How America’s $19.6 Trillion Debt Would Rise or Fall Under Trump and Clinton

Oct 12 2016

A new analysis highlights the sharp divide between Republican Donald Trump and Democrat Hillary Clinton on tax policy, with the two arch rivals prepared to take the tax code in diametrically opposite directions while running the risk of adding considerably to the long-term debt.

Trump, the billionaire real estate developer who admittedly may not have paid any federal taxes in 18 years because of his use of loopholes, would slash taxes by $6.2 trillion over the next 10 years. If his plan were enacted, the Treasury would forgo nearly 15 percent of projected federal revenue over the coming decade and provide nearly half the benefit to the wealthiest one percent of taxpayers, according to a revised analysis of the Tax Policy Center.

Related: Clinton, Trump Clash Over Spending and Taxes but Ignore Nearly $20 Trillion Debt

Clinton, the former secretary of state, would boost taxes by a net $1.4 trillion over the coming decade, with the top one percent of taxpayers bearing the brunt of the increase. Clinton has embraced billionaire Warren Buffett’s rule that anyone making more than $1 million should have to pay considerably more in federal taxes. Under her approach, the bottom 80 percent of households would receive tax cuts while the top 1 percent would pay over 90 percent of the net tax increase.

The dueling proposals that have been aired and revised over the past several months represent very different approaches and philosophies in attempting to accelerate economic growth and create new jobs. Trump – who greatly scaled back his original proposal in the face of sharp criticism -- is counting on massive tax cuts unrivaled in modern times to spur savings and investment in the tradition of Reagan-era supply-side economics.

He is counting on a combination of future spending cuts and economic growth borne of his fiscal policies to offset much of the cost of the tax cut – what Republicans refer to as “dynamic scoring.” However, the Tax Policy Center analysts used traditional budget scoring that excludes macroeconomic effects in estimating the cost of his plan.

 Clinton, by contrast, would seek a large tax increase over the coming decade – largely imposed on the rich and upper middle class – to underwrite the cost of her social agenda and infrastructure spending. With an eye to the liberal wing of her party, Clinton would spend most of the fresh tax revenues to provide free college tuition, expanded health benefits, paid family leave, a child care tax credit for low-income parents, and highway and bridge construction to assist the middle class and create additional jobs.

Related: Trump Is Trouncing Clinton When It Comes to Running Up the Debt

“They really couldn’t be more different,” Leonard Burman, director of the joint Tax Policy Center at the Urban Institute and Brookings Institution, told reporters in releasing the revised analysis, according to The Wall Street Journal. “In almost every meaningful respect, these plans are mirror images.”

With less than a month before the election, Trump and Clinton are locked in an aggressive bidding war for voter fealty with high-priced domestic and defense spending and tax proposals that some budget experts fear could drive the historic $19.6 trillion publicly held debt much higher in the coming years.

Just last week, the non-partisan Congressional Budget Office confirmed that the budget deficit is on the rise again for the first time since the aftermath of the Great Recession.

The deficit for the fiscal year that ended Sept. 30 will total $588 billion, or about a third greater than the deficit from the previous year. The CBO has repeatedly warned that – absent reforms in government spending and entitlement programs -- the country will once again face the specter of $1 trillion a year budget deficits that marked the early years of the Great Recession.

Trump’s plan would add a startling $7.2 trillion to the national debt over the next decade when the cost of interest from borrowing is included, according to the latest Tax Policy Center analysis. Clinton’s plan, in contrast, would trim the debt by $1.6 trillion over the coming decade, including savings on interest payments. But the Tax Policy Center’s analysis didn’t factor in the impact on the debt of Clinton’s ambitious domestic spending policies.

Related: Fiscal Hawks: Why Is No One Talking About the Deficit?

Clinton’s proposals would increase overall government spending by $1.65 trillion over the coming decade, according to the most recent tally of the Committee for a Responsible Federal Budget. That includes $500 billion for spending on college programs and free tuition for many middle-class students; $600 billion for both paid family leave and infrastructure construction, $200 billion for the child care credit, and significantly more for new health-related programs.

Assuming she could persuade Congress to raise the full $1.4 trillion in new taxes over the next 10 years to pay for many of her programs, that would still leave $200 billion of costs that would be added to the long-term debt. By contrast, Trump’s proposals, including a major tax cut for individuals and businesses, a build-up of U.S. defenses, a crackdown on illegal immigrants and new infrastructure projects would add $5.3 trillion to the debt in the coming decade, according to the CRFB analysis.

Under Clinton’s approach, the debt would increase from 77 percent of the Gross Domestic Product now to more than 86 percent of the economy by 2026, according to CRFB calculations, while under Trump’s tax plan the debt would grow to 105 percent of GDP over that same period.

Trump’s and Clinton’s tax plans couldn’t be more different.

Related: Big Deficits Loom as Candidates Pile on Spending and Tax Cuts

Under Trump’s approach, households would receive an average tax cut of about $3,000 in 2017, or 4.1 percent of after-tax income. Individuals and families of all income levels would receive a tax cut of some sort, but the wealthiest one percent would see a tax cut of nearly $215,000. That would amount to a 13.5 percent increase in their after-tax income.

Meanwhile, middle-income households would receive a tax cut averaging about $1,000, or 1.8 percent of their after-tax income, while low-income households would get a tax reduction of about $100, providing them with an after-tax income increase of 0.8 percent, according to the Tax Policy Center.  

Trump would consolidate the current seven tax brackets into just three – pegged at 12 percent, 25 percent and 33 percent, while combining the current standard deductions and the personal exemption into a single increased standard deduction of $15,000 for individuals and $30,000 for couples. He would also add a new deduction for child and dependent care – an idea promoted by his daughter Ivanka. And he would repeal the alternative minimum tax and the estate tax and cap itemized deductions.

Unlike Clinton, Trump has also proposed a series of tax breaks for businesses and corporations and would set a top tax rate of 15 percent. He would also repeal the corporate AMT and a handful of business tax subsidies and tax the foreign earnings of U.S. multinational firms.

Related: CBO Warns Congressional Spending Is Driving Up the Deficit

Clinton, by comparison, would raise taxes by an average of about 1.2 percent of after-tax income in 2017, or $800, according to the analysis. However, taxpayers in the top 1 percent bracket would be hit with an average tax increase of 7.4 percent of after-tax income, or $118,000. At the same time, Clinton would cut taxes for low- and middle-income households by an average of about $100. Those people on the lowest economic rung would receive an average tax cut of 0.7 percent while middle-income families would see their after-tax income rise by 0.2 percent.

The study took exception to Trump’s claim during Sunday night’s presidential debate that Clinton is “raising everybody’s taxes massively,” noting that the vast majority of households would be paying roughly the same amount of federal taxes under her plan than they do today.

In addition to the child care tax credit, Clinton has also proposed new tax credits for some household, including those with high medical expenses or that must care for elderly parents. 

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