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Key 2016 Election Issues: Tax Reform



Our most current survey, 70% of businesses noted that tax reform is a significant issue for them. And it's one that there's a pretty clear cut line of demarcation between the Hillary camp and the Trump camp.

Hillary's general focus is really to look at the high earners and try to use the tax code to maybe get a little bit more revenue from the wealthy, whereas Trump's view is more of a tax cut both on the individual and on the business side, with the view that will help move along some growth in the economy and like that.

On the individual tax side, Hillary is really, again, focused on the high earner side of things. For the highest earners, people earning $5 million a year or more, she's advocating a 4% surtax that's really focused, again, at the highest earners out there. She's also looking to make sure that anybody that's earning a million dollars or more is paying a minimum of 30% on that income. Also looking to cap itemized deductions at 28%.

So again, a lot of things that are going to really focus on the wealthier side of the segment. Trump is really looking to change and condense the tax rates to just three from the seven they are now.

He's not looking to make any changes relative to itemized deductions or any significant changes to deductions or things like that. On the corporate side, Hillary really isn't focusing on the tax rates as much.

She hasn't really talked much about corporate tax rates or business tax rates. She's been very focused on penalizing companies that are currently moving headquarters overseas to try to avoid paying US taxes on profits. She is, though, looking at some more targeted incentives around certain areas, like an increased benefit or tax credit for starting up a business, for hiring apprentices or newer employees, really simplifying business tax filing, as well as letting companies with lower revenues use cash based accounting methods, which again would be a much easier way to go.

Trump has a pretty significant change there. He would cap out corporate business rates, tax rates, at 15%. And that would also include pass through structures, like S corps and partnerships would also pay taxes at that 15% rate, which would be a significant benefit or seen as a significant benefit by many businesses.

To kind of counteract that, he would take away a lot of the business benefits that are out there now. He would keep some things for manufacturing and child care that's provided by employer and so forth. But by and large, that's a pretty bright line in terms of really reducing business taxes. His point there is by doing that, some of these companies that are keeping money overseas would be much more inclined to move it back to America and to hire and spur the economy by having a much better tax realm there.

So that's a really significant difference from a tax perspective, and two pretty bright line differences in terms of the stance of both candidates. In terms of how quickly tax reform changes could go through, usually tax items take a little bit longer.

There's a lot of moving parts, a lot of congressional actions that have to typically take place for sweeping and more significant changes. So this would be one that a business would certainly want to do plenty of preplanning on, but would likely have some time to make sure that you are where you want to be before the changes would actually become effective. But this is one where it's really going to be important to work with a trusted tax advisor, tax attorney, or CPA to really do a little bit of reconnaissance beforehand to determine what the best course of action might be. And certainly where we can, because some of the things that have been proposed in terms of some of the very specific things that might be considered for very specific tax incentives, there's things that we have at Paychex can do to help you manage how many employees you're hiring or are they new employees that are of a certain age and so forth.

So generally it's a lot of education and a lot of analysis. Beyond that, it's where we have specific areas where our tools and our products can be of particular assistance. We'll make sure that we continue to emphasize that opportunity.

Key 2016 Election Issues

Part 2: Health Care Reform | Part 3: Employment Law | Part 4: Immigration | Part 5: Retirement

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.