Clinton vs. Trump: 2 Wildly Different Tax, Economic Plans

Anyone following the presidential campaign knows that the differences between Hillary Clinton and Donald Trump run wide and deep, and that’s clearly the case with their respective economic plans, according to Moody’s Analytics.

In its economic analysis of the two campaigns, Moody’s Analytics finds that “Secretary Clinton’s economic policies when taken together will result in a stronger U.S. economy under almost any scenario.”

In contrast, it says, “The upshot of Mr. Trump’s economic policy positions under almost any scenario is that the U.S. economy will be more isolated and diminished.”

Moody’s Analytics focused on the long-term economic impact of the candidates’ economic plans through 2026 using three different scenarios:

• The plans as is
• A smaller scale version of the plan
• A most likely version following negotiation with Congress

The lead author of both analyses is the firm’s chief economist, Mark Zandi, who advised John McCain’s 2008 Republican presidential campaign as well as Congressional Democrats when they were drafting the 2009 economic stimulus plan early in President Barack Obama’s first term.

The Clinton and Trump economic plans couldn’t be more different, according to Moody’s Analytics.

While Clinton raises taxes on the wealthy, Trump cuts them. Her plan raises revenues by more than $1 trillion over 10 years, while Trump’s plan squeezes revenues to the point that spending has to be reduced by 20% or deficits will rise substantially.

Clinton proposes new spending on education, infrastructure, paid family leave and economic development and research. Trump offers no new spending initiatives other than the wall between the U.S. and Mexico.

Here are some of the major differences between Clinton’s and Trump’s economic plans, according to Moody’s Analytics:

Taxes – Clinton

Clinton proposes tax hikes primarily on the wealthy. Those in the top 2% to 5% would pay an average $3,000 more in taxes per year, but those in the top 1% would pay an additional $78,000.

The tax system would become more progressive and raise an additional estimated $1.46 trillion in revenue over the next decade on a static basis, which doesn’t account for its impact on the economy.

Clinton wants to use the monies raised from additional tax revenues to spend billions on infrastructure, education — including preschool, free tuition at community colleges and four-year debt-free education at public universities  — and up to 12 weeks worth of paid family and medical leave for workers.

Personal Income Taxes

Clinton’s plan imposes a 30% minimum tax on those with adjusted gross incomes above $1 million and a 4% surcharge on those whose AGI tops $5 million.

Private equity and hedge fund managers would be taxed at the ordinary income rate, not the current lower rate, which has a maximum of 20%.

There would also be a $1 million limit on lifetime gift tax exemption; a new tax schedule for capital gains, depending on asset holding periods; and limited use of tax-advantaged retirement accounts by taxpayers with very high balances.

Clinton proposes to close loopholes for high-income earners in order to eliminate the sequester that limits federal spending on multiple government programs, but she provides no details.

She would repeal the Cadillac tax on health insurance plans, which is set to take effect in 2018.

Corporate Taxes

Clinton would limit corporate inversions by increasing the threshold for foreign ownership to 50% from 20% currently. (U.S. companies who have incorporated overseas would be subject to U.S. taxes if foreign ownership were less than half.)

Clinton wants to tax high-frequency trading and impose a “risk fee” on very large financial institutions and an excise tax on tar sands oil producers. She would also eliminate tax incentives for fossil fuel production.

Tax-advantaged Build American Bonds and New Market Tax Credits would help finance infrastructure spending and community development.

Moody’s notes that Clinton’s plan does not include broad corporate tax reform, which the Obama administration and Congressional Republicans have supported.

Taxes – Trump

All taxpayers – individuals and corporations — receive a tax cut under Trump’s tax plan, but the top 1% of earners would receive the most benefit — more than one-third of the benefits from the personal income tax cut, according to Moody’s Analytics.

The top 1% would receive an estimated additional $275,000 on average, while those in the bottom 99% would save less than $2,500.

Trump’s tax plan would lower marginal tax rates, flatten the tax code and make it less progressive. It would also reduce spending sharply or, failing that, add to the deficit.

It would simplify the tax code but also create complications, including a new loophole for owners of pass-through businesses such as S corporations and partnerships.

The result of all of Trump’s tax proposals: a $9.5 trillion decline in tax revenues over 10 years, which would reduce the ratio of revenues to GDP to their lowest percentage since World War II, according to Moody’s Analytics.

Personal Income Taxes

Trump would reduce the number of personal income tax brackets to three from seven with the top marginal tax rate at 25%, down from 39.6%, and tax carried interest as ordinary business income, rather than ordinary personal income, which could be higher.

Trump would also increase the standard tax deduction to $25,000 for single filers and $50,000 for joint filers, which is about four times what they are for 2016, while reducing itemized deductions except for charitable contributions and mortgage interest payments.

He would eliminate federal estate and gift taxes, the alternative minimum tax and the surtax of 3.8% on investment income of high-income households that helps fund the Affordable Care Act.

Corporate Taxes