Small Business and Tax Policy

For small businesses, two topics are consistently near and dear to our hearts in presidential elections: taxes and health care costs. 

There’s been heated debate on the issues during this election (and most for that matter).  And while I’m no political expert, I’m confident our new president will push for changes that affect the small business community – both good and bad.

To help sort through negative ads, debate & media circuses, and smear campaigns, I’ve compiled the remaining candidates’ positions on taxes and health care.

 

The Candidates

I’ve sorted them by where each falls on the political spectrum with regard to their tax policies.  We’ll start with most conservative, and work our way toward the most liberal.

 

Ted Cruz

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Personal Taxes

Ted Cruz has notably emerged as a proponent for a flat tax.  Cruz wants to tax all personal income and wages at 10%, and eliminate the estate tax and alternative minimum tax entirely.

Corporate Taxes

On the theme of a flat tax, Cruz wants to replace the payroll and corporate income taxes with a 16% flat business tax.  He also wants to eliminate tax on business profits earned abroad.

Cruz’s position is the most radical of the republican candidates, but the camp still claims that social security and medicare would remain fully funded after implementing his measures.

Interestingly the Tax Foundation, which is a group that supports lower tax rates, claims that Cruz’s plan would increase the federal deficit by up to $3.6 trillion over the next 10 years.  With potential economic growth, that number decreases to $768 billion.

Cruz has also been outspoken against the IRS, and wants to relegate tax collection and enforcement to another arm of the treasury.  He’s been critical of the IRS since their targeting scandal, and believes they should be made irrelevant through his tax plan.

Healthcare


As with all four republican candidates, Cruz vehemently wants to repeal the Affordable Care Act.

 

John Kasich

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Personal Taxes

Kasich has a track record of cutting taxes since taking office as Ohio’s governor in 2011.  He’s cut $5 billion since then by eliminating Ohio’s estate tax, cutting it’s income tax by 16%, and claims to have eliminated income tax altogether for many small businesses.

If elected, Kasich wants to reduce the number of federal tax brackets from seven to three, lower the top individual rate from 39.6% to 28%, and cap long term capital gains at 15%.  He also wants to eliminate the estate tax entirely.

Corporate Taxes

For businesses, Kasich wants to lower the top business tax rate from 35% to 25% and double the research and development tax credit for small businesses.  He also wants to allow businesses to repatriate profits earned overseas free of tax and penalty.

Kasich’s most radical idea is on the federal budget deficit.  He wants to freeze most federal spending (save for the military) for eight years in order to balance the budget.

Healthcare

Like all four republicans, wants to repeal the Affordable Care Act.

 

Marco Rubio

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Personal Taxes

Rubio’s tax plan was actually introduced in March of 2015 in the form of a Senate bill.  Thus, we have more specifics about Rubio’s plan than we do from other candidates.

Like Kasich, Rubio also wants to reduce the number of tax brackets to three from seven: 15%, 25%, and 35%.  Rubio is a big proponent of simplifying the tax code as well.  He wants to eliminate all exemptions and deductions, except for the charitable contribution deduction and a reformed home mortgage interest deduction.  Instead, Rubio wants to give out personal tax credits that phase out for higher income payers.

Additionally, Rubio wants to eliminate the estate tax and capital gains taxes entirely.

Corporate Taxes

For businesses, Rubio’s plan is to corporate taxes to no higher than 25%.  He also wants to offer a limited 25% non-refundable tax credit to any business that offers between four and twelve weeks of paid leave to workers with qualifying family or medical issues.  This would include caring for newborn babies, ailing elderly parents, personal health crises, or a spouse’s deployment.

Healthcare

And, of course, Rubio has been outspoken about his desire to repeal the Affordable Care Act.

 

Donald Trump

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Personal Taxes

Trump has made it clear that tries to minimize his personal taxes at all costs.   He’d like to remove the federal income tax entirely for individuals earning under $25,000 per year, and couples earning under $50,000.  He’d also reduce the highest individual tax rate from 39.6% to 25%.

The Tax Policy Center released an analysis of Trump’s tax plan in December.  The group found that Trump’s plan would cut taxes for all income levels, but the largest benefits in dollar and percentage terms would go to the highest income households.

Corporate Taxes

Trump wants to cut corporate taxes to no higher than 15%.  He and his camp continue to insist that his plan will be revenue neutral, which is a claim that’s come under fire.  The Center for Tax Justice claimed his plan would reduce tax revenues by $9 trillion over the next ten years, and the Tax Foundation estimated his plan would cost $10 trillion over the same period.

Healthcare

Thinks the Affordable Care Act is “digusting”, and “a total disaster”.  Unsurprisingly, Mr. Trump would also work toward a repeal.

 

Hillary Clinton

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Personal Taxes

Clinton is candidate most similar to Obama, and has made clear her intent to raise taxes on wealthy Americans.  Clinton’s plan seeks to tax the 1% an additional $78,000 on average, while keeping taxes for other Americans largely the same.

This is largely accomplished by eliminating the carried interest loophole, which allows wealthy financiers to pay artificially low rates, and tacking on a four percent “surcharge” on Americans making more than $5 million annually.

Clinton has also suggested lowering the estate tax exemption from over $5 million to $3.5 million, and increasing the top estate tax rate to 45%.

Corporate Taxes

On business taxes, Clinton has been less clear.  She’s spoken several times about closing corporate tax loopholes, but has not shared specific proposals.

She has however come out strongly against tax inversions.  In a tax inversion, a domestic company relocates it’s headquarters overseas in an effort to reduce its aggregate tax liability.  Several recent inversions have sparked debate about how best to curb this practice.  Clinton’s position is not unique, though, as nearly all candidates are generally against the tactic.

Healthcare

As far as I can tell, Clinton has supported the Affordable Care Act from the get-go.  She praises the Supreme Court for upholding the Act, and pledges to defend it if she holds office.  Her position is rather “status quo” when you compare it to the other candidates.  The republicans want to repeal it, and Bernie Sanders wants a universal system for all.

 

Bernie Sanders

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Personal Taxes

Bernie Sanders has grand aspirations for universal health care and secondary education……and they are expensive.

Sanders plans to hike taxes across the board to fund his plan.  Personal tax rates would rise to:

  • 37% on income between $250,000 and $500,000
  • 43% on income between $500,000 and $2,000,000
  • 48% on income between $2,000,000 and $10,000,000

Sanders would also:

  • Implement a 2.2% income based healthcare premium on households (to pay for the single payer system)
  • Raise taxes on capital gains
  • Limit deductions for those making over $250,000
  • Increase the estate tax

Corporate Taxes

On the corporate side Sanders strongest position is on how to pay for his healthcare system.  Sanders wants to implement a 6.2% income based healthcare premium paid for by employers.  His policy does not get specific with regard to corporate taxes, other than to say that he wants to close corporate loopholes.

Healthcare

One of Sanders’ strongest-held positions is on healthcare.  Sanders believes we should employ a universal, single payer system, whereby the government pays for healthcare for all.  Essentially this means medicare for everyone, and is in addition to his plan to finance college education with government dollars.

Sanders says his healthcare system will cost $1.38 trillion per year, which has been criticized as too low.

Summary

For small businesses, a republican president would obviously try to lower taxes, which is good for the bottom line.  A repeal of the Affordable Care Act is not a given though.  Lower marginal tax rates sound nice, but healthcare costs could go either direction under new policy.

A democratic president is a different issue.  While Clinton’s plan is largely more of the same, “the Bern” has much bigger changes in mind.

Whatever the outcome, the effects will come down your business model, cost structure, and how/if you offer benefits to your employees.

If this post helps helps anyone prepare for the next 12 months and beyond, I will deem it a success.  And if it did help you, please share it!

Posted in Entrepreneurship, Taxes & Accounting and tagged , , .

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