Tax Reform in the 2016 Presidential Campaign

Tax Reform in the 2016 Presidential Campaign Presented by: Robert J. Grossman Shawn Firster Assessment of Tax Policies by the Tax Foundation Tax Foundation: Washington, D.C. based organization founded in 1937 that collects data and publishes research studies on U.S. tax policies at state and federal levels Goal is to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government. Classified as a 501(c)(3) tax-exempt nonprofit educational and research organization 1

Assessment of Tax Policies by the Tax Foundation TAG Model s Components: Taxes Utilizes IRS data of U.S. tax returns into its tax calculator to evaluate the effect a new tax proposal would have on taxpayers across the income ranges Generates the average and marginal income tax rates individuals will face After-tax incomes under the proposal, and distributional tables that display the after-tax effects of policy changes by adjusted gross income ranges and deciles Assessment of Tax Policies by the Tax Foundation TAG Model s Components: Growth Information from the tax calculator component of the model and feeds it into the Growth component of the model TAG takes data and the tax proposal and assesses the impact primarily on two key economic indicators» Cost of labor» Cost of capital 2

Assessment of Tax Policies by the Tax Foundation TAG Model s Components: Static Scoring Provides an estimate of the effect of tax changes on federal revenue and assumes minor behavior effects that may shift income between industries Dynamic Scoring Provides an estimate of the effect of tax changes on jobs, wages, investment, federal revenue, and the overall size of the economy Assessment of Tax Policies by the Tax Foundation Tax Scoring Models Vs. TAG Models Tax Scoring Models are used by the Joint Committee on Taxation or the Congressional Budget Office and provide a static score for federal revenue Assumes minor behavior effects that may shift income between industries Generally, tax scoring models assume tax changes have no effect on the economy at large. 3

Assessment of Tax Policies by the Tax Foundation Tax Scoring Models Vs. TAG Models TAG Model evaluates impact that tax changes have on the economy, Changes affect wages, jobs, the cost of investment, federal revenue, and the size of the overall economy It evaluates the growth effect of a tax proposal, providing estimates of GDP, wages, jobs, and government revenues» helps policymakers make smarter decisions when they craft tax reform legislation A Different Perspective on Presidential Tax Policy Citizens for Tax Justice A progressive Washington, D.C.-based advocacy and lobbying group founded in 1979 Goal is to give ordinary people a greater voice in the development of tax laws Fair taxes for middle and low-income families Requiring the wealthy to pay their fair share Closing corporate tax loopholes Adequately funding important government services; reducing the federal debt 4

A Different Perspective on Presidential Tax Policy Citizens for Tax Justice Is considered to be more of a left-wing organization, but its research has also been cited by Republican politicians and right-wing leaning tax reform organizations when favorable to their policies Hillary Clinton (D) 5

Democratic Candidates Hillary Clinton (D): Plans to close many corporate and tax loopholes Eliminate references for companies that move profits overseas to avoid tax obligations in the U.S. Address tax inversion strategies Would restrict mergers between U.S. Companies and foreign corporation structures to reduce their U.S. taxes Impose exit tax Imposition of additional taxes on frequent trading for financial institutions Democratic Candidates Hillary Clinton (D): Implement tax credits for industries that are struggling with job loss Ex: Manufacturing Expand grants and access to capital for smaller manufacturers and start-ups 6

Democratic Candidates Hillary Clinton (D): Democratic Candidates Hillary Clinton (D): According to the Tax Foundation s Taxes and Growth Model Hillary Clinton s tax plan would reduce the economy s size by 1 percent in the long run Overall, the plan would increase federal revenue on a static basis by $498 billion over the next 10 years 7

Democratic Candidates Hillary Clinton (D): Democratic Candidates Hillary Clinton (D): Promises no personal tax increases for taxpayers making under $250,000 Intends to tax the wealthy at even higher rates.. Backs the Buffet rule Would raise taxes to 30% on all Americans making more than $1 million regardless of the character of income Suggests a 4% surcharge on those with an annual income that exceeds $5 million 8

Democratic Candidates Hillary Clinton (D): Specifically addressed the following: Need to increase the rate at which carried interest payments are taxed Proposed new category of capital gains (mid-term) for capital assets held for less than 6 years» Would be taxed at a range of 24-39% Called for capping certain itemized deductions for wealthy Create new tax credits to offset healthcare costs for families Democratic Candidates Hillary Clinton (D): Resources Hillary Clinton Campaign The Tax Foundation iii Citizen for Tax Justice iv New York Times v The Hill vi i, ii 9

Bernie Sanders (D) Democratic Candidates Bernie Sanders (D): Major proponent for increasing country s investment in clean energy production Impose additional tax on carbon emissions, repeal subsidies Provide tax breaks for investments in responsible energy sources like wind/solar power Create universal healthcare for citizens Tuition-free education from public colleges/universities 10

Democratic Candidates Bernie Sanders (D): Supports increase of top corporate tax of 35% to help raise revenues to pay for previously noted priorities Address tax inversion strategies Indicated Congress should be able to stop mergers between U.S and foreign corporations structured to reduce their U.S. taxes Ensures profitable U.S corporations pay their portions of taxes Democratic Candidates Bernie Sanders (D): Believes U.S tax system should be much more progressive More taxes on wealthiest Americans Supports a top marginal tax rate of 54.2% as compared to the current 39.6% Calls for capping mortgage interest itemized deduction at $300,000 Supports eliminating the AMT 11

Democratic Candidates Bernie Sanders (D): Democratic Candidates Bernie Sanders (D): Estate Taxes Make more types of income subject to tax and increase top estate tax to 65% Establish 10% surcharge on billionaires Estate tax exclusion should be lowered from $5.4 million to $3.5million 12

Democratic Candidates Bernie Sanders (D): According to the Tax Foundation s Taxes and Growth Model, Senator Bernie Sanders s tax plan would reduce the economy s size by 9.5 percent in the long run What does such a reduction mean for the economy? The plan would lead to 4.3 percent lower wages 18.6 percent smaller capital stock market 6.0 million fewer full-time equivalent jobs Increase federal revenue on a static basis by an estimated $13.6 trillion over the next 10 years Democratic Candidates Bernie Sanders (D): Source: Tax Foundation Taxes and Growth Model, October 2015 13

Democratic Candidates Bernie Sanders (D): Resources Bernie Sanders Campaign The Tax Foundation x Citizen for Tax Justice xi vii, vii, ix Donald Trump (R) 14

Republican Candidates Donald Trump (R): No business should pay more than 15% for income taxes Includes pass through businesses whose owners may be subject currently to highest individual marginal rates of 39.6% (and effective rates to nearly 43%) Proposed a one-time repatriation rate of 10% to provide incentive for taxpayers to bring funds back into the country and invest in the economy Republican Candidates Donald Trump (R): Simplify tax code and cut taxes at all levels of income Reduce number of brackets from 7 to 4 (0%,10%,15%,25%) Wealthiest Americans would benefit Result of reducing highest marginal income tax from 39.6% to 25% 25% rate would not kick in until income exceeds $150,000 for single taxpayers and $300,000 for married couples Plans to reduce tax burden on lower income taxpayers by removing federal income tax for those making less than $25,000 and couples making less than $50,000 15

Republican Candidates Donald Trump (R): Republican Candidates Donald Trump (R): Eliminate estate tax, AMT and net investment income tax Also would eliminate numerous tax deductions, tax credits and subsidies for high-income households Steepen curve for phase-out of taxpayer s personal exemptions and itemized deductions Plans to take out carried interest payment and eliminate preferential tax treatment Would continue to provide preferential tax treatment to long-term capital gains; qualified dividends would still be subject to maximum tax rate of 20% 16

Republican Candidates Donald Trump (R): Tax plan is estimated to reduce revenues by 9.5 trillion over 10 year period Plan would need to include spending cuts as to not significantly impact national debt According to the Taxes and Growth Model, the increased incentives to work and invest from this tax plan would increase the size of the economy by 11 percent over the long run Overall, the plan would reduce federal revenue on a static basis by $11.98 trillion over the next ten years Republican Candidates Donald Trump (R): 17

Republican Candidates Donald Trump (R): Resources Donald Trump Campaign xii The Tax Foundation xiii Citizen for Tax Justice xiv Ben Carson (R) 18

Republican Candidates Ben Carson (R): Fair tax system Utilizes flat tax rate for all taxpayers but eliminates deductions, exemptions, and tax shelters that are more available to some taxpayers than others Tax base greatly modified with elimination of most credits and deductions not pertaining to cost recovery Includes interest and payroll tax expense Allow for 100% write off of capital investments and eliminate cost recovery through depreciation expense Republican Candidates Ben Carson (R): Flat tax rate of 14.9% Tax base would be higher; itemized deduction for mortgage interest, income taxes and charitable giving would be eliminated Eliminate taxation of social security benefits, but would enact $100 per citizen minimum tax Taxes and Growth Model-increased incentives to work and invest from this tax plan would increase the size of the economy by 16 percent over the long run Estimated to reduce federal revenues by 5.6 trillion over 10 years combined with spending cuts 19

Republican Candidates Ben Carson (R): Republican Candidates Ben Carson (R): Resources Ben Carson Campaign xv The Tax Foundation xvi Citizen for Tax Justice xvii 20

Ted Cruz (R) Republican Candidates Ted Cruz (R): Business Tax Flat tax on capital income and labor payments Compared to value-added or sales taxes on business transactions One time repatriation tax rate of 10% to serve as incentive for taxpayers to bring funds back to U.S. and invest in economy 21

Republican Candidates Ted Cruz (R): Individual tax rate at 10% Most deductions eliminated except mortgage interest and charitable donations Also proposed increasing the standard deduction Income from dividends and capital gains for individuals would be taxed at same rate as other income Reduce burden on lower income households by eliminating federal income tax on those who make less than $36,000 Universal Savings Account allows every American to save up to $25,000 annually on tax-deferred basis for any purpose Republican Candidates Ted Cruz (R): Would eliminate the corporate income tax, the payroll tax, and the estate tax, which combined would reduce federal revenue by $17.3 trillion over the next decade On a static basis, Senator Cruz s tax plan would increase after-tax incomes by 9.2 percent, on average. Taxpayers in all income groups would see higher after-tax incomes 22

Republican Candidates Ted Cruz (R): Republican Candidates Ted Cruz (R): Resources Ted Cruz Campaign xviii The Tax Foundation xix Citizen for Tax Justice xx 23

Marco Rubio (R) Republican Candidates Marco Rubio (R): Integrating the corporate and shareholder taxes to remove double taxation that currently exists Cap corporate income tax at 25% Limited, non-refundable 25% tax credit for businesses that offer between 4-12 weeks of paid leave to workers with qualifying family or medical issues Newborn child Elderly parent with declining health Personal health crisis 24

Republican Candidates Marco Rubio (R): Plan would simplify tax system by reducing number of tax brackets to three 15%, 25%, 35% Eliminate most deductions except for a reformed mortgage interest and charitable donations Income from dividends and capital gains for individuals to not be taxed Republican Candidates Marco Rubio (R): Proposes a fully refundable personal tax credit that would phase-out for high income individuals, Addition to a $2,500 universal tax credit that replaces the numerous educational tax incentives and a new $2,500 child tax credit is created Elimination of estate tax, AMT and net investment income tax introduced by ACA. Vows to veto any additional gas tax proposal and has campaigned for a 20% reduction to current gas tax 25

Republican Candidates Marco Rubio (R): Resources Marco Rubio Campaign xii The Tax Foundation xii Citizen for Tax Justice xxiii Jeb Bush (R) 26

Republican Candidates Jeb Bush (R): Eliminate lobbyist loopholes in tax code and ensure tax code does not hinder America s international competitiveness Recommends a 100% exemption on dividends received from controlled foreign subsidies Proposed one-time repatriation at the rate of 8.75% to serve as incentive to bring funds back to the U.S and invest in the economy Republican Candidates Jeb Bush (R): Reduce corporate income tax rate from 35% to 20% Simplify individual tax system: Reduce number of tax brackets to three (15%, 25%, 28%) Top tax bracket would apply to single tax payers with income over $85,750 and married filers with over $141,200 Increase standard deductions to $11,300 for single taxpayers and $22,600 for married filers Increase personal exemptions to $4,000 27

Republican Candidates Jeb Bush (R): Republican Candidates Jeb Bush (R): Place cap on deductions for mortgage interest and eliminate the deduction for state and local taxes Cap all other itemized deductions with exception to charitable donations, at two percent of AGI Interest would be taxed at same preferential rates as dividends and capital gains for individuals Would expand Earned Income Tax Credit and double the amount for childless filers 28

Republican Candidates Jeb Bush (R): Elimination of estate tax, AMT and net investment income tax introduced by ACA Proposes eliminating employee s share of social security tax on earnings for workers over 67 years old According to the Taxes and Growth Model, Governor Bush s tax plan would increase the size of the economy by 10 percent over the long run Overall, the plan would reduce federal revenue on a static basis by $3.66 trillion over the next ten years Republican Candidates Jeb Bush (R): Resources: Jeb Bush Campaign xxiv The Tax Foundation xxv Citizen for Tax Justice xxvi 29

Rand Paul (R) Republican Candidates Rand Paul (R): Replace corporate income tax with a 14.5 % value-added tax Simplify tax system by enacting a flat and fair 14.5% tax rate Eliminate all itemized deductions with exception to mortgage interest and charitable donations Eliminate estate and gift tax Taxes and Growth Model- Senator Paul s tax reform proposal would increase GDP by 12.9 percent by the end of roughly 10 years 30

Republican Candidates Rand Paul (R): Resources: Rand Paul Campaign xxvii The Tax Foundation xxvii Citizen for Tax Justice xxix Chris Christie (R) 31

Republican Candidates Chris Christie (R): Proposed reduction in corporate tax rates from 35% to 25% Proposed a one-time repatriation, at a rate of 8.75 percent to provide an incentive for taxpayers to bring the funds back into the country and invest them into the economy Simplify the individual tax system by reducing the number of tax brackets to three lowest being 8 percent and the maximum being 28 percent tax bracket Republican Candidates Chris Christie (R): Resources: Chris Christie Campaign xxx The Tax Foundation xxxxi Citizen for Tax Justice xxxiii 32

Possibilities for Future Tax Reform Ways and Means Committee expected to take up tax reform as first hearing of 2016 Committee members were scheduled to meet January 26 Unlikely that any real changes in legislation will take place due to 2016 election in November Congressional members are less inclined to take difficult/risky voting positions and are more focused on their respective political parties Majorly dependent on which parties control the Senate and White House Thank You! 33

Resources Resources 34