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    Election 2016: The Democratic Candidates and Their Tax Plans
    The Vault

    Election 2016: The Democratic Candidates and Their Tax Plans

    August 2015

    We've taken a look at the Republican candidates and their plans to reform taxes (part 1 and part 2).  Let's now turn our attention to the Democratic candidates:


    Lincoln Chafee

    The independent Rhode Island governor and former Republican senator from Rhode Island has yet to put forward a detailed tax plan.  On his campaign website, Chafee expresses disapproval of the Bush-era tax cuts stating, “I voted against every Bush tax cut that favored the wealthy and deepened the disparity between the few and the many.”  This, combined with his voting record in the Senate, gives us a good idea of where Mr. Chafee would stand on tax reform.  

    Chafee has spoken publicly advocating reform of the estate tax and repeal of the so-called marriage tax penalty, voting YES on HR.4810, the ‘Marriage Penalty Tax Elimination’ bill, that would reduce taxes on married couples by increasing their standard deduction to twice that of single taxpayers.  In 2010, Chafee voted NO on H.R.8, a bill that would eliminate the tax imposed on estates and gifts by 2010.  He also voted no on permanently repealing the ‘death tax’.  Chafee opposes making income tax flatter and lower.


    Hillary Clinton

    The clear Democratic frontrunner and former U.S. Secretary of State has focused her tax plans on capital gains. Clinton says she would replace the current system with a maximum 20 percent rate on long-term gains from assets held longer than one year with one featuring rates of 39.6 percent to 20 percent under a graduated holding period spanning six years. In addition, she would allow a 0 percent capital gains rate for qualified small business stock (QSBS) held more than five years and investments in certain low-income communities. Finally, Clinton has supported a permanent reinstatement of the research credit and would authorize two new business credits, one for employers who train workers and another for those allowing employees to share in profits. This week, Clinton stated she was open to raising Social Security taxes on six-figure earners and rolled out a college affordability plan which she says will cost $350 billion over 10 years.  Clinton plans to pay that bill fully “by limiting certain tax expenditures for high-income taxpayers." Part of those limits would be cutting back on the number of itemized deductions for high earners.


    Martin O’Malley

    The former Maryland governor is running on a platform that consists mainly of affordable college tuition, a $15 minimum wage, and stronger labor unions.  Just how he plans to pay for this remains a mystery as he has not yet released his position on tax reform.

    What we do know about O’Malley is that he has a history of raising taxes. According to the Cato Institute, "In his first year as governor, O’Malley signed a $1.4 billion package of tax increases. It included increases in corporate taxes, personal income taxes, sales taxes, and cigarette taxes."

    Under O’Malley, Maryland singles earning more than $100,000 and couples earning more than $150,000 saw their income tax rate raised to 5.75 percent. Local taxes in Maryland bring the total top income tax rate to 8.95 percent. O’Malley’s legislation also reduced personal exemptions under the income tax.

    In 2013,  O'Malley signed House Bill 1515, which raised the gas tax.


    Bernie Sanders

    The Vermont senator recently introduced the “Responsible Estate Tax Act” lowering the $5 million inflation-indexed estate tax exemption ($5.43 million in 2015) to $3.5 million, while raising the top estate tax rate from 40 percent to 55 percent. Sanders also supports scaling back the annual gift tax exclusion (which is $14,000 per recipient in 2015). In previous years, Sanders has proposed taxing long-term capital gains and dividends received by the top-earning 2 percent of taxpayers at ordinary income tax rates.


    Jim Webb

    This former Virginia senator is tough to figure out.  He hasn’t yet produced a tax plan for his presidential campaign.  In his public comments, his views seem to be conflicting.

    Webb has proposed taxing investment income at the same higher tax rate that applies to wages. He has also proposed ending offshore profit-shifting by multinational corporations by closing the “deferral” loophole. On the other hand, Webb suggests that the nation should consider “shifting our tax policies away from income and more toward consumption.” How Webb can square a consumption-based national tax system with shifting more tax burden to investment income remains to be seen.

    During his time as a senator, Webb advocated for ending deferral, the policy that allows multinational corporations to indefinitely defer paying taxes on their foreign income, which is often U.S. profit that has been shifted offshore for tax purposes.  Webb is one of only a few senators who have taken such a strong position against this corporate tax loophole.

    Webb has also been a consistent critic of the preferential tax rates on capital gains and dividends. While Webb supports increasing the capital gains and dividends tax rate, he opposes increasing tax rates on ordinary income such as wages. He was one of only five Democrats to vote against legislation that would have repealed the Bush tax cuts for those making more than $250,000. Webb reasoned that it would be preferable to raise the capital gains and dividend tax rates instead and to leave the Bush tax cuts on ordinary income in place.


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