Should You Worry about Election-Year Tax Plans?

As Americans, we should be generally concerned with who our next President will be. The outcome has both personal and professional implications for you, even if you’re one of my international readers.

Presidential Seal by Jason Seliskar via FlickrWho will be best for the future of the nation and the world? Who will voters elect?:

Whether you’re a nonprofit manager, fundraising professional, and/or donor, you should also be concerned about which of the candidates will be best for the charity sector. Government policies, particularly tax policies, can have a significant impact on charitable giving.

If new government policies lead to greater economic growth, nonprofit organizations will likely benefit. Giving USA has shown that charitable giving consistently correlates to roughly two percent of Gross Domestic Product. So, if the nation experiences more robust economic growth, we can expect more robust philanthropic growth. The converse is also true.

If new government policies lead to greater personal income, nonprofit organizations will likely benefit as Giving USA has revealed that giving also consistently correlates to approximately two percent of personal income.

So, which Presidential candidate is best? Well, that’s a simple question with a complex answer. Evaluating the potential impact of each plan will never generate a consensus among economists. Furthermore, it’s doubtful that any of the plans will be adopted as presented. Congress will still have its say. And Speaker of the House Paul Ryan has introduced his own tax proposal.

While I will not tell you which candidate will be best for the country and the nonprofit sector — I don’t happen to own a crystal ball — I will provide you with a few key, relevant highlights of each plan. I hope you’ll then take the time to learn a bit more about each candidate and his/her proposals so that you can make an informed choice this November and be prepared when change arrives.

I also encourage you to visit the seemingly non-partisan website I Side With to take a quiz that will match your answers with the positions the candidates have taken on a variety of issues. At the conclusion of the quiz, you’ll be told how your positions align with those of each of the candidates. The results might surprise you. If you’re one of my international readers, I still encourage you to take the quiz to see how our presidential candidates align with your values so you’ll know who to root for.

Now, let’s take a brief look at some of the highlights from the various tax proposals:

Hillary Clinton:

  • Retain the current seven tax brackets.
  • Impose a four percent surtax on those with incomes above $5 million.
  • Apply a minimum tax rate to those earning $1 million or more (The Buffet Rule).
  • Increase the capital gains tax to a maximum rate of 47.4 percent for assets held less than six years.
  • The lowest capital gains tax rate would remain at the current level of 27.8 percent.
  • The charitable gift deduction would remain untouched.
  • Raise the estate tax rate from 40 percent to 45 percent while reducing the exemption from $5.45 million to $3.5 million.

Gary Johnson:

  • Eliminate all income and payroll taxes replacing them with a single consumption tax.
  • Taxes on purchases for basic necessities would be “prebated.”
  • The Internal Revenue Service, as we know it, would be eliminated.

Donald Trump:

  • Reduce the current seven tax brackets to three (10, 20, and 25 percent).
  • Tax capital gains at a reduced, flat rate of 25 percent.
  • The charitable gift deduction would remain untouched.
  • Expand the standard deduction that would likely have 86 percent of itemizers opt to take the standard deduction instead.
  • Eliminate the estate tax.
  • Reduce the top corporate tax rate from 35 percent to 15 percent.

Paul Ryan:

  • Eliminate all deductions except the charitable and mortgage interest deductions, but with some expected changes.
  • Expand the standard deduction that would reduce the number of people who itemize their deductions to nearly five percent, from the current one-third.
  • Reduce the current seven individual tax brackets to three (12, 25, and 33 percent).
  • Decrease the corporate tax rate to 20 percent.
  • Create a new business tax rate for pass-through companies, like partnerships and LLCs, of 25 percent. Under current law, this income is taxed as high as 39.6 percent.
  • Reduce the tax on capital gains, dividends and interest by allowing individuals to deduct 50 percent of this investment income, which means rates of 6, 12.5, and 16.5 percent on investment income depending on the individual’s tax bracket.
  • Eliminate the estate tax.

As you can see, each of the proposals would have profound, varying implications for the nation and philanthropy.

While we don’t know who will win the presidency, and we can’t predict which proposals will be adopted and in what form, it is safe to assume that the existing tax code will undergo some sort of change in the near future. Those changes will have an impact on charitable giving, either directly or indirectly.

We all need to be informed so we can make our choice in the voting booth. We also need to be informed so we can be prepared professionally, rather than surprised, when change happens.

For more information:

What do you think of the various proposals and the impact they could have on philanthropy?

That’s what Michael Rosen says… What do you say?

2 Comments to “Should You Worry about Election-Year Tax Plans?”

  1. Great piece, Michael. Impressed that you included Johnson. Keep up the good work. I’ll try to give you a call soon.

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