Hillary Clinton has a plan to raise capital gains tax rates on short-term investments to encourage investors to focus on long-term growth, The Wall Street Journal reported on Monday. Clinton will unveil details in a speech later this week.
Clinton’s campaign told the Journal the plan would tax income from investments held for shorter periods at higher rates than they are now. Currently, income on investments held for less than a year are taxed at normal income tax rates, which reach 39.6 percent for earnings of roughly $400,000 or more. Top earners' income on investments held for longer is taxed at an effective rate of 23.8 percent -- a 20 percent top capital gains tax rate and an additional 3.8 percent surtax.
Clinton’s proposal would increase taxes on investments held for slightly longer than a year on a sliding scale. It would, for example, tax top earners’ investments sold after two to three years at a rate to be determined that would be higher than 28 percent, and taper off gradually the longer an investment is held.
The goal would be to encourage corporations to focus on long-term investment, rather than respond to quarterly pressure for returns from activist shareholders, the Clinton campaign said. To this end, Clinton will discuss measures to discourage stock repurchases and high executive compensation.
The campaign hasn't projected how much revenue the plan would raise, which aides told the Journal is a secondary consideration.
Economists and activists were divided on the merits of Clinton’s plan.
"Frankly, I don't see the logic in trying to encourage people to hold assets for longer than they want to, and I don't think it will have the effects [Clinton] thinks it will," Leonard Burman, director of the centrist Tax Policy Center, told Reuters.
Bob McIntyre, director of Citizens for Tax Justice, called it a “backwards approach to narrowing one of the worst loopholes in the tax code,” in a statement provided to The Huffington Post.
McIntyre argued that since most wealthy investors avoid capital gains taxes by finding ways to defer asset sales, what's really needed is a proposal that taxes long-term investments.
“The very rich can probably avoid much of a tax increase from her plan, but small investors in mutual funds may not be so lucky,” McIntyre said.
Dean Baker, co-director of the left-leaning Center for Economic and Policy Research, said he welcomes the proposal's additional revenue, but doesn't think it will change corporate behavior.
“Hope they don't have illusions on that one,” Baker told HuffPost.
Clinton’s competitors for the Democratic nomination have not yet released detailed proposals on capital gains tax reform.
Sen. Bernie Sanders (I-Vt.) has proposed a 50-cent tax on financial transactions of $100 or more to fund his plan to offer free college tuition.