Clinton Plan for Growth Includes Capital Gains Tax Hike

Democratic presidential candidate Hillary Clinton speaks during an event at the New York University Leonard N. Stern School of Business in New York on July 24, 2015. Shannon Stapleton/Reuters

Faced with a strong challenge from her party's left wing, Democratic presidential candidate Hillary Clinton on Friday laid out plans to promote long-term economic growth and transform what she described as the perverse incentives that lead to "quarterly capitalism" instead of sustainable prosperity for all.

"Quarterly capitalism," Clinton told an audience at the Stern School of Business at New York University, referring to the needs of companies to show strong earnings every three months, "is neither legally required nor economically desirable."

The speech is one of several the Democratic frontrunner plans to deliver this summer and autumn to address an economy that has been uneven and that worries Americans nearly seven years after the financial crisis sent unemployment up and GDP plummeting.

Clinton's most ambitious--and likely her most controversial--proposal was a radical overhaul of capital gains taxation. Under her plan, gains on assets such as stocks and bonds that are held for less than two years will be taxed at the rate applied to ordinary income: but only for those in the highest tax bracket. In the case of those in the top tier (earning over $464,850 for married couples), who pay a 39.6 percent tax rate (and another 3.8 percent tax from ObamaCare), such sales would amount to a near doubling of the current capital gains rate of 20 percent. On a sliding scale over six years, investors would be taxed at ever lower rates. She expressed interest in bringing the rate to zero for investments in distressed economic areas.

The idea is to encourage long-term investments rather than quick trades. Clinton did not mention inequality as one of the driving concerns here.

The plan is likely to be met by resistance from Republicans, Wall Street Democrats and the financial services industry, which has been buoyed by a culture of trading, as well as anyone who needs to get out of the market quickly to provide liquidity for a family or a small business.

It's not entirely clear which stocks might prosper under such a scenario--those that make the kinds of long-term investments Mrs. Clinton favors or, perhaps, those with high dividends that might prove more attractive if one had to park one's money for so long.

Ironically, Clinton took a swipe at stock buybacks and dividends as encouraging hikes in share price at the expense of long-term investment. (The thinking being that companies engage in these practices rather than make important long-term investments.) She asked for more transparency with CEO salaries and took a swipe at so-called hit-and-run shareholders who try to drive up the price quickly without concern for long term prosperity.

Unlike her strongest opponent for the Democratic presidential nomination, Independent Vermont Senator Bernie Sanders, Clinton praised a number of corporations. For their efforts to increase wages, she singled out Apple, Target and Wal-Mart. "I'm a fan of Chipotle and not just because of the burrito bowls," Clinton said, hailing the fast-food company that is spending more on sick days, paid vacation and tuition reimbursements.

Clinton echoed Sanders and America's trade unions by saluting proposed hikes in the minimum wage, including recent measures in New York, Seattle and Los Angeles to get it as high as $15 an hour, and she hailed activist fast food workers who were putting heat on McDonald's and other companies.

But Clinton's efforts to thread the needle, coming up with a business-friendly economic plan that encompasses social values, won't be easy. She's unlikely to advocate the forced breakup of big banks--a proposal endorsed by Sanders and Massachusetts Senator Elizabeth Warren, who has become a patron saint of economic activists. At the same time, Clinton's capital gains hike will be chided by Republicans as big government run amok.