Analysis of 2016 Presidential Candidates’ Tax Plans

The charitable community, made up of a variety of organizations and individuals, is a powerful and positive force in American life – one rooted in pluralism and strengthened by its diversity. Every day, charitable organizations provide educational and economic opportunities for families in need, work to alleviate poverty and suffering at home and abroad, assist victims of disaster, enhance the cultural and spiritual development of individuals and communities, and foster worldwide appreciation for the democratic values of justice and individual liberty.

Independent Sector, a national coalition of more than 500 public charities, foundations and corporations, believes that, as a matter of justice, fairness and effectiveness, our nation’s tax and fiscal policies must not exacerbate income inequality or increase poverty. Our society is best served by policies that meet the following criteria:

  • Those among us who can most afford to contribute more are asked to do so;
  • Spending on programs that support our nation’s most vulnerable populations is safeguarded; and
  • America’s strong tradition of giving is advanced.

We also acknowledge the need, and support efforts, to put our government on a sustainable fiscal path.

Viewed through this lens, Independent Sector offers the following analysis of the tax and fiscal plans proposed by Donald Trump and Hillary Clinton.

Revenue

The Clinton plan would retain the current structure of seven individual tax brackets, cap certain individual itemized deductions and exclusions at 28 percent, establish a 30 percent minimum effective tax for annual income over $1 million, and impose a 4 percent surcharge on income over $5 million. The proposal would also reduce the estate tax exemption to $3.5 million ($7 million for married couples) and increase the top tax rate to 45 percent for estates up to $10 million. Rates would incrementally increase up to 65 percent for estates above $500 million ($1 billion for married couples).

The Committee for a Responsible Federal Budget has estimated that the Clinton plan would increase federal revenue by $1.5 trillion over 10 years. According to the Tax Policy Center, 94 percent of the increased revenue would come from the top five percent of taxpayers, with more than half of the increased revenue coming from the top 0.1 percent.

The Trump plan would reduce the number of individual tax brackets to three, lowering the top rate from 39.6 to 33 percent and increasing the lowest rate from 10 to 12 percent. Mr. Trump’s proposal would also align the rates for qualified capital gains with the new rates, and eliminate the alternative minimum tax and federal estate and gift taxes.

The Tax Foundation estimates that the Trump plan would reduce federal revenue by between $4.4 trillion and $5.9 trillion over 10 years, and projects that the top one percent of taxpayers could see a 16.0 percent increase in after-tax income, compared to a 1.2 percent increase for taxpayers in the bottom 20 percent of income distribution. This translates to tax cuts of $88,410 and $200, respectively, according to Citizens for Tax Justice.

Spending

Mr. Trump has proposed a one percent annual decrease in non-defense discretionary spending, for a cumulative reduction of $800 billion over 10 years. According to the Center for Budget and Policy Priorities, this one percent annual reduction would leave appropriations for those programs at the end of the decade approximately 29 percent below current levels, after accounting for inflation.

Secretary Clinton has proposed an increase in federal spending of $1.65 trillion over 10 years, with a specific focus on programs related to access to education, college affordability, health-related spending, child care and infrastructure.

Charitable Giving

The Clinton plan would retain the Obama Administration’s long-standing proposal to limit the value of itemized deductions to 28 percent, but would exclude the charitable deduction from this limitation.

The Trump plan would increase the standard deduction to $15,000 for single filers and $30,000 and for joint filers, which, by the campaign’s estimate, would mean “most taxpayers will have no need to itemize, simplifying their tax returns and making it easier to file.” Such a shift would reduce the number of taxpayers for whom a tax deduction is available for their charitable contributions.

Additionally, the Trump proposal would impose a hard dollar cap on the amount taxpayers could claim for all deductions, limiting single filers to $100,000 in deductions and joint filers to $200,000. This would effectively force taxpayers whose deductions exceed the caps to choose between the charitable deduction and those deductions from which they either directly benefit, or which they have no choice but to pay.

Conclusion

The Committee for a Responsible Federal Budget has estimated that the Trump and Clinton plans would increase the federal deficit by $5.3 trillion and $200 billion, respectively, over 10 years.

The cost of Secretary Clinton’s investment in a number of key programs is largely offset by an increase in the taxes paid by those most able to afford such an increase, while also preserving the tax incentive for charitable giving.

Mr. Trump’s proposal would significantly expand our national deficit as a result of tax cuts that provide greater savings to taxpayers in higher income brackets. Additionally, he proposes deep, across-the-board reductions in spending on federal programs that support the work of charitable organizations in communities across the country. The impact of these spending cuts on the ability of charities to improve lives will likely be exacerbated by reductions in charitable giving resulting from proposed changes that eliminate the tax incentive for millions of taxpayers.

Policy Issues: Federal Budget & Fiscal Policy, Tax & Fiscal Policy
Resource Types: Policy Brief