The 2016 Presidential election is now less than one month away and throughout the campaign season both Hillary Clinton and Donald Trump have released various tax proposals that, if enacted into law, would greatly affect charitable giving in this country. It’s fair to say that the two candidates envision dramatically different tax codes and, as evidenced in the first two Presidential debates, these views will continue to play a major role in the election.
Below is a brief summary and comparison of how Clinton and Trump would modify the tax code as it pertains to individual rates, itemized deductions like the charitable deduction, and the estate tax. For a more complete discussion on how these tax proposals could affect charitable giving and the likelihood of significant tax reform in 2017, review CGP’s member-only legislative update from September.
- Adds a four percent “fair share surcharge” on the “top 0.02 percent of taxpayers on their incomes over $5 million per year,” and endorses the so-called “Buffett Rule,” imposing a minimum 30 percent effective tax rate on Americans making more than $1 million annually.
- Caps the tax benefit of itemized deductions except the charitable deduction (and certain other deductions) at 28 percent, thereby reducing the value of deductions and exclusions for taxpayers in the 33 percent and higher brackets.
- Restores the federal estate tax to the parameters in effect in 2009 (i.e., a maximum tax rate of 45% with a 3.5 million exclusion) and proposes three new rates for larger estates: 50% rate applies to estates worth over $10 million per person, 55% for estates over $50 million, and 65% for estates exceeding $500 million.
- Replaces existing seven individual tax rates with three individual rates of 12, 25 and 33 percent.
- Caps all itemized deductions — including the charitable deduction — to $100,000 for individuals and $200,000 for couples.
- Increases the standard deduction to $15,000 for single taxpayers and to $30,000 for married couples filing jointly, thereby reducing incentive to itemize.
- Eliminates federal estate and gift taxes but disallows step-up in basis for estates over $10 million.
Although both candidates are proposing major changes to the tax code as outlined above, the reality of tax reform, whether part of a “grand bargain” of sweeping scope or part of a patchwork of improvements to the existing system, will likely turn on a number of important variables: Will the new President characterize victory in the polls as a mandate? Will Democrats win control of the Senate and/or pick up seats in the House? Will the new President be willing to expend political capital to move changes to the tax code forward in 2017, or will this early capital be used in other areas such as immigration or trade? Answers to these important questions should emerge soon after the upcoming election.
To listen to the full September Advocacy Update and take part in the larger conversation, join CGP.