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Tuesday October 13, 2015

Washington News

Washington Hotline

Clinton, Carson, Jindal and Rubio on Taxes

Four presidential candidates advanced specific tax proposals this week. Candidate Hillary Clinton proposed a tax on high-frequency trading. Her campaign published a brief and stated, “The growth of high-frequency trading (HFT) has unnecessarily burdened our markets and enabled unfair and abusive trading strategies that often capitalize on a two-tiered market structure with obsolete rules. The tax would hit HFT strategies involving excessive levels of order cancellations, which make our markets less stable and less fair.”

The Clinton proposal lacks specifics, but may be similar to a financial transactions tax advocated by candidate Bernie Sanders. His proposal is to levy a 0.5% tax on all stock trades and use the estimated $47 billion per year to fund free public college education.

Two different Washington tax research groups commented on the proposals. While they could raise revenue, the risk is that a financial transaction tax would cause the trading and jobs to migrate to London, Hong Kong or another financial center.

In a media interview, Dr. Ben Carson was asked how to enhance the economy. He pointed to the $2 trillion held overseas by U.S. corporations. Carson proposed to allow the companies to repatriate or return the funds to the U.S.A. without tax if at least 10% of the amount was used in “empowerment zones” in major cities. The urban zones would be designed to create good jobs. Carson suggested that creating these jobs for the unemployed would be “the biggest stimulus since the New Deal and FDR, and wouldn’t cost the taxpayers a penny.”

Louisiana Governor Bobby Jindal published a fairly comprehensive tax plan. He would reduce the current seven income tax brackets to a tax of 2% on the first $10,000, 10% on the next amount up to $90,000 and 25% over $90,000. The brackets would be doubled for married couples.

Gov. Jindal also suggests a $30,000 per year tax-free savings plan. He eliminates all itemized deductions except charitable gifts and mortgage interest, with a mortgage limit of $500,000. The plan repeals the corporate income tax, the alternative minimum tax and the estate tax. All capital gains would be taxed as ordinary income.

A nonpartisan Washington organization, the Tax Policy Center, suggested that the plan would stimulate the economy but could result in $9 trillion in lost federal revenue over a decade.

Sen. Marco Rubio spoke at a conference in New York this week. He emphasized the importance of new “sharing economy” companies such as Uber or Handy. The Handy organization allows individuals to connect with plumbers, maids or handymen. Handy employees earn approximately $18 per hour for their services.

Rubio notes that these service persons are not technically employees, but do not fit very well within the independent contractor status. He suggests that we follow some of the European nations and create a third status known as a dependent contractor. Companies such as Handy could then provide additional training and recommended actions to the service personnel based on customer feedback.

Editor’s Note: There is one aspect of the comprehensive plan by Bobby Jindal that is positive for philanthropy. As has been true of several other proposed comprehensive tax plans, lower tax brackets are funded through elimination of deductions. However, the plans all contemplate retaining the charitable income tax deduction. While it is still a very long way to tax reform, the principle to retain the charitable and mortgage deductions and eliminate other itemized deductions is very favorable for philanthropy.

Published October 9, 2015
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