Politics and personalities aside, the tax plans of the major party candidates simply differing impacts on high net worth individuals. Without question, there are stark contrasts between Hillary Clinton and Donald Trump, and that also applies to their approach to taxes.
Generally speaking, the basic difference between the two candidates is that Trump proposes an expansive, across- the-board change to the tax code, with just three tax brackets, ranging from 0 to 33 percent, which he claims will result in reductions for all. Clinton, meanwhile, favors an increase in taxes on just the wealthiest Americans.
What do these plans really mean to taxpayers and the economy?
CLINTON’S TAX PLAN
According to the nonpartisan Tax Policy Center,1 Clinton’s plan could raise the taxes of high net worth individuals by 3 to 5 percent. The plan calls for increased taxes on upper-income earners, to pay for her progressive proposals, like reduced and free college tuition, and a lower age for Medicare accessibility.
According to the Center, under Clinton’s plan, “well-to-do” individuals—filers earning between $143,000 and $209,000, with an average income of $179,000—could see an average tax hike of $246, or 0.1 percent.
The so-called “1 percent” individuals making above $732,000, with an average income of $2.4 million, would bear the brunt of the Clinton tax increase. According to the Tax Policy Center, such individuals could expect a tax increase of $78,000, or 3.4 percent. She also proposes a 4 percent surcharge on adjusted gross income (AGI) above $5 million, requiring filers with AGI greater than $1 million to pay a 30 percent effective tax rate.
Trump’s tax plan is a gift tied up in ribbons and bows to the 1 percent.
TRUMP’S TAX PLAN
Not surprisingly, high net worth individuals fare much better under Trump’s tax plan. The Tax Policy Center’s analysis2 found that filers earning between $143,000 and $209,000 would see an average tax cut of $7,731, or 4.3 percent.
Trump’s tax plan is a gift tied up in ribbons and bows to the 1 percent. This group, which currently pays a nearly 40 percent tax rate, would see it slashed to 25 percent, with taxes also cut on investment income and corporate profits.
WINNERS AND LOSERS
While Trump’s proposal offers tantalizing tax cuts to high net worth individuals, it would result in a significant drop in revenue to the government: a shortfall of $500 billion next year and nearly $10 trillion over the next decade, according to the Tax Policy Center. Clinton’s proposal, paid for mostly by high-income earners, would result in increased revenue: an extra $30 billion in 2017, and a total $1.08 trillion over the next decade.
TAX-PLANNING TIPS, NO MATTER WHO WINS
Given the twists and turns in this year’s unprecedented election cycle, regardless of which candidate wins, there is no guarantee that either can put his or her tax plan into effect.
So, here are some tax-planning tips: First, despite the “doom and gloom” talk, markets are not as volatile as they’re made out to be in an election year. There is no reason to “hold off” on new investments. Historically speaking, when an incumbent isn’t running, the Dow Jones has increased an average of 13 percent.
So, manage your portfolio for the long term, not this one election cycle.
Also, consider several “year-end” tax-saving strategies:
- Year-end purchases: Businesses planning on significant fixed-asset purchases in January or February 2017, should buy and place those assets in service prior to year’s end.
- Defer income until next year: How to best defer income until 2017 depends on your accounting method. Whether using the cash or accrual method, businesses should implement accurate year-end cut-off procedures to effectively manage the recognition of revenue between 2016 and 2017.
- Accelerate deductions: Cash-method businesses should pay bonuses and costs for supplies and materials before year’s end.
And, as always, watch Congress for the expiration or extension of business tax breaks, regardless of who takes the White House.
1Auxier, Richard; Len Burman; Jim Nunns and Jeff Rohaly, An Analysis of Hillary Clinton’s Tax Proposals, Tax Policy Center,
Urban Institute & Brookings Institution,
March 3, 2016.
2 Nunns, Jim; Len Burman; Jeff Rohaly and Joe Rosenberg, An Analysis of Donald Trump’s Tax Plan, Tax Policy Center, Urban Institute & Brookings Institution, December 22, 2015.
This article was originally published in the October/November 2016 issue of Worth.