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Platforms show significant inter- and intra-party contrast in approaches to tax policy

In connection with this summer’s political conventions—Republicans having wrapped theirs up last week and Democrats in the midst of theirs—both parties have adopted detailed platforms setting out the positions of the party at large. This article outlines the tax positions set out by each party and the extent to which these positions overlap or contrast with those of their respective nominees.

Background on party platforms in general. Although modern party platforms don’t carry the same weight as they historically did, with nominees free to deviate and disagree with them, they nonetheless show some degree of party consensus on a number of issues and provide an indication of the direction the party wants to go. They are, in general, somewhat aspirational documents that focus more on broad principles as opposed to specifics.

Party platforms are released every four years during the political conventions. Republicans and Democrats have somewhat different rules and procedures for drafting and adopting a platform, but in general, the document gets circulated, negotiated, and revised by a drafting committee (with input and testimony from a broader group of individuals) and the final version is ultimately approved on the first day of the convention. The Republicans’ platform was adopted on July 18, 2016. The Democrats’ platform was adopted one week later, on July 25, 2016.

Republican Platform 2016. The Republican Platform 2016 states that the current tax code “is rightly the object of both anger and mockery” and calls for “start[ing] anew.” The platform says that tax rates that “penalize thrift or discourage investment” must be lowered, and calls for changing provisions that disincentivize economic growth. It also calls for the elimination of unspecified “special interest provisions and loopholes” while being “mindful of the burdens on families with children and the impact of an aging population.” The platform also stated that any value added tax (VAT) or national sales tax “must be tied to the simultaneous repeal of the Sixteenth Amendment” (which authorizes the federal income tax).

Other proposals in the platform include:

…lowering the corporate tax rate to be “on a par with, or below, the rates of other industrial nations”;
… switching to a territorial system of taxation “so that profits earned and taxed abroad may be repatriated for job-creating investment here at home”;
…repealing the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting (FBAR) requirements, and “chang[ing]…residency-based taxation for U.S. citizens overseas;”
…considering “all options” to preserve Social Security (but with the caveat that “[a]s Republicans, we oppose tax increases and believe in the power of markets to create wealth and to help secure the future of our Social Security system”);
…”making the federal tax code so simple and easy to understand that the IRS becomes obsolete and can be abolished”;
…removing all marriage penalties from the Code; and
…opposing any carbon tax;
…adopting a Balanced Budget Amendment, which would impose a spending cap “while requiring a super-majority for any tax increase, with exceptions only for war or legitimate emergencies”; and
…repealing the Affordable Care Act (ACA) and replacing it “with an approach based on genuine competition, patient choice, excellent care, wellness, and timely access to treatment.”

Platform vs. Trump tax plan. Donald J. Trump’s tax plan, covered in greater detail at Weekly Alert ¶  2  05/19/2016, contained many similar themes. He called for simplifying the Code, lowering the corporate tax rate (and creating a new “business income tax rate” of 15% for pass-through entities taxed under individual rates), and repealing the ACA.

RIA observation: Mr. Trump has indicated that he would be releasing a new tax plan but hasn’t done so yet. Our coverage of his positions (as well as our prior coverage, see Weekly Alert ¶  2  05/19/2016) is based on information that is currently available and posted to his campaign website.

However, Mr. Trump has also called for retaining the worldwide system of taxation but ending “deferral of taxes on corporate income earned abroad,” whereas the platform advocated for switching to a territorial system. (The Democratic platform also proposes ending deferral; see below.)

RIA observation: The recent GOP “blueprint for tax reform,” released as an installment in its series of policy papers titled “A Better Way” (see Weekly Alert ¶  41  06/30/2016) , also embraces some principles and tax reform ideas that do not squarely align with Mr. Trump’s plan. One such area of disagreement is business interest expense deductions, on which Mr. Trump called for imposing a “reasonable cap” but which the House Republicans would allow only against interest income. Others include the proposed tax rates for pass-throughs (15% for Mr. Trump vs. 25% for House Republicans), as well as the individual tax rates (top rate of 25% for Mr. Trump vs. 33% for House Republicans).

2016 Democratic Party Platform. Tax-related proposals in the 2016 Democratic Party Platform include:

…taxing “some of the income of people above $250,000” to help fund Social Security;
…closing “tax loopholes that benefit millionaires and billionaires”;
…establishing a “multimillionaire surtax to ensure millionaires and billionaires pay their fair share”;
…”restor[ing] fair taxation on multimillion dollar estates”;
…providing tax relief to families caring for aging relatives or family members with chronic illnesses or disabilities;
…expanding the earned income tax credit (EITC) program for low-wage workers not raising children;
…expanding the child tax credit (CTC) by, for example, making more of it refundable or indexing it to inflation;
…making sure that “law-abiding Americans living abroad are not unfairly penalized,” by “finding the right” FATCA and FBAR solutions for them;
…”claw[ing] back tax breaks for companies that ship jobs overseas…and crack down on inversions and other methods companies use to dodge their tax responsibilities”;
…end deferral on foreign profits;
…supporting small businesses by providing unspecified “tax relief and tax simplification”;
…supporting a financial transactions tax “on Wall Street to curb excessive speculation and high frequency trading” (with the caveat that “there is room within our party for a diversity of views on a broader financial transactions tax”);
…continuing to support the interest tax exemption on municipal bonds and work to “establish a permanent vision of Build America Bonds [under Code Sec. 54AA] as an additional tool to encourage infrastructure investment by state and local governments”;
…making permanent and expand the New Markets Tax Credit under Code Sec. 45D, including improvements to “better serve rural small businesses”;
…eliminating “special tax breaks and subsidies for fossil fuel companies” and extend tax incentives for energy efficiency and clean energy;
…ensuring that new spending and tax cuts are offset; and
…repealing the ACA’s excise tax on high-cost health insurance.

Platform vs. Clinton tax plan. Many of the platform positions were a somewhat less specific version of the proposals in Hillary Clinton’s tax plan (see Weekly Alert ¶  2  05/19/2016), including the “multimillionaire surtax” (comparable to the “Fair Share Surcharge” in her plan, which is an extra 4% surtax on taxpayers making more than $5 million per year) and tax relief for caregivers (which she proposed as a maximum $1,200 credit to help offset caregiving costs).

Ms. Clinton’s tax plan—as well as that of Senator Sanders—proposed reforms to the current treatment of capital gains, which wasn’t specifically addressed in the Democratic platform. For taxpayers in the highest bracket, she proposes implementing a graduated holding period where the rate decreases, from 39.6% to 20%, over a 6-year period, to promote long-term investment.