Democratic presidential nominee Hillary Clinton could have cut her 2015 federal tax bill roughly in half — lopping about $1.7 million from what she owed — under the plan offered by Republican rival Donald Trump.
Trump has pledged the biggest overhaul of the U.S. tax code since the 1980s, proposing cuts for individuals and businesses. His plan to slash tax rates on individuals’ business income to 15 percent — from a current top rate of 39.6 percent — would have benefited Clinton and her husband, former president Bill Clinton, according to accountants and tax specialists who reviewed the couple’s 2015 return.
By contrast, the Clintons would have paid at least $224,000 more in taxes under Hillary Clinton’s proposals, which include a 4 percent surtax for the highest earners and a cap on the tax benefit they derive from such deductions as home-mortgage interest.
The Clintons, who released their 2015 return on Friday, reported $10.6 million in adjusted gross income that year — enough to place them well within the top 0.1 percent of taxpayers. While their sources of income are atypical — they received millions of dollars in speaking fees and from book deals — their return offers clues as to how some high-earning taxpayers might fare under each candidate’s tax plan.
“Although it is difficult to make a precise calculation because there are always details that need to be clarified, it is nevertheless clear that Secretary Clinton would pay substantially lower taxes under Donald Trump’s plan than either current law or her own plan,” said William Gale, the head of federal economic policy at the Washington-based Brookings Institution. “Donald Trump’s proposed 15 percent tax rate on business income would represent a very large tax cut for Clinton.”
During the campaign, Trump has pitched his menu of tax cuts as a way to stimulate economic growth and create jobs. He has said his policy proposals, including his tax plan, his recommendations for regulatory overhauls and his call for boosting the domestic energy industry, would push growth to 4 percent annually. Clinton, meanwhile, touts her tax increases for high earners as a way to bring more fairness to a U.S. economy that she says is marked by rampant income inequality.
“Unlike Donald Trump, Hillary Clinton is not proposing a massive tax break for herself,” Josh Schwerin, a Clinton campaign spokesman, said in an e-mail. On Wednesday, Clinton is scheduled to discuss taxes during a campaign stop in Cleveland, where she’ll focus on the estate tax, according to her campaign. Trump wants to abolish that tax, which applies a 40 percent rate to estates worth more than $5.45 million, or $10.9 million for couples. Clinton wants to raise the rate to 45 percent and lower the value threshold to $3.5 million and $7 million respectively.
Trump’s campaign didn’t respond to requests for comment. One of Trump’s economic advisers said last week that the billionaire real estate mogul and reality television star intends to tweak his business tax plan to prevent potential abuse. “We are absolutely dedicated to making sure the 15 percent is for legitimate businesses,” economist Stephen Moore said in an Aug. 11 interview.
When Clinton released her 2015 return last week, her campaign sought to once again blast Trump, who has departed from 40 years of tradition in presidential campaigns and refused to release any of his returns.
Trump has said he’s under an audit by the Internal Revenue Service, and won’t make his tax information public until the audit is over. While there’s no law that would prevent him from releasing returns anyway, tax attorneys said doing so might disadvantage Trump by revealing his tax strategies to public scrutiny, perhaps surfacing issues that the IRS missed.
In 2015, the Clintons received almost $10.2 million — about 95 percent of their total earnings — in business income. They paid about $3.2 million in federal income taxes, their 2015 return shows, along with almost $390,000 in self-employment and other taxes for an effective federal tax rate of 34.2 percent.
If Trump’s plan were in effect, the income-tax portion of the Clintons’ tax bill could have been just $1.5 million — less than half what they actually paid. At that amount — and with their other taxes unchanged — their effective federal tax rate would have been about 17.6 percent.
Trump’s business-tax rate proposal “does cut their tax dramatically,” said Norman Solomon, a retired accountant in La Jolla, California. Brian Stoner, a certified public accountant in Burbank, California, called the tax calculations by Bloomberg News “a fair estimate” of what the Clintons would have paid under Trump’s proposals. Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, called the findings “generally correct.”
Trump’s plan would apply the same 15 percent rate to corporations, partnerships, limited liability companies, sole proprietorships and other so-called pass-throughs. Those sorts of entities don’t pay taxes; instead, they pass their income directly to their owners, who pay income taxes at their regular individual rates. The Clintons in 2015 operated two sole proprietorships and two LLCs; Bill Clinton’s is WJC LLC and Hillary Clinton’s is ZFS Holdings LLC, according to the return.
Trump has pitched his business-tax proposal as a boon for small businesses, which are often organized as pass-through entities. But as written, the plan would confer the same benefit on managers of private-equity, real-estate and other investment funds, which also use pass-through structures. Still, as the analysis of the Clintons’ tax return shows, it’s not just fund managers or mom-and-pop grocers who would benefit.
Trump last week tweaked his tax plan in an attempt to reduce its revenue cost from an estimated $10 trillion over 10 years to what aides say is now roughly $2 trillion. In addition to the 15 percent business rate, he’d offer rate cuts for individuals and reduce the existing seven tax rates to just three — topping out at 33 percent, down from the current 39.6 percent. More tweaks are on the way, according to Moore, the economist who is advising the campaign.
For example, Trump’s campaign has said he wants to limit the value of some itemized deductions — though details haven’t emerged yet. The campaign has indicated that Trump would preserve deductions for charitable contributions and home-mortgage interest, but hasn’t addressed state and local taxes, which are also deductible. The Clintons deducted almost $1.5 million in state income taxes and property taxes they paid in 2015. At the suggestion of Rosenthal at the Tax Policy Center, Bloomberg’s analysis disregarded those state and local tax deductions, adding their total back into the Clintons’ taxable income.
Still, Trump’s ultimate plan may differ. Moore said on June 12 that he and another Trump adviser, economist Lawrence Kudlow, have urged Trump to propose capping annual deductions at $50,000, but no formal plan has emerged.
With a $50,000 cap on their deductions, the Clintons would have had a much higher taxable income in 2015. They were able to deduct $2.2 million, their return shows, including a $1 million donation to the Clinton Family Foundation, which makes charitable grants, giving them taxable income of almost $8.4 million.
A $50,000 cap on deductions would have boosted their taxable income to $10.5 million. Under that scenario, Trump’s 15 percent tax rate would have set their income tax at almost $1.6 million — still roughly half the amount they actually paid.
Clinton has proposed tax increases on high earners, including a 4 percent surcharge on incomes over $5 million. Applying that to the couple’s 2015 adjusted gross income would have generated about $224,000 in additional income-tax liability.
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Clinton also proposes to cap the tax value of most itemized deductions at 28 percent — a move that would raise taxes for high earners. Taxpayers in the top tax bracket, like her and her husband, currently get roughly 39.6 cents of tax relief for every dollar’s worth of their deductions — subject to certain limits. For taxpayers in lower brackets, the amount of relief decreases. Capping the value of the Clintons’ deductions would raise their taxes — perhaps as much as $140,000, said Joe Rosenberg, a senior research associate at the Tax Policy Center.
Clinton also supports the proposed “Buffett Rule,” named for Warren Buffett, the chairman of Berkshire Hathaway Inc. That proposal is designed to ensure that individuals who make more than $1 million pay an effective tax rate of at least 30 percent. Because the Clintons’ effective tax rate already exceeded that threshold, the Buffett rule wouldn’t apply to their 2015 tax return.