Hillary Clinton’s proposal to reinstate a sliding tax rate on investment gains would return the nation to a practice last employed when the Spice Girls ruled the radio and “Titanic” packed the theaters.
The Democratic front-runner will propose on Friday modification of the tax rate on capital gains, which includes profit from the sale of everything from stocks and bonds to rental property. In order to reward longer-term investment, she’d restore a new and lower tax rate for capital gains on investments held for longer periods of time.
Clinton also is expected to call for a higher top rate for the richest Americans. That move would be a reversal of her 2008 campaign view that it wasn’t a good idea to have a capital gains tax rate higher than 20 percent.
“You could say that Hillary’s plan follows typical liberal logic of picking winners and losers, only this time she’s targeting investors,” David McIntosh, president of the conservative Club for Growth, said even before Clinton formally released her plan.
In a question-and-answer session Monday on Facebook, Clinton told voters she seeks “to promote long-term investment that will strengthen companies, workers, and communities.” She hinted at the common practice of companies buying back shares of their stock in order to boost quarterly performance, and she said that the “increase in short-termism has grown in urgency since 2008,” explaining why her view has changed.
Currently, capital gains on investments held longer than one year are taxed at a 10 percent rate for lower-earning Americans and 23.8 percent for the richest. There is no distinction in the tax code for an investment held a year and a day vs., say, 30 years, but investments held less than a year are taxed the rate of ordinary income, which can be as high as 43.4 percent for top earners.
Whatever Clinton proposes is likely to look like the sliding scale put in place in 1997 during the presidency of Bill Clinton. He enacted a top rate on capital gains of 20 percent, which was actually a reduction from 28 percent, and a rate of 18 percent for an investment held five years or longer.
The lower rate for longer-term investments took effect in 2000 but was quickly undone when President George W. Bush in 2003 signed into law a measure taxing all capital gains from investment at a rate of 15 percent.
Hillary Clinton’s campaign team is mum on details beyond Monday’s tease. However, last month her close outside adviser Neera Tanden, who heads the center-left think tank Center for American Progress, called for a sliding scale that provides tax incentives for longer-held investments.
The increase in short-termism has grown in urgency since 2008, and the urgency of our solutions has to match it.
Hillary Clinton in Facebook Q&A Monday
Since the nation began collecting income tax in 1913, there has been a fight over how best to balance fairness in the tax code and business-friendly tax rates.
“There has always been a tension between the desire to stimulate investment . . . and also to treat high-income people with capital gains the same as people with ordinary income,” said Eric Toder, co-director of the Tax Policy Center, a think tank run jointly by the centrist Urban Institute and the center-left Brookings Institution.
When Congress first created income taxes, capital gains were treated as ordinary income – on par with wages. That didn’t last long, and since 1921 there has only been a four-year stretch – from 1987 to 1991 – that capital gains have been taxed at the same rate as income, said Toder.
From 1921 through 1986, there wasn’t a capital gains tax per se. Instead, there were formulas for what percentage of investment gains would be included in the calculation of ordinary income. For much of the period, there was also a sliding scale, as in candidate Clinton’s expected proposal, that rewarded longer-held investments.
President Barack Obama earlier this year called in his proposed fiscal 2016 budget for raising the top tax rate on capital gains from 23.8 percent to 28 percent. Internal Revenue Service data shows that in recent years fewer than one in five Americans reported any capital gains when filing their returns; most who did were in the top 20 percent of all earners.