Checks and Balances: Public Policy Expert Michael Hayes Explains Candidates’ Positions on Taxes

By Tom McLaughlin

When U.S. presidential candidates Hillary Clinton and Donald Trump square off in four televised debates this fall, aside from the likely steady exchange of personal barbs, the candidates will challenge one another on a range of critical issues.

Inevitably, at some point the discussion will turn to what Benjamin Franklin called one of the certainties in life – taxes.

So where do the candidates stand?

Michael Hayes, an assistant professor of public policy and administration at Rutgers University–Camden, offers a primer on the candidates’ positions and explains what he sees as the advantages and disadvantages of their approaches.

Starting off, what is Hillary Clinton’s plan for tax reform?

Michael Hayes

Hillary Clinton and Donald Trump have quite different plans for tax reform. Clinton plans on increasing taxes on high-income earners. A major element of her tax plan is an additional 4 percent tax on adjusted gross income above $5 million. Additionally, she plans to increase estate tax revenue, as well as tax carried interest as ordinary income, and change international tax rules for corporations. Altogether, the Clinton tax plan is expected to increase federal revenue by $1.1 trillion over the next 10 years, according to Tax Policy Center estimates.

What do you see as the pros and cons of this approach?

The major benefits of the plan are that it will help reduce income inequality by taxing higher income households more and raise additional tax revenue to offset growing entitlement program expenditures. However, it poses several major disadvantages: It is not a comprehensive tax reform plan and it is unlikely to gain political support in Congress.

Alternately, what is Donald Trump’s plan for tax reform?

The Trump tax plan would decrease marginal tax rates for all income earners, especially for high-income earners. For example, the Trump plan seeks to reduce the marginal tax rate from 39.6 percent to 25 percent for all earned income above $500,000. In contrast to Clinton, Trump seeks to eliminate the estate tax, which will favor wealthier households. Lastly, Trump’s tax plan would substantially reduce the tax rate on corporations from 35 percent to 15 percent.

What do you see as the advantages and disadvantages of this plan?

One of the major benefits is that it provides a more simplified federal tax code. Also, holding all things constant, a lower corporate income tax rate potentially attracts more large businesses to locate or remain in the United States. However, on the downside, it reduces federal revenue by at least $12 trillion over the next 10 years, it won’t receive any political support by members of either party, and it likely increases income inequalities.

Which plan makes the most sense to you?

Overall, I do not see much merit in either candidate’s tax plan. When it comes down to it, neither candidate is offering a politically feasible plan for comprehensive tax reform. After President Obama raised the top marginal tax rate from 35 percent to 39.6 percent in 2013, it would take an unlikely Democrat-controlled Congress for Clinton to pass her additional 4 percent tax on incomes above $5 million. At the same time, not even a Republican-controlled Congress would be willing to pass Trump’s tax reform bill because it would substantially increase the size of the federal debt over time.

So then is tax reform a lost cause?

Actually, there is potential for across-the-board political support for true comprehensive tax reform. Through the elimination of costly federal tax expenditures – for example, mortgage interest deduction, and exclusion of employer contributions for medical insurance premiums – the federal government could raise additional tax revenue, while allowing for a modest decrease in marginal tax rates for middle class households. Also, this could simplify the tax code, reduce perverse economic incentives created by the current federal tax code, and encourage economic growth.

How important do you think the issue of taxes will be in this election cycle?

It remains to be seen. So far, Donald Trump has proposed an unrealistic tax plan, which many of his supporters and even critics have basically ignored for now. At the same time, Hillary Clinton has proposed a traditionally progressive tax plan that will not receive sufficient support from the Republican-controlled Congress.

Posted in: Research Highlights

Comments are closed.