With both the Republican and Democratic debates heating up now, it is probably a good time to attempt to separate fact from fiction when it comes to the future plans of the nominees on how they will change the tax code. With our national debt soaring to 19 trillion dollars, it is certain we will need a way to balance our budget and right the ship of the financials in this country. As a finance and accounting guy, I full well know that you cannot run a negative debt situation in perpetuity. It just doesn’t work. So, here are the cliff notes to some of the tax plans being bandied about by the frontrunners.
Donald Trump (www.donaldjtrump.com) – Trump’s plan has married couples earning less than $50,000 paying no income taxes which will remove more than 75 million households and offers a top tax rate of 25%.
The Trump Tax Plan Achieves These Goals:
- If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households – over 50% – from the income tax rolls. They get a new one page form to send the IRS saying, “I win,” those who would otherwise owe income taxes will save an average of nearly $1,000 each.
- All other Americans will get a simpler tax code with four brackets – 0%, 10%, 20% and 25% – instead of the current seven. This new tax code eliminates the marriage penalty and the Alternative Minimum Tax (AMT) while providing the lowest tax rate since before World War II.
- No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.
- No family will have to pay the death tax. You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.
Ted Cruz (www.tedcruz.org) – Cruz’s plan is centered around abolishing the IRS and moving to a simple flat tax for both individuals and corporations across America.
Under the Simple Flat Tax:
- The current seven rates of personal income tax will collapse into a single low rate of 10 percent.
- For a family of four, the first $36,000 will be tax-free. The Child Tax Credit will remain in place, and the Simple Flat Tax Plan expands and modernizes the Earned Income Tax Credit with greater anti-fraud and pro-marriage reforms. Under the plan, deductions for charitable contributions and mortgage interest payments are preserved.
- The IRS will cease to exist as we know it, there will be zero targeting of individuals based on their faith or political beliefs, and there will be no way for thousands of agents to manipulate the system.
- For businesses, the corporate income tax will be eliminated. It will be replaced by a simple Business Flat Tax at a single 16 percent rate. The current payroll tax system will be abolished, while maintaining full funding for Social Security and Medicare.
Hillary Clinton (www.hillaryclinton.com) – It was very tough to find any real detailed plan with tax rates or tax codes on her website. There was an overview of working hard to cut taxes for working families (assuming middle class families) and closing corporate loopholes. Here are a few paragraphs with specifics from the webiste.
- Provide tax relief for families. Hillary will cut taxes for hard-working families to increase their take-home pay as they face rising costs from child care, health care, and sending their kids to college. She is calling for extending a tax cut of up to $2,500 per student to help deal with college costs as part of her New College Compact, and for cutting taxes for businesses that share profits with their employees.
- Unleash small business growth. Hillary’s father owned a small business—and she understands that small businesses are the backbone of jobs and growth in America. She’s put forward a small-business agenda to expand access to capital, provide tax relief, cut red tape, and help small businesses bring their goods to new markets.
- Create a New College Compact. Hillary’s New College Compact will invest $350 billion so that students do not have to borrow to pay tuition at a public college in their state. Her plan will also significantly cut interest rates on student loans and enable an estimated 25 million Americans with student debt to refinance at today’s lower rates, saving the typical borrower $2,000 over the life of their loans.
Bernie Sanders (www.berniesanders.com) – FREE. FREE. FREE. No taxes at all. Yay! No just kidding. Bernie has four or five big concepts that he believes will make sense in how he will change the tax code.
- Expand Social Security: Paid for by lifting the cap on taxable income above $250,000 so that the wealthy pay the same percentage of their income into Social Security as working people. This means you pay 6.2% of your income perpetuity!
- Expand Health Care: Paid for by a 6.2 percent income-based health care premium paid by employers, a 2.2 percent income-based premium paid by households, progressive income tax rates, taxing capital gains and dividends the same as income from work.
- How To Pay For FREE college: Paid for by imposing a tax on Wall Street speculators that would generate about $300 billion in revenue.
As you can see, there is a stark difference not just Democratic and Republican on how to solve the tax code and these issues. What you should be asking yourself is who will be able to balance the budget the best because you cannot run up a credit card forever!
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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.