sector side, Ms. Clinton daringly proposes to bite the hand that feeds the Clinton family speech factory by imposing a risk fee on the largest financial institutions and reform the performance-based tax deductions that are available to the executives of publicly-traded companies.  The fossil fuel industry would also have their tax subsidies eliminated including expensing of intangible drilling costs and percentage depletion.

The Clinton campaign states that it will announce further tax relief for small businesses later in the campaign.

3.) Estate and Gift Taxes:  In the 2015 tax year, the basic exclusion for the estate tax is $5,450,000 or twice that amount for couples and the top tax rate is 40 percent.  Clinton proposes to lower the exclusion to $3,500,000 and raise the top tax rate to 45 percent, bringing the estate tax back to its 2009 parameters.  Clinton would also establish an unindexed lifetime gift tax exemption of $1 million.

Let's summarize.  Clinton's proposals would increase revenues between 2016 and 2026 as follows:

Cap on wealthy deductions and exclusions: $406 billion

4 percent surtax on high income Americans: $126 billion

30 percent minimum tax: $119 billion

Capital gains tax: $84 billion

Other individual income tax changes: $445 billion

Corporate income tax changes: $136 billion

Estate tax changes: $161 billion

Here is a table summarizing how Hillary Clinton's tax plan will impact revenues, the deficit and the debt over the next two decades:

The Tax Policy Center estimates that, including the interest savings from reducing the debt, Clinton's proposals will reduce the debt by $1.2 trillion over the next decade and increase revenues by $1.1 trillion.  Her tax increases will have little effect on those making less than $300,000 with tax filers in the top quintile shouldering 94.2 percent of the net tax increase with an average federal tax increase of $4527.  What is really important to keep in mind is that Ms. Clinton's unrevealed tax plan for lower- and middle-class Americans will likely cut into revenues and increase spending, unfortunately, we don't know how big that negative impact will be.  Once we have further details, I will add the information to this posting.

As I noted above, to keep the comparison of the two Democratic candidates tax plan to a readable length, you can find the analysis of Mr. Sanders' comprehensive tax plan by clicking on this link.