BGBC Partners, LLP Tax Update: Candidates’ Tax Plans: Hillary Clinton
As discussed in our previous Tax Update article we are comparing the tax plans of the two main presidential candidates. Their tax proposals differ significantly, and for this article we are going to be focusing on the policies and regulations of Hillary Clinton.
Clinton has described her tax policy goal as a quest to restore basic fairness to our tax code. How does she plan on accomplishing this? By making sure the wealthy, Wall Street, and corporations pay their fair share in taxes. She would impose a minimum tax of 30 percent on taxpayers with AGI over $1 million, impose a 4 percent surcharge tax on individuals making more than $5 million annually, and eliminate a variety of tax breaks typically used by high-income taxpayers.
She also has some ideas on how the tax system should impact small business owners. She wants to simplify and cut taxes for small businesses so they can hire more people and grow. The smallest businesses, those with one to five employees, spend 150 hours and $1,100 per employee on federal tax compliance. That’s more than 20 times higher than the average for much larger businesses. By simplifying this system, it would leave more money in the hands of the small business owners themselves.
One significant change is her approach to capital gains taxes. Recall that assets held for 1 year or less are subject to ordinary tax rates. Clinton would lengthen the capital gain holding periods for favorable rates by subjecting holding periods of 1 to 2 years to the 39.6% rate and holding periods of 2 to 3 years’ subject to a 36% rate, and thereafter the statutory rate would decline by 4% points per year until reaching the current long-term rate of 20% at a holding period of 6 years. Would provide for zero capital gains on qualified small business stock.
She would enact a $1,500 apprenticeship tax credit for each new worker that a business hires and trains, and 2-year tax credit for employers that share profits with workers.
Regarding estate taxation, Clinton proposes a 50 percent tax rate for estates valued up to $10 million and 55 percent over $50 million. An additional 10 percent tax would be applied to estates valued at over $500 million for individuals, or $1 billion for married couples.
Clinton also proposes going after large inheritances by closing the stepped-up basis "loophole" that allows capital gains taxes on assets like stocks and bonds to be based on the asset's value at the time of the donor's death, not when it was originally purchased, enabling capital gains to go untaxed for years.
Under Clinton's plan, bequests would be treated as a realization event, forcing capital gains taxes to be applied when the assets are passed to the heirs. However, the change to stepped-up basis would be limited to high-income taxpayers, and it would include "careful protections and flexibility for small and closely-held businesses, farms and homes, and personal property and family heirlooms.”
Hopefully, these past two Tax Updates provide you with a better understanding of where each of the candidates stand (at least when it comes to taxes) which in turn helps you to make an informed decision on election day!
