WHY IT MATTERS: Taxes

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Posted: Oct 22, 2016 1:56 AM
WHY IT MATTERS: Taxes

WASHINGTON (AP) — THE ISSUE: Politicians love trying to use the tax code to highlight their goals to voters. This year, it's a battlefield between Hillary Clinton, who wants to boost levies on the rich to pay for expanding social programs, and Donald Trump, who says cutting taxes would gird the economy. The clash has consequences for the rich, poor and those in the middle.

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WHERE THEY STAND

Trump: The Republican trotted out an initial plan but has pared it back twice so far. He'd slice individual income taxes across the board: the current seven brackets, which peak at 39.6 percent, would collapse into three tiers with a maximum 33 percent rate. The corporate tax rate would fall from 35 percent — which few companies pay because of deductions — to a maximum 15 percent. There would be new tax breaks for some expenses for caring for children or the elderly. And he'd eliminate the estate tax, which hits inheritances exceeding $10.9 million this year for married couples. The nonpartisan Tax Policy Center says the proposal would likely bestow "outsized benefits" to the wealthiest families, but it lacks sufficient detail to be too specific.

Clinton: The Democrat's proposal is more detailed than Trump's and targets the rich — big-time. She'd slap a 4 percent surtax on incomes over $5 million, impose a minimum 30 percent tax on those earning over $1 million and cap itemized deductions for higher earners. The Tax Policy Center said the bottom 95 percent of taxpayers — those earning under $300,000 — would see little if any change in their tax bill. She'd impose the estate taxes on inheritances starting at $7 million for couples. Clinton would leave corporate tax rates alone, though she'd raise levies on U.S. companies shielding overseas income and would eliminate tax breaks for fossil fuel producers.

Both candidates propose tax relief for child care costs. Trump's plan provides for a new income tax deduction for child care expenses, other tax benefits and a new rebate or tax credit for low-income families. Clinton says no family should spend more than 10 percent of its income on child care. She would double the child tax credit for families with children 4 and younger, to $2,000 per child.

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WHY IT MATTERS

One way or another, tax proposals by whoever becomes president will affect most Americans.

Clinton would hit the wealthy hard and use the money to bolster public works, medical research and other domestic programs. The Policy Center says the top 1 percent of households, with annual incomes averaging $2.1 million, would pay over three-quarters of the $1.1 trillion extra federal revenue her proposal would raise over a decade. Her plans would have a "relatively modest" tax impact on everyone else, the Policy Center says. She'd help working families pay college costs and cut taxes for companies that share profits with workers.

The Policy Center said last year that Trump's original plan would reduce revenue by $9.5 trillion over 10 years. His campaign says his newest, scaled-back version would cut taxes by $4.4 trillion over that same period. The Policy Center hasn't estimated the price tag of Trump's new proposal, citing a lack of detail, but says some of its estimates are unsubstantiated.

Under Trump's earlier proposal, people from all income levels would enjoy tax cuts but the best-off would benefit most, the center said. The top 0.1 percent of earners — with incomes exceeding $3.7 million — would have gotten tax breaks averaging over $1.3 million, or 19 percent of after-tax earnings. Though lacking enough detail to be precise, the group said, Trump's new plan "is probably somewhat less regressive," meaning it's less tilted toward helping the rich.

Major tax overhauls are enacted infrequently because they spark brutal battles over winners and losers, especially if Congress and the White House are controlled by opposite parties.

Yet with Republicans expected to retain House control next year, Speaker Paul Ryan, R-Wis., has already outlined plans to cut families' and businesses' taxes. He'd no doubt find it tougher to find common ground for reshaping the tax code if Clinton, not Trump, wins the White House.

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This story is part of AP's "Why It Matters" series, examining three dozen issues at stake in the presidential election. You can find the series at http://apne.ws/2bBG85a