Clinton to Propose Rise in Capital Gains Taxes on Short-Term Investments
The presidential candidate will argue in a Friday speech that a focus on short-term results is undercutting longer-term economic growth
Hillary Clinton will propose a sharp increase in the capital-gains tax rate for the highest earners for investments held only a few years, a campaign official said Friday.
Under the Clinton plan, investments held between one and two years would be taxed at the normal income-tax rate of 39.6%, nearly double the existing 20% capital gains rate. Neither figure counts an extra 3.8% tax on net investment income included as part of the health-care law, a campaign official said.
The campaign isn't proposing any changes to the capital-gains rate for lower-income taxpayers.
The rate for top-bracket taxpayers would be set on a sliding scale, with the lowest rate applied to investments held the longest. To qualify for the existing 20% rate, one would have to hold an investment for at least six years.
Mrs. Clinton will lay out the plan in a speech Friday in New York City, where she plans to spotlight what she sees as unhealthy corporate efforts to boost stock prices. She will argue that a focus on short-term results is undercutting longer-term economic growth and hurting American workers.
The campaign said she would also call for greater disclosure of stock buybacks by companies, saying that while they may give a quick lift to stock prices, they often come at the expense of research and development spending. She will also call for a review of securities rules related to shareholder activism and rules governing tax treatment of executive compensation.
The capital-gains tax changes are the centerpiece of her proposal.
Under existing law, investments held for less than a year are already taxed at normal income-tax rates, and that wouldn't change under the Clinton plan.
But her plan would affect taxes for the top-tier taxpayers who hold investments for anywhere between two and six years. For instance, investments held for two to three years would be taxed at 36%;, those held three to four years would face a tax of 32%. The sliding scale ends at six years.
Her campaign labeled the short-term focus “the tyranny of today’s earnings report” in its preview of the speech. The change in the capital-gains tax rates are meant to focus investors and corporations for the long term.
“Clinton will acknowledge that these changes to the tax code alone will not shift investors’ focus from short-term to long-term overnight,” the campaign said in previewing the speech. “But she believes this reform is a strong first step toward removing some of the incentives pushing us toward short-termism, and aligning investment toward long-term value.”
Some economists and many Republicans argue there is little the government can do to change corporate behavior. Republican presidential contenders by and large want to go in the opposite direction by eliminating taxes on investment income or at least reducing them.
Campaigning in Greenville, S.C., on Thursday, Mrs. Clinton was asked how she thought her ideas on corporate America will be received. She declined to speculate but said: “I’m proposing policies that will make our economy stronger, that will promote both strong growth and fair growth but will do so with a longer-term perspective. That’s what I think is best for the country. I think it’s also best for business whether they agree with it or not.”
Her speech Friday is meant to explain how short-term outlooks helped produce near-record high profits but stagnant wages. The campaign cited studies showing that companies that increase spending on stock buybacks, sometimes in an effort to boost the share price, also cut spending on things such as new plants and equipment.
Mrs. Clinton plans to extol both the virtues and risks of shareholder activism, but it was unclear if her speech would ask for anything beyond a review of securities rules. The campaign said shareholder activists can often push a company to improve its operations, but can also pressure management to embrace measures that boost short-term stock performance at the expense of long-term growth.
On stock buybacks, the campaign noted that some countries require daily disclosures, whereas the U.S. mandates it only on a quarterly basis. She will call for greater disclosure in the U.S.