Yesterday, July 24, 2015, Democratic Party presidential candidate, Hillary Clinton proposed a tax plan that would devastate Americans financially. While some presidential candidates are talking about ending capital gains taxes, Clinton’s plan would significantly raise capital gains taxes to nearly double current levels.
Under current tax code, there are short-term capital gains taxes (investments held under one year) and long-term capital gains taxes (investments held over one year). Under Clinton’s new, more restrictive proposal, she suggests investments held for less than six years would qualify for a sliding scale of rates, and holdings of two years or less would be subject to the top 39.6% rate on regular income. As is the case now, a surtax of 3.8% on net investment income would also apply, for a total top rate of 43.4%. The major concern with this type of scheme and government control is that Americans will have to base more of their investment decisions on whether they will be hit with an extra tax penalty to get out of a stock. Americans should be basing their decision purely on whether the company they are invested is a good investment and deciding when to take profits would become significantly more challenging and likely, less profitable.
This proposal is taking the opposite direction that her husband took while he was President of the United States when he slashed capital gains taxes. Bill Clinton’s senior official in the Treasury Department, Leonard Berman said yesterday, “I think it will distort investors’ decisions without encouraging corporations to think long term.” Many financially accomplished Americans also feel the proposal will not have the effect Hillary Clinton is suggesting. Clinton’s capital gains proposal is not designed for economic benefit for Americans but is clearly a ploy to fool left-wing supporters, who she has recently been losing to her strongest opponent, socialist Bernie Sanders. Clinton has been sliding the polls while Sanders has been gaining popularity with Democrats.
While Clinton is playing political games with the financial lives of Americans, other presidential candidates are offering other tax solutions. Republican Party presidential candidate Marco Rubio has proposed eliminating the capital gains tax altogether, along with a host of other taxes while increasing the child credit and applying that credit to one’s payroll taxes. Fellow Republican Rand Paul has proposed a flat tax to simplify the tax code for Americans and business in an attempt to make the tax system fairer. Libertarian Party candidate Marc Feldman is proposing a dollar for dollar charity deduction to reduce taxes owed by Americans while boosting the private social safety net. Another Libertarian expected to enter the race, two-term New Mexico Governor Gary Johnson is likely to propose the FairTax which will end the federal income tax on Americans in favor of a consumption tax which includes a pre-bate to lower-income Americans are not adversely affected.
Yesterday, financial commentator Charlie Gasparino said, “The problem with Hillary Clinton is she can’t attack the big banks like Goldman Sachs because she got all those speaking fees from them and Clinton Foundation money from Lloyd Blankfein. She can’t attack the private equity guys because those guys gave her a lot of money too in speaking fees. This [capital gains proposal] goes after a very narrow part of Wall Street; people that trade, average people, so she’s going after the little guy who wants to trade or sell out of his stock for less than a year. And she’s going after what’s known as activist investing; people like Carl Icahn who go to companies and say ‘I take a chunk of your company, I want you to do stock buybacks’.” Gasparino concluded, “She is threading a very fine thread here. She’s not going after everybody on Wall Street. She’s not touching the banks that caused the financial crisis, she’s not touching Larry Fink at Blackrock, she’s touching this very small corner.”
The American tax system dramatically affects people’s behavior. It affects purchase decisions, investment decisions, sell decisions, it affects what kind of car they buy, whether or not they get married, how many kids they have, etc. Libertarians would like to see an eventual end to government controlled behavior modification via the complex federal tax code. Libertarians would like to see a tax system which encourages all people to choose what they want from life; that lets them live, love, work, play, and dream their own way.