It’s been an exciting campaign season so far for Americans interested in federal taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reform. Throughout the last few months, candidates in both parties have put tax policy at the center of their platforms, promising to make the federal tax system simpler, fairer, and better for the economy. Many candidates have also begun to issue concrete policy proposals of what changes they would make to the tax code.
We’ve conducted an extensive search of candidates’ public statements to gather every tax proposal that candidates have offered during the 2016 presidential campaign. Then, we’ve collected a summary of each candidate’s proposals in an interactive feature, which you can view here.
As shown in the feature, we’ve broken down candidates’ tax policy proposals into twelve issues, each concerning a different part of the federal tax code:
- Rates on Ordinary Income: There are currently seven tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s for ordinary income earned by individuals, at rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Adjusting these brackets and rates is one way to increase or decrease the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. burden on different segments of the population.
- Itemized DeductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. s: The tax code contains dozens of itemized deductions that households can apply to lower their taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. . These deductions range from the mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act reduced the amount of principal and limited the types of loans that qualify for the deduction. to the deduction for state and local tax payments. Itemized deductions are often cited as a source of complexity in the tax code.
- Credits: While deductions lower a household’s taxable income, credits lower its overall tax burden. Among the dozens of credits in the tax code, the Earned Income Tax Credit and the Child Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. are two of the most well-known. Many tax credits are designed to benefit low-income Americans.
- Alternative Minimum Tax: The alternative minimum tax was enacted in 1982, to increase the tax burden of households that make extensive use of tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions. s and credits. It is usually considered one of the most complex portions of the individual tax code.
- Rates on Capital Gains and Dividends: Income from capital gains and dividends is taxed at lower rates than other income, with a top rate of 23.8%. Some see these rates as preferential treatment for the wealthy, while others see them as a measure to prevent the double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. of investment income.
- Corporate Income TaxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. Rate: Corporations also pay income taxes, at rates up to 35%. Although the U.S. corporate income tax rate is the highest in the industrialized world, corporate taxes make up a relatively small share of federal revenue.
- Treatment of Capital Investment: Businesses that invest in new capital (such as machines, buildings, or equipment) are not able to deduct these costs as they occur. Instead, they are required to spread out the deductions over time. The length of time a business needs to write-off investment has a significant impact on its cost. In recent years, Congress has temporarily allowed businesses to deduct, or “expense,” 50% of investment costs in the year they occur. Some have called for this provision to expire, while others have called for it to be expanded, to allow businesses to fully expense all capital investments.
- Treatment of International Income: The United States is one of the few countries with a worldwide tax systemA worldwide tax system for corporations, as opposed to a territorial tax system, includes foreign-earned income in the domestic tax base. As part of the 2017 Tax Cuts and Jobs Act (TCJA), the United States shifted from worldwide taxation towards territorial taxation. , where businesses pay taxes on income earned overseas. However, businesses are often able to defer paying taxes on international income, until they return the income to the United States. Most other countries have “territorial” tax systems, in which corporations’ foreign income is exempt from domestic taxation.
- Treatment of Pass-through BusinessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. Income: The majority of American businesses are not subject to the corporate income tax. Businesses such as partnerships, sole proprietorships, and S corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). s now account for more than half of all business income and employ more than half of the private sector workforce. These entities are known as pass-through businesses, because their profits are passed directly to the businesses’ owners and are taxed on the owners’ individual income tax returns, not through the corporate income tax.
- Payroll TaxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. es: In addition to income taxes, individuals face two payroll taxes, which are taken directly from paychecks and are used to partially fund Social Security and Medicare. The Social Security payroll tax only applies to the first $118,500 of wages, while the Medicare payroll tax applies to all wages. These taxes comprise a significant portion of most Americans’ tax bills.
- Estate TaxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. : The estate tax is levied on the net value of property owned by deceased persons on the date of their death. Currently, estates are taxed a rate of 40% on assets over $5 million. As a result, the estate tax raises relatively little revenue and is difficult to collect.
- Other Taxes: This category includes major aspects of the tax code that don’t fit neatly into the other eleven categories, as well as any new taxes that candidates propose.
While some presidential candidates have issued tax reform proposals that touch on almost all of these areas of the tax code, other presidential candidates are not listed as having offered any tax policy proposals at all. In part, this is because the 2016 presidential campaign is still young, and candidates may be waiting to finalize comprehensive tax reform plans. It is also because we’ve employed fairly strict criteria for what counts as a tax reform proposal. Specifically, the table does not include:
- Statements made before January 1st, 2015. Several of this year’s presidential candidates have been in public life since the late 1980s – and while the federal tax code hasn’t changed much during that time period, politicians have been known to change their minds. This chart is meant to capture the visions that candidates have offered the American public during this election cycle.
- Candidates’ past records on tax issues. Candidates who have served as state governors and in Congress have often had to take stances about proposed changes to federal and state tax codes. While these records may shed light on candidates’ general approaches to tax issues, they do not necessarily reflect their plans going forward for the federal tax system.
- Aspirations expressed by candidates. Many candidates have promised to simplify the tax code, raise or lower various rates by unspecified amounts, decrease the tax burden on working families, and close loopholes. However, these broad aspirations are no substitute for concrete policy proposals, and are not included on this chart.
- Other policy areas that use the tax code as a policy tool. The federal tax code is complicated, and virtually every policy area – including healthcare, energy, and transportation – has something to do with taxes. Some candidates have offered policy proposals that use the tax code as a tool to provide health insurance subsidies, decrease greenhouse gas emissions, or achieve other policy ends. In the interest of keeping things simple, this chart only captures candidates’ positions regarding the major structural elements of the federal tax system.
As more candidates offer tax policy proposals, we’ll be sure to update this table regularly with their plans. In addition, with over twenty candidates in the field, there’s always a chance we may have missed something. If you have any thoughts about how to improve this table, shoot us an email at firstname.lastname@example.orgShare