Trump vs Clinton Tax Plans – Which Plan Will Accelerate the American Economy?

Trump vs Clinton Tax Plans – The Current Economy and What’s Needed

The Trump and Clinton Tax Plans are totally different in their approach and in their impact.  Before assessing the two plans, where does the economy stand today?

  • Second quarter GDP is a meager 1.2%.
  • The American Economy continues to limp along with the most anemic recovery from a recession in about the last 70 years.
  • Over 94 million working age Americans are not working. Many Americans have simply given up looking for work.
  • Home ownership rate is currently 62.9%, the lowest since 1965 (51 years ago).
  • Clearly, the American Economy is feeling the heavy burden of high taxes, heavy regulations, deficit spending, and poor monetary policy.

What’s needed to kick-start the American Economy?  In a quick nutshell …

  • Pro-Growth Tax Policies (cut taxes)
  • Pro-Growth Spending Policies (cut spending)
  • Pro-Growth Regulatory Policies (cut regulations)
  • Pro-Growth Monetary Policies (follow rule-based traditional monetary policy and stability – not ZIRP and Quantitative Easing)

These four policies are a recipe for robust growth and a GDP growth rate of at least 3% – 4% annually, significantly better than our current near-recession level GDP rates.

What is the Clinton Tax Plan?

In two words, the Clinton Tax Plan is to RAISE TAXES. Here’s a brief summary of the Clinton Tax Plan that might total $1 trillion (or more) over 10 years:

  • Raise Income Taxes by $350 Billion – By capping itemized deductions
  • Raise Business Taxes by $275 Billion – Unclear how this will be implemented
  • Raise Taxes through Fairness Tax Changes of $400 Billion – By a Fair Share Surcharge (?), Taxes on Carried Interest, and Death Taxes
  • Raise Capital Gains Taxes (and Number of Capital Gains Brackets) – No estimate on dollar impact ($XXX Billion)
  • Create New Tax on Stock Trades – By taxing buying and selling stocks (will impact 401K’s, IRA’s, etc.)
  • Create New Exit Tax – By taxing business income earned overseas
    • Note – Clinton Tax Plan does not address America’s high corporate tax structure (39%) and the problem of inversions that it causes

Clinton has also endorsed or is open to these taxes:

  • 25% National Gun Tax
  • High Soda Tax
  • Carbon Tax

Raising taxes now, will tend to push America closer to another Great Recession.

UPDATE ON SEPTEMBER 22, 2016: According to The Wall Street Journal, Clinton has raised her top tax rate for the Estate Tax to 65%. This brings the cost of the Clinton Tax Plan up to $1.5 trillion over 10 years. It means that there is about a $6 trillion difference between the costs of the Clinton Tax Plan and Trump Tax Plan. Source: http://www.wsj.com/articles/hillary-clinton-proposes-65-tax-on-largest-estates-1474559914 .

What is the Trump Tax Plan?

In two words, the Trump Tax Plan is to CUT TAXES. Here’s a brief summary of some of the highlights of the Trump Tax Plan:

  • Income Tax Brackets of 0, 12, 25, 33% – Current high bracket is 39%
    • [Note: Tax brackets above are current plan numbers.  They were updated on August 8, 2016 to reflect Trump’s Detroit Economic Club speech given that day.]
    • Married couples with up to $50,000 of income fall in the Zero Tax Bracket
  • Cut Capital Gains and Dividend Tax Rates – By eliminating the ObamaCare savings surtax
  • Cut Business Tax Rate – To spur on new businesses, new jobs, and new business investments
  • Repeal Death Tax
  • Repeal Alternative Minimum Tax (AMT)
  • Repeal the Marriage Penalty

The Trump Tax Plan would raise taxes on hedge funds by taxing “carried interest” as ordinary income, not as capital gains income.  This tax increase would not impact private equity funds.

Which Plan is a Pro-Growth Tax Plan?

The answer is the Trump Tax Plan fits a pro-growth economic tax approach that should significantly boost the economy, much as the Reagan tax cuts accelerated the economy in the 1980’s.

For More Information on This Year’s Presidential Election plus All of My Ten Surprising Predictions

Please read my new book Great News for America.  In it, I make ten surprising predictions that will probably come true before, during, and after the 2016 presidential election.  I also discuss in Chapter 11 how to boost the American Economy with pro-growth policies.  It’s available in a print edition from Amazon and other book sellers.  It’s also available on Kindle and other e-book devices.

Note – For Readers Who Aren’t Quite Sure What “Carried Interest” Is …

The term “carried interest” is probably not known by many people.  What is it?  Carried interest is actually the portion of profits (often 20%) of profits that flow through to the General Partner of a fund.  The remaining 80% of profits (typically) go to the Limited Partners.  Limited Partners earn their profits because they originally put up the money for the fund.  The General Partner (with its various Investment Managers) provides management services to the fund as well as entrepreneurial-like services, often called “sweat equity.”  Besides the carried interest, the General Partner might be paid a 2% management fee.

The carried interest is taxed to the Investment Managers as personal income at a 23.8% rate (20% capital gains + 3.8% investment tax).

The issue is: Should Investment Managers pay taxes on carried interest as “ordinary income” rather than the lower capital gains rate?  Is their work more like a regular job or more like an entrepreneur’s sweat equity?

The Trump Tax Plan would raise taxes on hedge funds by taxing “carried interest” as ordinary income, not as capital gains income.  This tax increase would not impact private equity funds.

By the way, “private equity funds” invest in hard assets, while “hedge funds” speculate on investments that are typically more sophisticated.  For example, a hedge fund might invest in combinations of investments to mitigate risks, such as buying both long and shorts positions, or buying a long position in a convertible security and a short position in the associated stock.