Economic Plans of the Presidential Candidates

It may seem like it will never end, but the Presidential campaign will soon be over.  (Let us please not have a recount like Florida in 2000!)  Polls are suggesting a presumptive winner.  Nonetheless, the number of undecided voters are at record levels, which introduces unprecedented uncertainty into the election.  With that caution in mind, let us compare what we know about the economic priorities of the two candidates with particular emphasis on how their plans would influence charitable giving. 

The Tax Foundation has released an analysis of each candidate’s tax plan.  It concludes that Secretary Clinton's proposals would lead to decreases in gross domestic product, investment capital, wages, and jobs. Mr. Trump's proposals would generate increases in GDP, investment, wages, and jobs, but at a cost.  His tax plan would create large revenue shortfalls with a corresponding explosion of the national debt.  Secretary Clinton's proposals would increase government revenue modestly with a corresponding moderate reduction in the national debt.

Highlights of Secretary Clinton’s Proposal

• Proposes a limitation on itemized deductions except for the income tax charitable deduction.
• Creates a 4% surcharge on taxpayers with annual incomes above $5 million.
• Taxes carried interest at ordinary income tax rates instead of at lower capital gain and dividend tax rates.
• Increases long-term capital gains rates to between 39.6% for assets held less than two years to 20% for assets held six years or more.
• Reduces the estate tax exemption from over $5 million to $3.5 million and from nearly $11 million to $7 million for married couples. It also imposes a 65% top estate tax rate on taxable estates of $1 billion or more, a big increase from the current 40% top rate.

Highlights of Donald Trump’s Proposal

• Caps itemized deductions (including charitable contributions) at $100,000 for single filers and $200,000 for married couples filing jointly.
• Taxes carried interest at ordinary income tax rates instead of at lower capital gain and dividend tax rates.
• Eliminates estate and gift taxes, but excludes inherited assets in excess of $10 million from a step-up in basis.
• Consolidates federal income tax brackets into 12%, 25%, and 33% brackets and eliminates the 3.8% Medicare surcharge.

Secretary Clinton’s plan would raise tax revenue over the next decade in order to fund new or expanded programs.  Her proposed policies impose slightly higher tax rates that would decrease the revenue that the new tax policies would ultimately collect.

The Trump tax plan would reduce taxes on individual and corporate income that could increase the size of the U.S. economy in the long run. At the same time, the plan would reduce Treasury revenue by as much as $4 trillion over 10 years.

The experience of fundraisers over the years and supporting data suggest an increase in tax rates encourages donors to increase their charitable giving.  Secretary Clinton’s plan to increase taxes on individuals and leave the income tax charitable deduction untouched would likely be good for news for philanthropy.  Conversely, Donald Trump’s cap on the itemized income tax charitable deduction and elimination of the highest income tax brackets (35% and 39.6%) would significantly reduce the income tax benefits for the most generous donors, the source of a disproportionate share of all philanthropy. These changes would likely result in a decrease in charitable giving from some of these donors.  This reduction could be mitigated if Trump’s plan puts more money in the pockets of Americans.  

Of course, the President cannot unilaterally make any of the changes to the tax code described above.  It takes a united Congress to enact comprehensive tax reform in whatever form that might take.  When it comes to tax policy, the race for President is not the one to watch. The races in the Senate and the House will exert a strong influence on the shape of future tax legislation and the impact it has on charitable giving.

The potential changes to the composition of the House and Senate notwithstanding, we believe that the Clinton plan will ultimately be better for the non-profit community and will result in a more conducive atmosphere for giving.  What do you think?