Clinton Cap-Gains Plan — We'll All Be Poorer
W hat an economically deranged debate we have going on in the race for the Democratic nomination for president. In one corner is an unapologetic socialist, Vermont Sen. Bernie Sanders, who wants to raise individual income tax rates on the rich to 70% or more apparently because it worked so well in the 1970s.
In the other corner we have Hillary Clinton, who's decided she isn't going to be one-upped in the class warfare debate, announcing last week a plan to raise the capital gains tax rate to 42% on assets held for less than two years and for those who are in the top 1% of income. She would create a sliding scale starting at 42% and declining to the Obama rate of 23.8% after an asset is held for at least six years.
Consider this: When George W. Bush left office, the highest tax rate on capital gains was 15%. So the end result of the Obama-Clinton agenda would be to have nearly tripled the cap gains tax rate in less than a decade.
All of this is meant to make the rich "pay their fair share." But over the last 60 years declines in capital gains tax rates have been associated with more tax revenue collected and higher capital gains taxes have generally brought in less revenue.
When Hillary's husband was president and the capital gains tax was reduced from 28% to 20%, capital gains realizations almost doubled and tax receipts from capital gains rose more than 80%, from $54 billion in 1996 to $99 billion in 1999.
Why? The capital gains tax is a voluntary tax. You can avoid paying it by not selling your stock. Hillary wants investors to sell less. But this lock-in effect benefits the existing corporate powers over the young entrepreneurial startups that are the backbone of the economy . Hillary's plan will hurt the little guy with a good idea. It could stop financing for the next Uber or Netflix. How dumb is that?
But the dimwitted nature of this plan goes well beyond that. Just a week ago Hillary was complaining that American businesses are not reinvesting their profits into the economy by purchasing new plants and equipment
or by hiring more workers. Trillions of dollars are hibernating on the investment sidelines. This is pushing down employment and wages, which are closely linked to business investment.
So far so good. But why would businesses invest more money in a business when she's promising to raise the tax imposed on that investment? Is it really so complicated to understand that if you tax something you get less of it, not more?
Hillary's plan is predicated on the assumption that if the feds tax investment at a higher rate, more people will want to invest. In the real world and over the last 50 years, the rate of investment runs in the opposite direction of the rate of tax on capital gains.
Hillary's economic team defends this tax hike on the grounds that raising capital gains taxes will equalize the tax rate of a rich investor like Warren Buffett and that on his secretary, who pays taxes on earnings. But this was always a myth.
If you own stock and receive a dividend or a capital gain, this is above the corporate tax of 35%. This is why the correct tax on capital gains is not 40%, but zero. Under Hillary's plan the tax on investment in corporations would effectively rise to over 60%.
There's another reason we have traditionally imposed a lower tax rate on capital gains income. Capital gains a tax on the increase of the valuation of a stock are not adjusted for inflation. So when inflation is high, the capital "gain" can be mostly due to inflation. In other words, the gain can be illusory.
On top of that, we require investors to pay tax on all their capital gains, but they only get to deduct a small share of their losses. This inhibits risk
Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials-perspective/072715-763619-hillary-clinton-capital-gains-tax-hike.htm#ixzz3hA7ZjYyJ
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