Roosevelt Institute | Cornell University

Taxes and Politics: Understanding the Tax Plans of Hillary Clinton and Donald Trump

By Berke GursoyPublished October 31, 2016

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Tax Policy isn't the most discussed or most controversial issue dividing the two candidates in this election, but for the American people, it may prove the most important outcome of the election. The tax plans of Clinton and Trump reflect those of their respective parties orthodox, and therefore represent two distinct visions of the American economy. Trump proposes across the board tax cuts centering on the wealthy in addition to easing the corporate tax rate and removing the estate tax. Clinton proposes maintaining the tax rate with increased taxes on the rich, maintaining of the corporate tax rate while eliminating certain loopholes and increasing the estate tax. They are opposites in policy and effect, Trump's is the tried and tested Republican policy of promoting short term growth at significant long-run cost, Clinton's is to cut into short-term growth for long term gain. With this information it is each American's decision over what policy would be best for them and the economic health of the nation as a whole.
By Berke Gursoy, 10/31/16

This election has, by any reasonable measure, been unique in American history. Hillary Clinton and Donald Trump are squaring off to decide the next President of the United States in a contest marked by unpredictability. However, there remain some consistencies with past contests. Indeed, in this election, as in every election, the issue of taxes has taken center stage as the candidates attempt to define their vision for the American Economy.  The tax plans of Trump and Democrat Clinton flow are a reflection of opposing philosophies over what is ailing the economy and American workers. This blog post examines the tax plans both candidates and the economic impacts they may have.


The issue of taxes, in particular, has beset the Trump campaign. The New York Times revelation that the candidate may not have paid income tax for 20 years being the most recent cause of controversy. Throughout his campaign, Trump has made the claim that as he has benefited from the loopholes in our tax code he is in the best position to "fix" them. His proposal would cut tax rates, simplify provisions, and reform business taxation. (1) The plan would reduce the number of income tax brackets from seven to three: 12, 25, and 33% respectively, creating an across the board tax cut. But the rich would benefit far more than anyone else, both in dollars and as a percent of income. The highest-income taxpayers would experience an average tax cut of nearly $1.1 million, over 14% of after-tax income. Households in the middle fifth of the income distribution would receive an average tax cut of $1,010, or 1.8% of after-tax income, while the poorest fifth of households would see their taxes go down an average of $110, or 0.8% of their after-tax income. (2) (3)

The rhetoric behind these cuts is reflective of the earlier Bush tax cuts, both clear examples of supply-side economics, efforts to stimulate growth by lowering taxes on so-called, "job creators." Overall all businesses, large and small, would benefit. Trump would slash the corporate tax rate from 35 percent to 15 percent. Moreover, he would apply that rate to partnerships and other types of businesses that currently pass their profits on to individuals who then are taxed at individual income rates as high as 39.6 percent. These "pass through" entities being a popular corporate structure for many small businesses. In sum, it is a tax plan favoring businesses and the wealthy. (4) Surprisingly, in regards to taxes, Trump reflects the traditional Republican message of supply-side economics. Popularly known as "Reagonmics" or "trickle-down economics", supply-side is a theory of Economic growth centered on the idea at greater tax cuts for investors and entrepreneurs  provide incentives to save and invest, and produce economic benefits that trickle down into the rest of the economy. (5)

 The claim of the campaign, and the Republican Party, is that these policies would boost economic growth by encouraging spending and investment. Furthermore, they claim it will be revenue neutral. However, experts are more dubious. According to the Tax Policy Center's analysis, this policy would lower revenues by 6.2 trillion over the next ten years. Including interest costs, the federal debt would rise by 7.2 trillion over the next decade and by 20.9 trillion by 2036. (6) (7)


Clinton's plan is an almost exact opposite of Trump's. Hillary Clinton's tax proposals, would raise taxes on high-income taxpayers, increase the child tax credit, modify taxation of multinational corporations, reform capital gains taxes, and increase estate taxes. Clinton's tax increases focus heavily on the wealthiest Americans; the highest 1% would pay 90% of the proposed tax increases. This would take three forms: a 4.5% tax increase on individuals who earn 2.5 million or more; a minimum effective tax rate of 30%, the "Buffet rule", for individuals earning more than a million per year; and a hard limit of 28%  on deductions that high earners can claim on their taxes. (8) She would end the carried interest provision, raise the estate tax, and increase a tax on capital gains, in an effort to encourage long-term investing. Overall, it is an incredibly ambitious plan to tax the rich. Taxes for the other brackets would remain relatively unchanged except for a proposed child tax credit for working-class families from a maximum of $2,000 a year, per child, for children 4 and under. (9) In addition, she proposes a new tax credit for out-of-pocket health-care expenses and for caring for a parent or grandparent. For the average citizen, however, there would be little really change, taxes would be a continuation of the current Obama era. 

In regard to businesses, Clinton has not purposed a change to the corporate tax rate but rather adjusting a series of rules in order to further her policy goals. For example, she would levy an exit tax of US corporations that become foreign residents through inversion, where companies shift their headquarters abroad in order to avoid taxes, or through the acquiring of a foreign company. These proposals are all in an effort to encourage businesses to keep themselves and their assets within the United States. (10)

These policies would undoubtedly raise revenue, the current estimate being an increase by 1.4 trillion in the next decade. Including interest, the deficit would be cut by 1.6 trillion by 2026 and 5.5 trillion by 2036. (11) However, these increased taxes especially on the wealthy decrease the incentives to save and invest and could potentially cut into growth. The Tax Foundation estimates Clinton's tax hikes would shave .19% of the GDP growth every year for the next decade, a risky proposition for a country fresh off a recession.  (12) However, per the same projection, in the end by 2027 these policies would increase the GDP by .4 by 2027. (13) In essence, it is short run cost vs long-run gain, a classic economics question. It is a tradeoff whose benefit can only be determined through a thorough analysis of the current economic state of the nation. (14)

Overall, both of the candidates' tax plans are representative of the orthodox of their respective party's ideology. The tax-happy Democrats and the tax-cutting Republicans. Regarding benefit, Trump's plan could have a short-term benefit, sparking investment and spending; however, in the long term Trump's plan would increase federal debt and harm the economy. Clinton's plan would reduce GDP in the short run but an increase in the long run.  In the end, we are back to short run vs. long run; that is the choice in regards to Tax policy in regards to this election.

1)
https://www.washingtonpost.com/news/wonk/wp/2016/10/14/who-would-win-and-lose-under-donald-trump-and-hillary-clintons-tax-plans/
2)http://www.taxpolicycenter.org/publications/analysis-donald-trumps-revised-tax-plan/full
3)http://www.foxbusiness.com/markets/2016/10/10/how-trump-and-clinton-tax-plans-would-affect-americans.html
4)http://www.taxpolicycenter.org/publications/analysis-donald-trumps-revised-tax-plan/full
5)
http://www.investopedia.com/articles/05/011805.asp
6)http://www.wsj.com/articles/donald-trumps-tax-plan-would-boost-economy-in-short-run-but-not-long-term-analysis-finds-1476726625
7)
http://www.taxpolicycenter.org/publications/analysis-donald-trumps-revised-tax-plan/full
8)
http://www.taxpolicycenter.org/publications/updated-analysis-hillary-clintons-tax-proposals/full

9)https://www.washingtonpost.com/news/wonk/wp/2016/10/14/who-would-win-and-lose-under-donald-trump-and-hillary-clintons-tax-plans/
10)http://www.taxpolicycenter.org/publications/updated-analysis-hillary-clintons-tax-proposals/full
11)http://www.wsj.com/articles/donald-trumps-tax-plan-would-boost-economy-in-short-run-but-not-long-term-analysis-finds-1476726625
12)https://www.washingtonpost.com/news/wonk/wp/2016/10/14/who-would-win-and-lose-under-donald-trump-and-hillary-clintons-tax-plans/
13)http://www.taxpolicycenter.org/publications/updated-analysis-hillary-clintons-tax-proposals/full
14)http://www.wsj.com/articles/donald-trumps-tax-plan-would-boost-economy-in-short-run-but-not-long-term-analysis-finds-1476726625