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The distributional effects of the Trump and Clinton tax proposals

Haughton, Jonathan; Bachman, Paul; Bhattarai, Keshab; Tuerck, David G.

Authors

Jonathan Haughton

Paul Bachman

David G. Tuerck



Abstract

Hillary Clinton and Donald Trump, the Democratic and Republican candidates for President of the U.S. in 2016, proposed several changes in the federal tax code. Hillary Clinton would add a personal income tax surcharge of 4% on high annual incomes, limit the tax benefits of non-charitable deductions, set a minimum tax rate of 30% on taxpayers earning more than one million dollars a year, increase the tax rates on capital gains for taxpayers in the top tax bracket, and expand the base of the estate tax. Donald Trump would reduce the number of personal income tax rates, increase the standard personal deduction, cut all taxes on business income to no more than 15%, and abolish the inheritance tax. Using a tax calculator model, we estimate the static effects of these very different changes. Over a ten-year period, Clinton’s proposals would raise federal tax revenue by a total of $816 billion, an increase of 1.9% over projected baseline revenue, while Trump’s tax changes would lower tax revenue by $9.8 trillion. Clinton’s higher taxes would reduce incomes and revenue somewhat, while Trump’s tax cuts would potentially boost output substantially. Using an extended simulation model, we find that 86% of the incremental tax burden of Clinton’s tax increases would fall on those in the top tenth of the income distribution. Most other taxpayers would see only minor changes in their tax burdens, and the revenue and redistributive effects of her proposed changes are relatively modest. Meanwhile, 70% of Trump’s tax cuts would go to those in the top decile, and the effects are large, with gains of over $15,000 annually per person for this group, compared to gains of less than $500 per person for the poorest 40% of the population. On tax policy, the two candidates propose strikingly different policies.

Journal Article Type Article
Publication Date 2017-12
Journal Atlantic economic journal
Print ISSN 0197-4254
Electronic ISSN 1573-9678
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 45
Issue 4
Pages 453-472
APA6 Citation Haughton, J., Bachman, P., Bhattarai, K., & Tuerck, D. G. (2017). The distributional effects of the Trump and Clinton tax proposals. Atlantic Economic Journal, 45(4), 453-472. https://doi.org/10.1007/s11293-017-9554-6
DOI https://doi.org/10.1007/s11293-017-9554-6
Keywords Federal taxes, Tax reform, Presidential candidates, Distributional effects, Progressivity, Clinton, Hillary Rodham, Trump, Donald, 1946-
Publisher URL https://link.springer.com/article/10.1007/s11293-017-9554-6
Additional Information This is a description of an article published in: Atlantic economic journal, 2017.

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