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And we’ve only just begun: an early look at the Presidential candidates’ tax plans

With primary season in full swing, candidates are out on the campaign trail asserting their positions on a variety of issues, taxes included. Of the 20 or so Presidential hopefuls, several have put forth detailed plans on taxes, many have made broad comments but haven’t gotten to specifics, while others have been relatively quiet on the issue. Some of these proposals are essentially tweaks to the existing system, while others are more drastic—and although many of them are unlikely to become law, they nonetheless will shape the debate and elevate the issue of tax reform on a nationwide basis.

RIA observation: This article is based on the information available as the time it was written and in no way represents an endorsement of a particular candidate or plan. Expect further coverage in the coming months as more detailed tax plans are released and as party frontrunners emerge.

Chris Christie (R). Mr. Christie outlined his tax plan in an op-ed titled “My Plan to Raise Growth and Incomes.” He would lower the number of income tax brackets to three, set the top rate at a maximum of 28% and the bottom rate at an unspecified “single digit,” “eliminate or modify enough deductions, credits and targeted provisions in the code—both on the personal and the corporate side—to ensure that the plan, combined with other measures… is revenue neutral”, and retain the deductions for charitable contributions and home mortgage interest, at least for a first home. He also has spoken in favor of a one-time repatriation holiday where U.S. companies could repatriate overseas profits at a 8.75% rate.

Hillary Clinton (D). Ms. Clinton recently unveiled a capital gains proposal that would reflect a fairly major departure from the existing system, but only in respect to taxpayers in the highest tax bracket. Under existing law, favorable long-term capital gains treatment applies after an asset is held for one year. Ms. Clinton would implement a graduated holding period where the rate would decrease, from 39.6% to 20%, over a 6-year period. She asserts that this reform would reward long-term investment and would be progressive because it would limit the tax advantage for capital gains that would be available to the highest earners. In addition, she would provide for zero capital gains tax on qualified small business stock held for more than five years, as well as on long-term investments in “hard-hit and low-income communities” that would work in tandem with a newly expanded New Markets Tax Credit.

Ms. Clinton has also called for tax reforms that are intended to empower workers, including a $1,500 “apprenticeship tax credit” for every new worker that a business trains and hires, and a newly created 2-year tax credit for employers that share profits with their workers. She has also argued in favor of making the research credit permanent.

Rand Paul (R). Mr. Paul set out his tax plan in an op-ed titled “Blow Up the Tax Code and Start Over.” He stated that the current code is “so corrupt, complicated, intrusive and antigrowth” that it cannot be fixed and should be repealed in full.

He would offer in its place “The Fair and Flat Tax,” which would be a 14.5% flat tax on individuals and businesses. For individuals, the base would be broadened such that the rate would apply equally to all personal income including wages, salaries, dividends, capital gains, rents, and interest. All deductions except for mortgage interest and charitable deductions would be eliminated. In addition, the first $50,000 of income for a family of four would not be taxed, and the earned income tax credit (EITC) would be retained. However, he would eliminate what he refers to as “nearly every special-interest loophole,” as well as the payroll tax and the gift and estate taxes.

For businesses, the 14.5% tax would be levied on revenues minus “allowable expenses,” for which he offered as examples the purchase of parts, computers, and office equipment. All capital purchases would be immediately expensed instead of depreciated under existing schedules.

Rick Perry (R). Although he has not issued a detailed proposal in this election cycle, in the 2012 election, Mr. Perry released a budget plan entitled “Cut, Balance, and Grow.” Under this plan, taxpayers could opt to pay tax under the existing system or under an alternative, which would be gradually phased in and the use of which would eventually be mandatory. The alternative system would have a flat rate; would exclude long-term capital gains, dividends, and Social Security benefits; would have an increased standard exemption amount; and would retain the mortgage interest, charitable contribution, and state and local tax deductions (subject to a phaseout) but eliminate all others.

Marco Rubio (R). In his “Economic Growth and Family Fairness Tax Reform Plan” (released earlier this year with fellow Senator Mike Lee (R-UT)), Marco Rubio describes his plan to create pro-growth business tax reform and create “family fairness.”

Mr. Rubio’s plan would, among other things: provide for full, immediate expensing of business capital investments; create parity in the tax treatment of corporations and pass-through entities and subject both to a 25% rate; eliminate “extraneous” business tax provisions and let the extender provisions stay expired; take various steps to “eliminate the pro-debt bias in the current code”; and transition away from the U.S.’s worldwide tax system to an international dividend exemption system, including a deemed repatriation at a 6% rate. Mr. Rubio’s plan also mentions modifying the exclusion for employer-sponsored health care, but stated that any such reform would have to be made in the context of general health care reform.

Mr. Rubio’s plan for individuals would: reduce the number of tax brackets to two (15% and 35%); “consolidate and enhance” the child tax credit; eliminate the standard deduction and personal exemption, replacing them with a “personal credit”; eliminate all itemized deductions except for a reformed home mortgage deduction and charitable deduction; eliminate the Alternative Minimum Tax; and reform the EITC.

Bernie Sanders (D). Although he hasn’t introduced a campaign tax reform plan, Mr. Sanders has been outspoken about his desire to raise taxes on the wealthy. He recently introduced the “Responsible Estate Tax Act” which would lower to $3.5 million the estate tax exemption; raise the top rate to 55% (with a 10% surtax on estates over $500 million); and lower the gift tax annual exclusion. He has also spoken out against certain corporate tax practices such as sheltering profits overseas. In recent years, he has offered tax proposals that would, among other things, tax capital gains and dividends of the wealthiest 2% at the same rate as ordinary income.

Rick Santorum (R). On his campaign website, Mr. Santorum said that he would soon “be unveiling his economic plan which will end the IRS as we know it. The plan will jumpstart our economy, include a flatter and fairer tax, and revive our manufacturing sector.” If what he proposed in the 2012 election is any indication, this new plan may include: for individuals, a reduction in the number of tax brackets to two (10% and 28%), a reduction of the long-term capital gains tax, and full repeal of the estate tax; and for businesses, a reduced corporate rate (zero for U.S. manufacturers), immediate expensing, and tax-free repatriation of overseas profits if the funds are reinvested in the U.S.

Donald Trump (R). Although Mr. Trump hasn’t issued a tax plan for the current election cycle, he did offer a 5-step plan several years back that would: (1) eliminate the estate tax; (2) eliminate corporate income tax; (3) lower the rate on capital gains and dividends; (4) impose a 20% tax on imported goods and a 15% tax on companies that outsource jobs overseas; and (5) modify the tax brackets and impose rates ranging from 1% to 15%. However, he has recently indicated some degree of support for a “fair tax” or flat tax.

Jim Webb (D). No official tax reform plan has been released yet, but Mr. Webb makes several strong tax-related statements on his campaign website, including that he “would never support raising taxes on ordinary earned income” and is in favor of examining the idea of “shifting our tax policies away from income and more toward consumption.” In a press release issued in January 2015, he stated that he has supported “numerous proposals to close tax loopholes” and “raising the rates on capital gains and dividends to their previous levels.”

Generalizations among other candidates. A number of Republican candidates have not yet issued a tax plan but have indicated a general support for a flat tax. These include Ben Carson, Ted Cruz, Lindsey Graham, and John Kasich. In addition, although many candidates have called for doing away with most deductions (in conjunction with lowering the rate), the deductions for home mortgage interest and charitable contributions are usually spared.

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