So in Sunday's US presidential debate, a voter asked:

"What specific tax provisions will you change to ensure the wealthiest Americans pay their fair share in taxes?"

The candidates' answers were interesting, but limited.

So today I thought I'd take a look at Hillary Clinton and Donald Trump's tax plans.

But to do that, we need to understand the current US tax system, which unfortunately is not uncomplicated.

So let's imagine three married couples with two children a piece.

The Johnsons make the median household income of $52,000 per year.

The Kennedys make $300,000 per year and the Roosevelts make a million dollars a year.

Definition time. So your top marginal tax rate is the tax rate you pay on you last dollar of income.

For the Kennedys that's 33%.

But that's not actually the percentage of their income that goes to federal income taxes

because no matter how much money you make your first $18,450 of income

is taxed at 10%, the next 56ish thousand dollars is taxed at 15%

and so on

In the end, the Kennedys pay about $66,424 in federal income taxes under the current system

that's 22% of their income, that's their effective tax rate.

The Roosevelts, with their million dollars of income

pay about $336,500 in federal taxes

an effective tax rate of 33.6%

or .7 if you want to round up.

But God knows it can't be that simple

because usually families like the Kennedys and the Roosevelts pay less in taxes

due to deductions.

The U.S tax code allows you to deduct certain expenses from your income

like charitable donations, some retirement savings and mortgage interest

and you could either itemize your deductions by listing them

or take the so called standard deduction which is available to all taxpayers

for married couples filing jointly, it's currently $12,600

Ok, I know this is a little bit complicated but stay with me

lastly we have the Johnsons, with their income of $52,000 a year

the Johnson's can expect to pay $553 in federal income tax

an effective tax rate of just over 1%

Wait, what?

Right, so first the Johnsons take the standard deduction of $12,400 ($12,600)

which brings their taxable income down to $39,600 (39,400)

you also take a $4,050 personal exemption

for yourself, your spouse and your two kids. Thats $16,200

which brings the family's taxable income down to $23,200

they would pay about $2,553 of taxes on that income

EXCEPT, for child tax credits

there is 1,000 dollar tax credit for each dependent child you have

so thats how the Johnsons get down to $553

and I think this is really important to understand

because it underscores that for the half of American families making less than $52,000 a year

federal income taxes are quite low

in fact, a large majority of those households pay no federal income tax at all

they do pay lots of other taxes though

like payroll taxes, which neither candidate is proposing to change

and sales and property taxes which are local and therefore not under the purview of the president

but its really critical to remember that federal income tax policy can only do so much

Ok, so we're going to look at both these proposals mostly using analysis from the Tax Foundation,

which, for the record, is non-partisan but usually considered conservative leaning

let's start with Hillary Clinton's tax plan, which she described like this

"Nobody who makes less than $250,000 a year, and that's the vast majority of Americans as you know"

"will have their taxes raised"

"because I think we've got to go where the money is"

and thats accurate Clinton's plan mostly leaves the tax code unchanged

with four main differences

First, income over 5 million dollars per year which is currently taxed at 39.6%

would be taxed at 43.6%

there's a lower tax rate on capital gains

which is like sale of appreciated stock or of a business

and on capital gains over 5 million dollars, Clinton's tax plan would also increase that rate 4 %

from 20 to 24 %

Secondly households with over a million dollars in income

would have to pay at least a 30% effective tax rate

so basically they couldn't use deductions to get under a 30% tax rate

Third carried interest would be taxed like regular income

this is a little bit complicated

but basically carried interest allows many investment bankers

to claim most of their income as capital gains rather than as ordinary income

which means they pay lower tax rate

this would close this so called loophole

and lastly Clinton's plan would double the child tax credit

and also introduce a new $1,200 tax credit for caregivers

so if you're taking care of an elderly or disabled family member that credit would be available to you

there would also be some changes to the estate tax

and some corporate taxes would change in an attempt

to keep U.S companies from shielding their income from U.S taxes

so under the Clinton tax proposal neither the Kennedys nor the Roosevelts would see their taxes change

unless the Roosevelts are claiming hundreds of thousands of dollars in deductions

in which case their taxes might go up slightly

the Johnson's however would see their federal income tax rate go from

$553 a year to 0 because of the increase in the child tax credit

so just to be clear, at the debate when Donald Trump said

"She is raising everybody's taxes massively"

that's just not true for the vast majority of Americans

but there is a cost to tax increases even when they're only focused on the rich

they discourage investment and business spending

like the Tax Foundation says that the Clinton plan

would reduce overall U.S economic output by 1% over the long term

other projections have it much lower

but regardless it would have some effect

it would also of course create new government revenue

which would be used to pay for subsidized college,

infrastructure projects and paid family leave

most non-partisan analyses conclude that after accounting for all of this

the Clinton tax and budget proposal would add about $200 billion to the U.S debt over the next 10 years

Ok, lets talk about Donald Trump's new tax plan

which is quite different from the one he released in June and which I talked about here

at the debate he said "We're cutting taxes for the middle class"

"and I will tell you we are cutting them big league for the middle class"

so Trump's plan features three marginal tax brackets

for married couples filing jointly income up to $75,000 dollars a year would be taxed at 12%

from there up to $225,000 would be taxed at 25%

and above $225,000 would be taxed at 33%

he would also cap deductibles for married couples at $200,000 a year

he would make child care expenses deductible up to the average cost of childcare in your state

increase the standard deduction from $12,600 per year for married couples filing jointly

to $30,000 a year and he would get rid of personal exemptions

as you'll recall, those personal exemptions allow you to take $4,050 off your income

for each member of your family

eliminating them, even with the increase in the standard deduction

would mean that for many families with single parents of with more than three children

making between 60-100,000 dollars a year

taxes would actually go up somewhat under Trump's plan

this would be the case for about 7.8 million households

but for the rest of us our federal income taxes would stay about the same or go down under Trump's plan

like if we look at our three hypothetical families

the Johnsons would see their federal income taxes go from $553 a year to $400

the Kennedys, making $300,000 a year, would pay about $46,350 in taxes

a reduction of about $20,000 from the current system

and the Roosevelt's would pay about $287,250

as you can see the tax cuts are heavily concentrated on the wealthiest individuals

who pay the most income tax

Trump's plan would also decrease the corporate tax rate from 35% to 15%

and like Clinton's plan it would seek to get back some of the profits that are offshore from U.S companies

and it would close the carried interest loophole

in total, before accounting for macroeconomic effects

Trump's plan would lower revenue somewhere between 4.4 and 7.2 trillion dollars over the next 10 years

depending on who's doing the math

but, just as higher taxes can discourage investment

lower taxes can encourage it

and the Tax Foundation does project that Trump's plan would lead to growth

but no matter what you've heard that does not mean that tax cuts pay for themselves

They don't

for instance both the Reagan and the Bush tax cuts boosted growth

but they lowered federal revenues

the Tax Foundation, which remember, is conservative leaning

says that even after growth is accounted for, federal revenues will decrease under Trump's plan

between 2.6 and 3.9 trillion dollars

now Trump has proposed to pay for some of the shortfall, around 1 trillion dollars over 10 years

via budget cuts

but he also wants to spend 500 billion dollars more on the military over the next 10 years

so even the rosiest projections have Trump's total budget and tax plan adding about 2 trillion dollars

to the national debt over the next 10 years

that's 10 times greater than under Clinton's plan

and other projections like those made by the Tax Policy Center have that number at 7.2 trillion dollars

36 times greater than Clinton's plan

I want to pause for a second to discuss why this could be such a huge problem

so currently the U.S.'s debt held by the public is about 77% of our total annual economic output

that's high but its not so high that people are worried about our ability to pay it back

we know that because interest rates on Treasury bills are near 0

it's basically seen as a guarantee that the United Sates will pay its debt

but if our publicly held debt to GDP ratio gets higher

traditionally when it gets to 100% or 110%, that might change

lenders might start to get nervous and think maybe the U.S can't pay its debts

which would make loans to the United States government riskier

which would make them more expensive

interest rates would go up to pay for the more expensive loans

the government would have to increase taxes or decrease spending

which would inhibit growth, which would lead to lower tax revenues

that would necessitate taking out more loans

with higher and higher interest rates

which would leave less money for programs like Social Security and unemployment insurance

which would further inhibit growth, which would lower government revenues

and pretty soon Greece

this is called a debt spiral and it is a catastrophe that once it starts is very difficult to stop

it often takes decades to unwind

now the chances of a debt spiral in the United States are very low no matter who becomes president

but the Non-Partisan Committee for a Responsible Federal Budget

has the 10-year debt from Trump's tax plan rising to 105% of GDP

and that is a very scary level

now I want to emphasize that there are serious and thoughtful republican tax and budget plans out there

but to cut taxes by the amount that Trump is proposing

it is necessary to cut either popular entitlement programs like Medicare

or else to cut defense spending dramatically

Serious republican budget proposals do one or both

and Trump's does neither

so in summary Donald Trump's tax plan would cut income taxes for most Americans

with the majority of the benefits going to the wealthiest households

and small increases on taxes for some middle class families

Hillary Clinton's tax proposals would cut income taxes for middle class families with children

the rest of us probably wouldn't see much change

but the wealthiest American households would have their taxes go up

if you'd like much more information

there are links to non-partisan analyses in the dooblydoo below

I'll also try to be in comments to answer any of your questions

and if you aren't yet registered to vote, or aren't sure if you are registered

please go to youtube.com/howtovoteineverystate

and find your state

in many states the registration deadline is today

so register. Please vote!

Hank, DFTBA. I will see you on Friday.