Many years ago, I read a quote which still aptly describes the difference between Democrats and Republicans. Democrats are concerned with how “we are going to spread the golden eggs around” while Republicans worry about the “health of the goose”. This comparison is the perfect metaphor to compare and contrast the economic plans of presidential candidates Hillary Clinton and Donald Trump.
The economic plans for the two individuals vying for the Oval Office couldn’t be more different. The Republican nominee Donald Trump has proposed simplifying the tax code by reducing the number of tax brackets from seven to four: 0%, 12%, 25%, and 33%. On the other hand, Democratic nominee Hillary Clinton will place a 4% tax surcharge on individuals earning more than $5 million which would have the end result of the highest income earners paying what amounts to almost a 44% marginal tax rate. She is also looking at limiting tax deductions for the affluent and requiring longer waiting periods for individuals to receive lower long-term capital gains tax rates.
On the business front, Trump plans to lower the corporate tax rate on profits from 35% to 15%. A reduced tax obligation would enable businesses to invest more money in staff, equipment, marketing etc. Furthermore, businesses which earn money overseas would pay a lower tax rate on their earnings and re-invest the money in the U.S. By contrast, Mrs. Clinton would implement various provisions which would make it harder for companies to expatriate. Restrictions would be implemented which would make it more burdensome for a company to merge with an overseas competitor to try to take advantage of a lower overseas tax rate. She is also proposing limiting the ability to deduct interest and imposing an “exit tax” on companies that elect to relocate outside the United States.
Trump has proposed eliminating the estate tax which is commonly referred to as the “death tax”. In our current environment, when an individual dies, the first $5.45 million of the estate is exempt from taxation, $10.9 million for married couples. Any additional assets are currently taxed at 40% before being distributed to the heirs of the deceased. Mrs. Clinton is opposed to eliminating the “death tax”. Instead she proposes to lower the exemption levels to $3.5 million for individuals and $7 million for married couples. Furthermore, she also intends to increase the tax rate from 40% to 45%. Consequently, more individuals and families will be paying estate taxes and wealthier individuals will be paying taxes on a larger piece of their assets.
Trump’s plan calls for making child care expenses fully tax deductible. The Clinton campaign has responded to Trump’s proposal by saying that fully deductible child care primarily benefits those in higher income brackets and offers no benefits to the 45% of individuals who currently pay no taxes. Clinton has also mentioned that she wants to offer a child care tax credit which would benefit lower and middle income families even if they do not pay taxes.
So how do these plans stack up in terms of overall revenue generation? According to The Tax Policy Center which has been described as “left-leaning”, Trump’s proposals will reduce revenues by approximately $9 trillion over ten years. The Trump Campaign has responded to this statistic, by saying that his economic plan would create growth that would more than offset the lost revenue. The Tax Policy Center has stated that Clinton’s plans would bring in an additional $1.1 trillion in revenue over the next ten years. Mrs. Clinton has stated that she will use the additional revenue to cover the cost of all of her other policy proposals with the end result of “neutrality” on the budget deficit.
Here is the bottom line. We have two proposals in front of us. Clinton’s plan is a typical Democrat tax and spend plan. While she says her plan is going to generate increased revenue of $1.1 trillion, instead of re-investing some of that revenue, she has just created a whole new suite of expenditures. Trump, on the other hand, has proposed a plan which benefits consumers and businesses, but initially reduces government revenue. The onus is on the Trump campaign to demonstrate how his plan will offset the $9 trillion in reduced government revenue over the next ten years. While it has been interesting to hear about the candidates’ economic plans, until we have more specifics, the American people will remain in the same place. They will still be faced with the choice of sharing leveraged golden eggs or taking the temperature of the goose.