Presidential nominees Donald Trump (R) and Hillary Clinton (D) revealed their economic plans this week in Michigan, drawing contrasts between the opponents’ tax plans in particular as they race toward the general election in November. Both candidates and their running mates have become familiar faces in North Carolina, its importance as a swing state evidenced by the candidates’ already frequent campaign stops in the Old North State. Their competing economic philosophies present voters with diametrically opposed visions on how taxes should be levied across low, middle and high income earners.Clinton’s planSpeaking in Warren, Mich., Thursday, Clinton unveiled a tax plan consistent with her campaign proposal to increase the tax rate on higher earners, coupled with an effort to change the tax treatment given to capital gains on investments.While the Clinton plan does not eliminate existing steps in personal income tax rates within the current progressive bracket structure, it does add sub-brackets that steepen the progression on the high end.To that point, the Clinton plan adds a top income tax rate bracket equal to 43 percent by levying a 4 percent surtax on taxable personal incomes in excess of $5 million.Further, her plan would enact the Buffet Rule, named after billionaire investor Warren Buffet, which is a 30 percent minimum tax rate for gross incomes over $1 million in an effort to deny loopholes to those high earners who may shelter income in currently available tax sheltered vehicles.When it comes to capital gains, Clinton proposes making the current flat rate of 15 percent more progressive, introducing a top marginal tax rate on long-term capital gains and qualified dividend income of 24 percent.Moreover, the Clinton plan establishes a new category of medium-term capital gains taxes, for investments held less than six years, at rates between 24 percent and 39.6 percent, depending on the individual’s income level.Under the proposed Clinton tax plan, the estate tax would increase to 45 percent, while reducing the exemption level from more than $5 million to $3.5 million.The plan also limits the total value of tax-deferred and tax-free retirement accounts, as well as capping itemized deductions at 28 percent. Itemized deductions are more often utilized by higher earners, while lower income taxpayers often take the standard deduction.Finally, Clinton’s plan offers tax credits for individuals and businesses. It would enact a $1,200 tax credit for caregiver expenses to blunt the high costs associated with child care. According to the Wall Street Journal, child care costs have risen at twice the rate of inflation since 2009 and often constitute the largest monthly expense for young families.Clinton’s plan would also establish tax credits to incentivize businesses to share profits with employees and invest in paid workforce development training such as apprenticeships.Trump’s planTrump rolled out his competing tax plan to the Detroit Economic Club, before making multiple campaign stops in North Carolina to tout his economic agenda.For starters, Trump’s plan will reduce the number of personal income tax brackets from the current seven bracket structure, to a mere three brackets with rates of 12, 25 and 33 percent. The announced rates differ markedly from those Trump floated earlier in the campaign season, but still offer historically significant rate drops and bracket eliminations.On the low end, Trump’s plan raises the standard deduction, exempting the first $25,000 of income from tax liability for individuals, or the first $50,000 for married couples filing jointly. Similar expansions have happened on the state side as well. North Carolina expanded its “zero bracket” during the 2016 legislative session.For businesses, Trump’s plan drastically reduces the corporate tax rate by more than half, from the current 35 percent to 15 percent.Trump’s plan does not change the tax treatment of capital gains in terms of investment duration, but it does propose eliminating the carried interest deduction, which is utilized by many investment fund managers to pay capital gains rates on fund profits. Under the Trump proposal, investment fund profits will be considered income instead, raising the tax liability of effected fund operators.The estate tax, or death tax, on inheritance will be eliminated under the Trump plan. The maximum federal estate tax rate is currently 40 percent of assets above $5.45 million.Trump’s plan also offers American companies holding international market earnings overseas a one-time repatriation tax rate of 10 percent in an effort to encourage those companies to hold and invest those funds in the United States. According to Reuters, the 500 largest American companies currently hold more than $2.1 trillion overseas to avoid high domestic corporate tax rates.In addition, Trump’s plan would make new qualified business investments tax deductible for corporations, further reducing tax liability in exchange for domestic investments in business growth.For individuals, charitable contributions and mortgage interest deductions would remain in place under Trump’s proposal. However, the Trump plan makes child care expenses fully deductible from personal income taxes.
