Despite the United States having the most progressive income tax system in the developed world, the Wall Street Journal reports that Mrs. Clinton’s tax proposals call for doubling down on a soak the rich strategy.
Regardless of your politics, this is just bad policy.
When you tax something you get less of it. What are you going to get less of in this instance? Taxable income. High-income earners are the most capable of hiring high-priced lawyers and accountants to help them avoid, dodge, and reduce taxes.
You might think that would dawn on the folk making these proposals since these are the same folk who are also claiming that Mr. Trump may not have paid federal income tax since 1995. How did Trump reduce his tax burden? Probably by hiring armies of accountants and lawyers to help him navigate the byzantine U.S. tax code for his benefit.
So what is likely to happen if Mrs. Clinton gets her way with taxes? Tax rates will go up, government spending will rise, high-income earners will find loopholes, and tax collections won’t live up to expectations.
Guess who will be left holding the bag?
Here’s more of the details on Clinton’s proposals from the WSJ
The top-earning 1% of U.S. households—and especially the top 0.1%—have a lot to lose from Hillary Clinton’s tax proposals….
The Democrat sees having the rich pay more as a way to pay for tax breaks and expanded benefits for middle-income families, and she has said households earning less than $250,000 wouldn’t see a tax increase. Her proposals add up to about $1.9 trillion in tax increases over a decade, according to the Committee for a Responsible Federal Budget….
But the brunt of that impact would fall on a sliver of the population, with nearly 80% of the higher taxes hitting the top 1% of households and more than half hitting the top 0.1%, according to the Tax Policy Center. The center, using a broader definition of income than is shown on tax returns, sets about $732,000 in annual household income as being in the top 1% and $3.8 million for the top 0.1%.
The Tax Policy Center analysis doesn’t yet include her most recent proposals, such as taxing unrealized capital gains at death and implementing a 65% tax on estates exceeding $500 million a person….
Other than the changes in taxation at death, Mrs. Clinton’s plans don’t do much to address the ways wealthy Americans can increase their net worth without reporting taxable income, said Gabriel Zucman, an economist at the University of California, Berkeley.
“There’s a big disconnect between taxable income and the real income of rich people,” he said. “That requires more fundamental reform of taxation than adding four points on the top bracket.”
Her proposals send the campaigns back into longtime arguments: What happens to the economy when you cut taxes at the top?
Republicans see the growth in the 1980s and the late 1990s growth after capital gains rate cuts as proof that people are more willing to save, work and invest if they can keep more of what they earn.
“When the pie is as large as possible, then you have the least questions about the distribution of that pie,” said Donald Luskin, chief investment officer at Trend Macrolytics. “We’re not having a serious economically driven conversation about this. We’re just having a populist appeal.”
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- Augmentation and Replacement: The Future of Robot Workers - September 19, 2018
- The One Mistake Some Investors Never Learn From - September 18, 2018
- Coca-Cola Getting Back to its Roots - September 17, 2018