Part III-D-2: Let’s Look at All the Presidential Candidates’ Tax Plans (America Great Series; Taxes, Economy & Jobs)

In my last post I created five hypothetical families at different income levels and calculated the federal taxes paid, or refunded as a credit, by each household with the current tax code for 2014, and with the flat tax proposed by Ted Cruz. Today we’ll use those same hypothetical families to compare the tax plans from all of the presidential candidates.

My primary source was the “Comparing the 2016 Presidential Tax Reform Proposals” page from the Tax Foundation, an organization generally described as “pro-business.” They have a nice interactive page in which the user can select the candidates and types of taxes he or she wishes to view and the candidates’ proposals are summarized. As of this writing, “This chart includes every concrete tax proposal offered by presidential candidates since January 1st, 2015.” Updates are regularly added and the last update is from February 3.

My goal is to determine only the effect on federal tax collection for each of the hypothetical families, so I won’t use any of the Tax Foundation’s predictions about how the economy will react to the change in federal tax burden. For some candidates, there is more complete information on their own websites, so I have visited those as well. I’ll hope to make this data a bit more accessible and meaningful in this post.

Quick Review of the Hypothetical Households
All families have two parents and two pre-school aged children. The incomes are the average for each fifth of the households which filed federal tax returns in 2014 (those fifths are called quintiles). In this post, “1.” is used for the fifth with lowest average income and “5.” is used for the highest average income quintile.
1. $14,250 income, all from wages; both parents work; no childcare expenses, no mortgage interest paid or charitable gifts given;
2. $35,500 income, all from wages or interest; $200 given to charity; no mortgage interest or childcare expenses;
3. $62,800 from wages & $500 from capital gains distributions or qualified dividends; $6,000 in child care costs so both parents can work; $4,000 placed in a Health Savings Account (HSA); $1,200 contributed to a Roth IRA; paid $5,000 in student loan interest;
4. $100,000 in wages; $5,700 in capital gains distributions or qualified dividends; 4% saved in company sponsored 401(k)’s; $14,435 mortgage interest (based on 3rd year of 30 year mortgage for $300,000 at 5%); $4,000 to charity; $3,936 in state taxes plus $500 in personal property taxes; $5,000 in real estate taxes; paid $5,000 in student loan interest;
5. $240,000 in wages; $46,300 in partnership income (common for doctors and lawyers); $20,000 in capital gains and qualified dividends; 10% of wages to 401(k); $16,625 in mortgage interest paid (based on 13th year of 30 year loan for $500,000 at 4.5%); $15,000 to charity; $8,856 to state taxes and $800 for personal property taxes; $10,000 in real estate taxes.

The Candidates’ Plans
Abbreviations: CTC=Child Tax Credit, EITC=Earned Income Tax Credit, AMT=Alternative Minimum Tax, AGI-Adjusted Gross Income.
Clinton: 4% surcharge on >$5 million in ordinary & capital gains income; higher capital gains rate for investments held between 1-6 years; income-based itemized deductions cap to match the amount allowed for the 28% tax bracket; new $1,200 credit for caregivers; new 30% AMT rate on individuals earning >$1 million; carried interest income taxes at ordinary rate; new high-frequency financial transaction tax.

Sanders: Add 2.2% to all existing brackets and add 37%, 43%, 48% and 52% new brackets (52% for >$10 million if filing jointly); capital gains taxed at ordinary tax rate for households with income >$250,000; income-based itemized deductions cap to match the amount allowed for the 28% tax bracket; eliminate income-based limitation in itemized deductions; eliminate AMT; new 0.2% family leave payroll tax; pay social security tax on incomes >$250,000; eliminate personal exemption phase-out; new financial transaction tax with credit for low income earners; carried interest taxed at ordinary rate.

Bush: 10%, 25% & 28% tax rates (per Bush website; Tax Foundation show the top rate at 35% for jointly filing households >$141,200); $22,600 standard deduction for joint filers; capital gains tax rate not for market gains & dividends, but for staking capital in a business; eliminates net investment income surtax; remove state/local taxes from itemized deductions & caps each of the other items except charity (real estate taxes, medical, mortgage interest & points, etc.) at 2% AGI; no income based limitation to itemized deductions; doubles EITC for childless filers & extends to 21-24 year olds; eliminates AMT; exempts employee portion of social security tax for workers >67 years old; eliminates personal exemption phase-out; carried interest taxed as ordinary income.

Carson: 14.9% flat tax on all non-investment income; standard deviation + exemptions adjusted to 150% of poverty line; no tax on interest, dividends or capital gains; eliminates itemized deductions; foreign tax credit is only credit; eliminates AMT; exempt Social Security benefits; no adjustment to income for 50% of self-employment tax.

Christie: Three tax brackets – 8% low & 28% high; “…keep returns simple by reducing deductions and giveaways.”; only charity and mortgage interest included in itemized deductions; no payroll tax for <21 or >62 years old.

Cruz: 10% flat tax on all income; $10,000 standard deduction per filer & $4,000 exemptions; only charity and mortgage interest (up to that for $300,000 principal) included in itemized deductions; expand EITC by 20% & modernize; keep CTC; eliminates AMT; eliminates payroll taxes; up to $25,000/year deduction for putting money in savings account.

Fiorina: No specific proposal.

Kasich: Three tax brackets – 28% max; 15% rate for capital gains; increase EITC by 10%.

Rubio: For joint filers, 15% to $150K, 25% to $300K & 35% for >$300,000; eliminates all itemized deductions; all taxpayers can deduct charitable contributions and mortgage interest; $4,000 refundable personal tax credit for joint filers, with phase-out between $300,000 – $400,000, instead of standard deduction; eliminates AMT; consolidates higher education credits into $2,500 tax credit which phases out between $97,000 – $121,250 for family of four; new partially refundable CTC up to $2,000/child (phases out between $300,000 – $400,000 for joint filers); keep current CTC; 0% capital gains rate.

Trump: For joint filers, 0% to $50K, 10% to $100K, 20% to $300K, & 25% for >$300K; eliminates net investment income surtax; phases out itemized deductions except mortgage interest and charitable contributions; eliminates AMT; carried interest taxed at ordinary rate.

To evaluate the taxes paid by each hypothetical family, I had to make some assumptions for the plans.

Assumptions & Decisions
Clinton: New caregiver credit is refundable, but ignored in these calculations because there are no details on her website; ignored high-frequency financial transaction tax; all assets which generated capital gains held more than 6 years;

Sanders: Ignored financial transaction tax & credit for low income filers; assume family leave payroll tax collected from both employers and employees;

Bush: For joint filers, 10% to $40K, 25% to $141,200, 28% >$141,200; keep CTC and Additional CTC; eliminate student loan interest adjustment and child & dependent care credit;

Carson: 150% of poverty line = $35,775;

Christie: For joint filers, 8% to $37K, 18% to 187K, 28% for > $187K; keep standard deduction, exemptions, EITC, CTC & capital gains rate; eliminate student loan adjustment, additional CTC & child and dependent care credit;

Cruz: EITC amounts increase by 20%; Additional CTC is eliminated;

Fiorina: Cannot evaluate because no specific plan has been put forward;

Kasich: For joint filers, 10% to $40K, 20% to $150K, 28% for >$150K; EITC amounts increase by 10%; no change to standard or itemized deductions, exemptions, existing credits & adjustments other than EITC; eliminate AMT;

Rubio: 1st quintiles receives 50% of new “partially refundable” additional child tax credit & 2nd quintile receives 75% and 3rd, 4th & 5th quintiles receive 100%; no student loan interest adjustment

Trump: Reduce existing exemptions & credits with increasing income (Trump’s website uses “deductions” when “credit” is more appropriate because low and most middle income filers only use the standard deductions, but there are a number of credits targeted toward these income levels): no student loan interest adjustment or child & dependent care credit for quintile 4.; no credits for <$50K (“I Win” postcard can’t have credits); capital gains taxed at ordinary rate; keep CTC.

The Results
Drumroll please. The total federal taxes paid for each hypothetical family – including Social Security and Medicare taxes – and the changes in taxes paid/refunds received for each candidate’s plan is presented below (except Fiorina).

Negative numbers mean less tax collected/higher refund. Positive numbers mean lower refund/more federal taxes paid.

Quintile 1. – Average Income $14,250 – Current Tax Law: Receive Net $6,058 from Federal Government
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$29
Bush: $0
Carson: +$7,148
Christie: $0
Cruz: -$494
Kasich: -$546
Rubio: +$3,286
Trump: +$7,148

Quintile 2. – Average Income $35,500 – Current Tax Law: Receive Net $1,428 from Federal Government
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$232
Bush: $0
Carson: +$4,144
Christie: +$1,267
Cruz: -$2,024
Kasich: -$288
Rubio: +$2,469
Trump: +$4,144

Quintile 3. – Average Income $63,300 – Current Tax Law: $5,515 Net Federal Taxes Paid
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$703
Bush: -$221
Carson: +$3,316
Christie: +$57
Cruz: -$5,305
Kasich: -$701
Rubio: -$1,291
Trump: -$741

Quintile 4. – Average Income $105,700 – Current Tax Law: $11,016 Net Federal Taxes Paid
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$1,297
Bush: +$3,259
Carson: +$6,204
Christie: +$2,052
Cruz: -$6,446
Kasich: -$100
Rubio: -$1,131
Trump: +$6,059

Quintile 5. – Average Income $306,300 – Current Tax Law: $61,022 Net Federal Taxes Paid
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$4,397
Bush: -$4,145
Carson: -$12,960
Christie: -$11,457
Cruz: -$37,139
Kasich: -$10,560
Rubio: -$15,619
Trump: -$14,028

Total Change in Federal Taxes Collected Under Each Plan
Clinton: $0
Sanders: +$6,657
Bush: -$1,107
Carson: +$7,851
Christie: -$8,081
Cruz: -$51,408
Kasich: -$12,195
Rubio: -$12,287
Trump: +$2,582

As I researched the topics I’ve written about over the past month or so, I have learned a lot. I’ve always had this quest for knowledge – and the ability to play devil’s advocate – but as I look over these numbers, I see some value in the saying “ignorance is bliss.” What should I do now? I have explored the expense side and the revenue side and quite frankly, some of these tax plans would bankrupt the country quickly if they ever passed; others would bankrupt it more slowly. Several candidates are banking on the assumption that cutting taxes for the wealthy stimulate the economy. Research has shown that this is not the case, or certainly not within a 5-7 year business cycle.

What should I do? I should do exactly what I am doing, although perhaps in a less wordy format. I’ll work on that.

About tonyj126

I'm a 50+ married man who always seems to have a large backlog of work to do, but also a lot of flexibility in my schedule. Much of the work I do is volunteer or taking care of extended family members. I suffer from, as my priest calls it, "the sin of self-sufficiency," which means I can figure out how to do most things myself, and consequently, reduce the need for community to solve problems. As a logical extention (at least to me), I find myself called to comtemplate the country's and the world's woes and offer my observations. I hope someone out there will find them useful.
This entry was posted in Economics, Make America Great Series, U.S. Politics, Uncategorized. Bookmark the permalink.

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