Comparing the presidential candidates on taxes

We all exhaled a collective sigh of relief a couple of weeks ago with the end of tax season. Whether you received a refund from Uncle Sam or had to send him some more money, taxes likely weigh heavy on your mind the first quarter of every year.

If taxes occupy your mind the rest of the year, then I say kudos to you. While there are many important issues at stake in every election cycle, and this one is no different, taxes are always in the mix — and for good reason. Taxes are where the rubber meets the road. They’re the difference between poll-driven promises and proper policies, where most of us have skin in the game. Taxation is how everything else the presidential candidates are talking about — be it security, education, health care, infrastructure or social programs — will possibly be funded. Taxation impacts every single citizen, through the government-provided projects and services the populace expects to the paychecks we take home for our no less essential needs.

If you aren’t thinking about taxes at least periodically throughout the year, you might be falling down on your civic duty.

With Donald Trump the presumptive Republican nominee, and Hillary Clinton and Bernie Sanders slugging it out for the Democratic nomination, let’s examine each candidate’s tax reform proposals. And then I urge you to spend some time considering how it will affect you, your family and your country.

Where we stand today

Let’s break the comparisons down by party and the four main issues: rates on ordinary income, capital gains and dividends, corporate income tax and estate tax. But first, let’s talk about these four categories and where everything stands right now.

For 2016, there are currently seven tax brackets that have marginal rates ranging from 10 percent to 39.6 percent. Short-term capital gains is money derived from selling an investment owned for less than a year. These assets are taxed as ordinary income. Long-term capital gains are a bit more complicated. They come from selling investments held for longer than a year. Individuals in the lowest tax brackets of 10 percent and 15 percent pay no taxes on long-term capital gains; those in the highest bracket (39.6 percent) pay 20 percent. Everyone else pays 15 percent. The corporate tax rate for 2016 stands at 39 percent. The average rate over the last 15 years is 39.23 percent. Finally, estates left to heirs valued at $5.45 million or less are exempt from federal estate tax. Beyond that, you are taxed by the federal government at 40 percent (some states have estate taxes as well) — often called the “death tax.”

Hillary Clinton vs. Bernie Sanders

Ordinary income: According to Taxfoundation.org, Clinton would add a 4 percent surtax on income over $5 million. Sanders would add four new tax brackets: 37 percent, 43 percent, 48 percent and 52 percent. The top rate would apply to taxable income over $10 million. Sanders would also raise the rate of all other brackets by 2.2 percent.

Capital gains and dividends: Clinton would raise rates on medium-term capital gains (held less than six years) to between 24 percent and 39.6 percent. Sanders would tax capital gains and dividends at ordinary income rates for households with income over $250,000.

Corporate income tax: Neither candidate currently has a proposal.

Estate tax: Clinton would increase the top estate tax rate to 45 percent and lower the tax exclusion to $3.5 million. Sanders would increase the top estate tax rate to 65 percent and lower the tax exclusion to $3.5 million.

Donald Trump

Ordinary income: According to Taxfoundation.org, Trump would establish three tax brackets of 10 percent, 20 percent and 25 percent. The top rate would apply to income over $150,000 for single filers and $300,000 for joint filers.

Capital gains and dividends: Trump would eliminate the net investment income surtax.

Corporate income tax: Trump would lower the top corporate tax rate to 15 percent.

Estate tax: Trump would eliminate the estate tax.

No matter who you want to vote for in the upcoming election or which proposal you believe will help the United States the most, the important thing is be informed and know how it will affect you and your family.

Jennifer Pagliara is a financial adviser with CapWealth Advisors. Her column appears every other Saturday in The Tennessean. For more information, visit www.capwealthadvisors.com.