The Candidates Battle Over Tax Reform

Tax Reform is a very hot topic among the presidential candidates.  Everyone is planning to enact significant changes, but what those changes look like vary greatly between candidates.  Here is a summary of what each candidate is proposing.

Individual Tax Rates

Below are the current rates and what each candidate is proposing to change them to:

Current    Obama   Romney

10%

10%

8%

15%

15%

12%

25%

25%

20%

28%

28%

22.4%

33%

36%

26.4%

35%

39%

28%

Deductions and Credits

President Obama would eliminate “tax subsidies for millionaires that they do not need,” and reduce the value of itemized deductions and other tax preferences to 28% for taxpayers subject to the 36% and 39.6% rates

Governor Romney has stated that his tax plan would be revenue-neutral, and that his tax cuts would be paid for by broadening the tax base (or reducing or eliminating current deductions, etc.).  However, he has not yet specified what those tax breaks are, but has suggested that he would limit them for high-income filers.

Investment Income

President Obama would raise the long-term capital gain rate to 20% for those making more than $200,000 ($250,000 if married) and keep the 15% maximum rate for others.  Dividends would be taxed as ordinary income for higher income taxpayers (i.e., at the 36% and 39.6% rates), and other taxpayers would continue to be taxed at the 15% maximum that currently applies.

Governor Romney would maintain the current 15% investment income tax rate, but exempt from taxation all capital gains, dividends and interest for those with adjusted gross incomes up to $100,000 ($200,000 for married couples).  He would also repeal the 3.8% investment income tax scheduled to take effect in 2013.

Alternative Minimum Tax

President Obama would index the individual alternative minimum tax to inflation.  He has also endorsed the so-called “Buffet Rule,” under which households making more than $1 million a year would pay at least 30% of their income in taxes

Governor Romney would repeal the AMT.

As you can see, both candidates have very different ideas about how our tax law should be structured in the future.  No matter whose side you are on, we all need to prepare for significant changes in the coming years.

This overview is presented for informational purposes only and does not endorse a specific candidate or their views.