Download FISCAL FACT no. 531: Capacity and Assay of Hillary Clinton’s Tax Proposals, October 2016 (PDF)
Over the accomplished year, aloft Secretary of State Hillary Clinton has proposed a cardinal of new taxes on individuals and businesses. The majority of her proposals accession taxes anon on advantageous taxpayers. Her plan would achieve a new surtax on taxpayers with incomes aloft $5 million, a 30 percent minimum tax (the Buffett Rule), a absolute on itemized deductions to a tax bulk of 28 percent, and an acreage tax access to a top bulk of 65 percent for estates annual $1 billion or more. She would additionally achieve a cardinal of targeted tax behavior that would appulse businesses, such as a new “financial risk” fee on ample banks, the aishment of tax expenditures accompanying to the deposit ammunition industry, and several tax cuts for baby businesses. Her plan would additionally cut taxes for lower- and middle-income taxpayers through an amplification of the Child Tax Credit.
Our assay finds that the plan would access acquirement by $1.4 abundance over the aing decade on a changeless basis. The plan additionally increases bordering tax ante on both activity and capital. As a result, we appraisal that the plan would abate long-run GDP, abate wages, and abate the calm akin of full-time agnate jobs. Due to the abate abridgement and the narrower tax base, the plan would access acquirement beneath on a activating basis: $663 billion over the aing decade. We additionally acquisition that the tax plan would accomplish the tax cipher added progressive.
Our assay does not annual for any abeyant macroeconomic furnishings of any of Secretary Clinton’s spending proposals.
Note: The asterisks (*) announce accoutrement that did not accept abundant detail from the campaign, or accessible abstracts to model.
Since we appear our aboriginal assay of Secretary Clinton’s tax proposals, her attack has alien a cardinal of new behavior that decidedly impacted both our advance and acquirement estimates. We additionally bigger our estimates of absolute behavior based on added advice appear by the campaign.
The best cogent change to Secretary Clinton’s plan is the Child Tax Acclaim expansion. Her antecedent tax plan did not accommodate any tax cuts for lower- and middle-income taxpayers that were abundant abundant to model. Since then, she has alien an amplification to the Child Tax Credit. This amplification provides an added $1,000 acclaim for accouchement beneath the age of 5. In addition, the campaign’s plan would activate phasing in the acclaim at the aboriginal dollar of becoming income. Beneath accepted law it begins phasing in at $3,000 of becoming income. Lastly, the added $1,000 acclaim for accouchement beneath 5 would appearance in at 45 percent. The accepted acclaim would abide to appearance in at 15 percent.
Another cogent change to the plan is Secretary Clinton’s amplification of her acreage tax proposal. Previously, her plan alone proposed adopting the acreage tax by abbreviation the exclusion from the accepted $5.45 actor ($10.9 actor for couples) to $3.5 actor ($7 actor for couples). In her best contempo plan, she would still abate the absolution to $3.5 million, but would additionally tax beyond estates progressively up to a top bulk of 65 percent. She additionally commutual the amplification of the acreage tax with a modification to the accession abject in basic gains.
Her best contempo changes additionally alien a cardinal of business tax reforms. Her plan now includes an amplification of Section 179, an amplification of banknote accounting, a abundant access in start-up bulk deductions, and a new baby business accepted deduction. The attack additionally alien reforms to the Net Investment Assets Tax and self-employment taxes that would accession taxes on assertive business owners and would absolute the tax bulk of like-kind exchanges.
In accession to the addition of new policies, we bigger the appraisal of several absolute policies.
Previously, we affected that the new 4 percent surtax on aerial assets taxpayers would accomplish abundant like a new tax bracket, which would administer to taxable assets aloft $5 million. Based on advice provided to the Tax Action Center from the Clinton campaign, our new assay now assumes that this surtax is activated to Adapted Gross Assets aloft $5 million. We additionally affected in our aboriginal assay that the 28 percent limitation would administer alone to itemized deductions. In our adapted estimates, we affected that the 28 percent limitation would be identical to the one proposed by President Obama. As such, this limitation applies to all itemized deductions except the accommodating deduction. It additionally applies to tax expenditures for employer-provided bloom insurance, borough band interest, and above-the-line contributions to retirement accounts. Lastly, we reexamined our appraisal of Secretary Clinton’s basic assets angle and adapted our assumptions about its appulse on realizations behavior.
Because campaigns are not in the business of crafting aldermanic language, it is generally the case that abounding proposals are too ambiguous to archetypal precisely. As a result, it is all-important to accomplish assumptions about how attack proposals would operate; but if a angle is abundantly vague, it may be all-important to leave it out of the assay altogether.
Throughout the campaign, Secretary Clinton has proposed several tax behavior after advertence absolutely how they would work. For instance, she has proposed new tax credits for caregiver costs and abroad healthcare costs, but has not defined their parameters. She has additionally adumbrated that she wants to accompany business tax ameliorate that would accession acquirement and has put alternating abate business-related behavior such as a high-frequency trading tax, a baby business accepted deduction, and a tax acclaim for accumulation sharing, after absolutely allegorical the details.
It is cryptic absolutely how abounding of these behavior would work, and slight differences in our clay assumptions could decidedly adapt how these behavior would appulse taxpayers’ after-tax incomes, federal revenues, and the economy. A business tax ameliorate could booty abounding forms. A business tax ameliorate that cuts the bordering bulk and broadens the tax abject may be acquirement positive, but it could accept capricious impacts on the abridgement depending on which abject broadeners were used.
Without added detail about the amplification of the business tax ameliorate and added policies, it was all-important to omit abounding of them. However, abounding of Clinton’s proposals are actual agnate to those alien by President Obama in several of his budgets. These behavior accommodate a coffer “risk fee,” the aishment of deposit ammunition tax expenditures,” reforms to the Net Investment Assets Tax and self-employment taxes, and changes to anti-base abrasion and antagonism rules. For these policies, we modeled them and affected that they would accomplish analogously to those in the president’s budgets.
According to the Tax Foundation’s Taxes and Advance Model, Secretary Clinton’s tax plan would abate the economy’s admeasurement by 2.6 percent in the continued run (Table 2). The hardly abate abridgement would advance to 2.1 percent lower wages, a 6.9 percent abate basic stock, and 697,000 beneath full-time agnate jobs. The abate abridgement after-effects from somewhat college bordering tax ante on basic and activity income.
These projections are what we appraisal would appear at the end of a ten-year aeon and are compared to the basal baseline of what would action absent any action change. For example, the U.S. absolute GDP will abound by 19.2% from 2016-2025, according to the Congressional Budget Office (CBO), if action charcoal unchanged. We adumbrate that the bargain incentives to work, save, and advance would abate the end-of-period GDP by 2.6 percent beneath the akin it would accept been after the action change.
If absolutely enacted, Clinton’s tax proposals would access federal acquirement by $1.4 abundance over the aing 10 years on a changeless abject (Table 3). Best of the acquirement accretion is due to added alone assets tax revenue, which we activity to bulk to about $817 billion over the aing decade. The changes to the acreage tax will accession an added $310 billion over the aing decade. The actual $300 billion would appear from added accumulated and amount tax revenues.
On a activating basis, the plan would access federal revenues by $663 billion over the aing decade. The hardly abate abridgement would abate wages, which would attenuated both the alone assets and amount tax bases. As a result, the alone assets tax proposals would accession beneath than bisected as abundant acquirement as they do beneath the changeless analysis, while amount tax revenues would decline.
The better sources of acquirement in the plan are the new taxes targeted at advantageous taxpayers (Table 4). The addition of the Buffett Rule, the 28 percent cap on itemized deductions and tax expenditures, and the new 4 percent surtax on advantageous taxpayers would accession about $758 billion on a changeless basis. On a activating abject they accession hardly beneath ($556 billion) due to their appulse on the accumulation of activity and capital.
Clinton’s proposals to aggrandize Section 179, banknote accounting, the start-up deduction, and the ACA acclaim amplification would abate acquirement by about $44 billion over the aing decade, abate the bulk of capital, and addition the long-run admeasurement of GDP by 0.12 percent. However, all of her business proposals, which accommodate the coffer “risk fee,” the reforms to the Net Investment Assets Tax, the eliminations of deposit ammunition expenditures, and her behavior to strengthen abject abrasion and anti-inversion rules, would end up adopting acquirement on net.
Clinton’s new acreage tax angle has the distinct better bread-and-er appulse of all her policies. Her acreage tax angle would accession about $309 billion over the aing decade, or about 19 percent of the absolute acquirement appulse of her plan. Yet, the new acreage tax would annual for about 40 percent of the bread-and-er appulse of the plan. This is because the abundant college bordering acreage tax ante would abundantly abate the allurement to save and invest.
We appraisal that Clinton’s broadcast Child Tax Acclaim would abate federal acquirement by $199 billion over the aing decade.
A cardinal of proposals that would accept an appulse on federal revenues and the long-run admeasurement of the abridgement accept been bare from the analysis. They accept been bare because the attack has not provided abundant detail or there is bereft abstracts to archetypal the proposals.
On a changeless basis, Clinton’s tax plan would accession taxes on the top 20 percent of taxpayers and cut taxes for taxpayers in all added assets quintiles. Taxpayers in the top quintile (between 80% and 100%) would see a abridgement in after-tax assets of 2.1 percent. Those in the top 10 percent (between 90% and 100%) would see a abridgement in assets of 2.8 percent. The top 1 percent of all taxpayers would see the better abridgement in after-tax assets of 6.6 percent. Taxpayers in the three average quintiles would see an access in after-tax assets of amid 0.1 percent and 0.5 percent. The better access in after-tax incomes (2.2 percent) would go to taxpayers in the basal quintile.
After the abridgement has adapted to the new calm akin of GDP, wages, and employment, all taxpayers would see a abridgement in after-tax assets of at atomic 0.1 percent. Taxpayers who abatement in the average three quintiles would see their after-tax incomes abatement by amid 1.8 percent and 2.4 percent. The top 20 percent of taxpayers would see a abridgement in after-tax assets of 4.2 percent. The top 1 percent of all taxpayers would see the better abatement in after-tax income: 8.4 percent. Taxpayers in the basal quintile would see a slight abridgement in after-tax assets of 0.1 percent.
Hillary Clinton would achieve a cardinal of tax behavior that would accession tax acquirement over the aing decade in adjustment to armamentarium new or broadcast programs. If enacted, her tax behavior would appoint hardly college bordering tax ante on basic and activity income, which would aftereffect in a slight abridgement in the admeasurement of the U.S. abridgement in the continued run. This would abatement the acquirement that the new tax behavior would ultimately collect. The plan would accomplish the tax cipher added accelerating overall, but would advance to lower after-tax incomes for taxpayers at all assets levels, but abnormally for taxpayers at the top.
The Taxes and Advance Archetypal does not booty into annual the budgetary or bread-and-er furnishings of absorption on debt. It additionally does not crave budgets to antithesis over the continued term, nor does it annual for the abeyant macroeconomic or distributional furnishings of any changes to government spending that may accompany the tax plan.
We modeled all accoutrement categorical above, with the barring of those apparent with an asterisk (*) due to either abridgement of detail from attack or abridgement of acceptable data. We affected that all accoutrement were allowable in the alpha of 2016. We accounted for abeyant capricious costs for accoutrement such as the behavior appulse of the new basic assets captivation aeon schedule. Both the changeless and activating acquirement impacts of the plan are about to the CBO’s accepted law baseline.
In clay the distributional appulse of the plan we chase the assemblage that changes to the accumulated assets tax are anesthetized to basic and labor. We accept on a changeless abject that 25 percent of the accumulated tax change is anesthetized to activity and 75 percent is anesthetized to capital. On a activating basis, changes to the accumulated assets tax abatement on basic and activity in admeasurement to their allotment of agency income: almost 70 percent activity and 30 percent capital.
 Richard Auxier, et al. “An Assay of Hillary Clinton’s Tax Proposals,” March 3, 2016. Tax Action Center http://www.taxpolicycenter.org/sites/default/files/alfresco/publication-pdfs/2000638-an-analysis-of-hillary-clintons-tax-proposals.pdf
 Alan Cole, “Modeling the Acreage Tax Proposals of 2016,” June 14, 2016. https://taxfoundation.org/article/modeling-estate-tax-proposals-2016
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