Hillary Clinton's Economic Speech A Total Letdown

Wages and inequality get lip service and not much else.

Hillary Clinton gave a speech Friday that pledged to combat dodgy corporate management but offered only soft-touch policy solutions that included significant tax breaks for wealthy investors.

Advisors billed the talk as a major rollout of Clinton’s economic agenda. The candidate herself pitched her proposals as a way to break from failed policies that had damaged the economy. But the speech eschewed any emphasis on income inequality, runaway finance, companies "too big to fail" or any of the economic issues animating the Democratic Party. Instead, Clinton offered a mild-mannered, small-bore critique of "quarterly capitalism," a common corporate strategy that maximizes short-term profits over long-term investments.

Such short-term thinking is almost universally recognized as a problem. It's just not very high on the list of the country's economic woes. Companies can sacrifice long-term investments and ignore long-term risks by pursuing strategies that maximize returns to shareholders over the next few months. In the long run, that's bad for society and bad for corporate profits.

"Large public companies now return eight or nine out of every 10 dollars they earn directly back to shareholders, either in the form of dividends or stock buybacks which can temporarily boost share prices,” Clinton said in the speech. "Last year the total reached a record $900 billion. That doesn't leave much money to build new factory or a research lab or to train workers or to give them a raise."

But Clinton didn't call for corporations to give their workers a raise, or to tie CEO pay to the pay of average workers -- or any other policy that would directly impact economic inequality. Instead, she focused on creating incentives for companies to better profit from longer-term investments. That means tax increases for investors cashing out shorter investments.

She also suggested altogether eliminating taxes on long-term investments in "small businesses," a category she said would include "innovative startups." As she praised early investors “patiently nurturing the next disruptive innovator,” Clinton appeared to be simultaneously stroking the egos of wealthy Silicon Valley venture capitalists and offering them a substantial tax cut.

But the rest of her proposal included increases in capital gains taxes for assets wealthy investors hold for less than six years. Clinton's plan would boost capital gains taxes for investments of two years or less to 43.3 percent -- a rate that currently applies only to investments of less than one year. The rate would gradually decrease over time to 23.8 percent after an investment reaches six years.

The populist appeal of increasing capital gains taxes lies in the fact that wealthy people accrue the vast majority of capital gains. Roughly half of all capital gains flow to the richest 0.1 percent of Americans, according to a Washington Post report. But the ultimate effect on inequality would likely be limited -- if rich taxpayers simply don't sell off their stock holdings for a longer time, they'll maintain a low tax rate, resulting in a more rational corporate strategy but similar income distributions.

The problem Clinton is trying to address had been well documented. There has been a decades-long divergence between the money companies borrow and the money they invest, as the Roosevelt Institute’s Mike Konczal and J.W. Mason pointed out earlier this year. Rather than raising money to build better businesses, companies are, to a dramatic degree, raising money to pay shareholders.

Clinton wondered whether AT&T would ever have invested in the iconic and innovative Bell Labs in today’s pro-shareholder environment and cited survey data that showed more than half of corporate executives would not make a good long-term investment if it meant a short-term loss.

She offered a lot of brand-name love to companies including Trader Joe's, QuikTrip, Chrysler, GM, Target, Starbucks and Chipotle who see their "workers as assets, not costs to be cut," she said. Citing recent wage hikes at McDonald's and WalMart -- which were spurred in part by public pressure -- Clinton said it was time to end wage stagnation.

But just as no single policy can reverse decades of wage stagnation for most Americans, no single tax policy can reserve the decades-long shift in how businesses are run. There’s “no single cause, no single solution,” Clinton admitted.

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