In the opening presidential debate of 2016, the candidate’s economic discussions skewed towards taxation issues. Both Hillary Clinton and Donald Trump had their own versions of what they would do to improve the economy by optimizing the tax system. Although their representation of the tax issues in this country differ, both state that their policy proposals will assure prosperity in America. Here are how some of the taxation issues were explored during the debate.
What’s a VAT?
VAT, which is the acronym of Value Added Tax, was Trump’s focal point as a reason for the trade imbalance with Mexico. In an allegation that America is being “ripped off,” he stated that the VAT tax is 16 percent to Mexico and zero percent to the United States. While the VAT tax is 16 percent in Mexico, that applies to the purchase of both imports and domestic goods. The United States is not paying 16 percent to export goods into Mexico. Forbes as well as other news outlets noted Trump’s inaccuracy.
Many Happy Returns?
Despite the tradition in modern times for candidates to release their tax returns, Trump has not as of yet. Clinton made this an issue at the debate, wondering, “you’ve got to ask yourself, why won’t he release his tax returns? … maybe he’s not as rich as he says he is… maybe he’s not as charitable as he claims to be.”
Clinton then continued on to the point of her pondering, the fact that existing reports from several tax seasons ago show that Trump paid no federal tax for those time periods. ”Or maybe he doesn’t want the American people, all of you watching tonight, to know that he’s paid nothing in federal taxes,” she concluded. Trump’s reply “That makes me smart” may become a campaign phrase that he will regret.
Image source Wikimedia
She Said, He Said
One of the chief debating points when talking about economics is about how much to tax the wealthy. During the debate Clinton stated, “Slashing taxes on the wealthy hasn’t worked and a lot of really smart, wealthy people know that… I think building the middle-class, investing in the middle class, making college debt-free so more young people can get their education, helping people refinance their debt from college at a lower rate, those are the kinds of things that will really boost the economy.” She aims to do this by taxing corporations and the ultra-wealthy.
In reply Trump answered. “Typical politician. All talk no action. Sounds good. Doesn’t work. Never going to happen. Our country is suffering because people like Secretary Clinton have made such bad decisions in terms of our jobs and in terms of what is going on. Now look, we have the worst revival of an economy since the Great Depression.” Trump’s tax plan will reduce the income tax brackets from seven to three, which are twelve, twenty-five, and thirty-three percent.
Each candidate has promoted tax deductions in their economic platforms. Clinton looks more favorably upon small businesses than large corporations and has proposed a new standard tax deduction for them. She also wants to give start-ups additional tax breaks. Trump wants to give a childcare tax deduction to help families out.
A Financial Response
So how does this affect the stock market and investments? According to Fisher Investments on the Presidential Debate, what each candidate says may not actually be what happens. It is best not to drastically change your investment plans for fear of what a political candidate says they will do. Remember George H. W. Bush’s “no new taxes” statement? While the president is the leader of the country, there are checks and balances in our governmental system and the winning candidate will have to work with Congress in order to pass legislation. There may be short-term market fluctuations, but long term, the stock market doesn’t care who’s in office.
State of the Estates
Clinton’s most recent tax policy creates three new tax brackets for large estates. The tax rates would be 50 percent for estates above $10 million dollars per person, 55 percent for estates over $50 million dollars per person, and 65 percent for estates over $500 million dollars per person.
In contrast, Trump wants to do away with the estate tax completely.
Both candidates have sectors of America that they want to increase taxation of, and demographic groups that they want to help out with tax cuts. The aspect of who to tax more or less comes up every election year. Will the economy be affected? Probably in the short term. But in this turbulent election cycle, it’s wise to remember when planning your long-term financial future to not lose sight of your individual financial goals.
According to a report released on Thursday, Facebook will not pay any tax for 2012 despite making $1.1 billion in pre-tax profits from U.S. operations.
But Mark Zuckerberg’s company will also get a multimillion dollar tax refund of around $429 million according to Citizens for Tax Justice (CTJ).
The refunds reportedly come from tax deductions on executive stock options and share awards.
Facebook released its first annual report as a public company on January 30 after floating in May 2012.
CTJ describe the fact that the company “did not pay even a dime in federal and state income taxes” as an “amazing admission”.
As reported byBusinessweek, Facebook says it had a $559 million federal tax liability in 2012.
But their refunds on the tax deductibility of stock options reduced the companies federal and state income taxes by $1.03 billion for the year, including refunds of earlier years’ taxes of $451 million.
After a small portion is applied to state taxes, this benefit turns Facebook’s liability into a refund.
Yet according to CTJ, Facebook have further stock-option tax breaks that the company generated from its initial public offering of stock (IPO).
Facebook will not pay any tax for 2012 despite making $1.1 billion in pre-tax profits from US operations
Facebook is hoping to reduce future tax liability by carrying forward another $2.17 billion in additional tax-option tax breaks for use in the years ahead.
As CTJ point out, this means “Facebook’s current and future tax reductions from the stock options exercised in connection with its IPO will total $3.2 billion”.
Facebook spokeswoman Ashley Zandy declined to discuss the tax break with Businessweek and instead referred to a transcript of Facebook executives’ conference call with analysts.
In this call, Chief Financial Officer David Ebersman mentioned the accumulated tax benefits before noting that Facebook ended the fiscal year with nearly $10 billion in cash and investments.
David Ebersman claimed this gave the company ‘great flexibility and risk protection.’
Facebook delivered fourth-quarter results above Wall Street’s expectations on January 30 and sought to show that it has finally transformed into a ‘mobile company’ after rising to dominance as a Web-based social network.
But its stock dropped in after-hours trading as investors placed more significance on the company’s growing expenses rather than on its increasing user base and higher advertising revenue.
“Everything was slightly better than expected,” said Wedbush Securities analyst Michael Pachter.
“I don’t see anything here that would make me want to sell the stock.”
Nonetheless, Facebook’s stock fell $1.11, or 3.6%, to $30.13 in after-hours trading following the earnings report.
Facebook Inc. grew its revenue and increased the percentage of it that comes from mobile advertising – a closely watched figure. But expenses also grew sharply.
The company also said 2013 will be a year of “significant investments” and hiring as it focuses on long-term growth rather than short-term profits.
Facebook earned $64 million, or 3 cents per share, in the October-December period. That’s down 79% from $302 million, or 14 cents per share, a year earlier when it was still a privately held company.
Revenue rose 40% to $1.59 billion from $1.13 billion, surpassing analysts’ expectations of $1.51 billion.
Advertising revenue grew 41% to $1.33 billion, increasing at a faster clip than in the third quarter, when it climbed 36% to $1.09 billion.
President Barack Obama has reiterated his call for high earners in the US to pay more in taxes, in his first news conference since winning re-election.
Barack Obama called for quick legislation to rule out tax rises on the first $250,000 of income, but refused to extend cuts for the wealthiest 2%.
“We should not hold the middle class hostage while we debate tax cuts for the wealthy,” he said.
The US faces an end-of-year “fiscal cliff” of spending cuts and tax rises.
The fiscal cliff would see the George W. Bush-era tax cuts expire in combination with automatic, across-the-board reductions to military and domestic spending.
Some $607 billion of savings and tax rises are planned, including reductions in the defence budget, the end of an employee tax holiday, changes to Medicare allowances and higher personal taxes.
The lower paid are set to lose some child and income credits, but Barack Obama has made fewer references to other portions of the stimulus deal set to expire beyond the tax cuts.
The fiscal cliff is due to take effect because Congress failed to reach a deal on deficit reduction after a stand-off over the US debt ceiling in mid-2011.
Congressional Republicans have said since last week’s US elections that they are open to raising revenue through tax reform and closure of loopholes, but oppose tax rises on the wealthy.
Glenn Hubbard, an economic adviser to Republican Mitt Romney’s failed presidential bid, writing in the Financial Times, called on fellow Republicans to accept the need for the rich to pay more tax, albeit through closing loopholes such as tax deductions.
Other Republicans favor ending the right of Americans to deduct mortgage interest payments from their taxable income – something analysts say is likely to hurt the middle classes far more than top earners.
During his news conference on Wednesday, Barack Obama was dismissive of a loophole-only reform, telling reporters that “the math tends not to work” in helping to cut the deficit.
“It really is arithmetic, not calculus,” he said.
The president has long opposed extending the Bush-era tax cuts for earnings above $250,000 a year, but gave into Republican demands in 2010 when the cuts were last up for renewal.
On Wednesday, Barack Obama said that would not happen this time.
“A modest tax increase on the wealthy is not going to break their backs,” he said.
“They’ll still be wealthy.”
President Barack Obama has reiterated his call for high earners in the US to pay more in taxes, in his first news conference since winning re-election
But the president said he was confident that the White House and Congress could reach a deal before 1 January to avoid the “fiscal cliff”, as the US economy could not afford it coming to pass.
Barack Obama suggested the immediate extension of all the expiring tax cuts except the top rate, followed by a more comprehensive reform of the tax code as well as some of the US’ largest benefits programmes, including Social Security in 2013.
In doing so, he distanced himself from some in his own party who want the combined tax rises and cuts to happen, in order to give Barack Obama a better negotiating position.
On Tuesday, US Treasury Secretary Timothy Geithner warned against extending all of the tax breaks that are due to expire in January as a way of giving Washington more time to broker a deal on the deficit.
Timothy Geithner claimed doing this would create more uncertainty in the financial markets.
House Speaker John Boehner has scheduled a response to Barack Obama on Wednesday, as the White House planned to meet with congressional leaders on Friday, when both sides are expected to designate aides in search of a compromise.
Barack Obama met on Tuesday with allies from labor and liberal groups, and also invited a group of chief executives to the White House.
Earlier, Democratic Senator Dick Durbin of Illinois said that “many Republicans believe now is the time to sit down and talk more revenue”, saying up to 20 Republican senators are willing to work towards accommodation.
But Senator Dick Durbin said “there is a great distance” between Republicans in the House and Senate.
“Basically it comes down to the question of whether Speaker Boehner is willing to look for a bipartisan solution.”
The amount by which spending exceeds income over the course of a year. In the case of trade, it refers to exports minus imports. In the case of the government budget, it equals the amount the government needs to borrow during the year to fund its spending. The government’s “primary” deficit means the amount it needs to borrow to cover general government expenditure, excluding interest payments on debts. The primary deficit therefore indicates whether a government will run out of cash if it is no longer able to borrow and decides to stop repaying its debts.