Democratic presidential front-runner Hillary Clinton’s proposal to increase marginal tax rates would reduce “incentives to work, save and invest,” and make the tax code more complex, according to the Tax Policy Center report published Thursday
As a proponent of the Buffett Rule, the former secretary of state’s proposal would hit the nation’s top earners hardest by imposing a minimum 30 percent tax rate. Clinton’s plan would also limit deductions and exclusions to 28 percent for tax brackets over the 33 percent threshold.
A new “fair share surcharge” would be implemented, placing a 4 percent increase on those making $5 million or more. Those making more than $1 million would face a minimum 30 percent tax rate.
“The cap applies to all itemized deductions (except for charitable contributions), tax-exempt interest, excluded employer-provided health insurance, deductible contributions to tax-preferred retirement accounts, and certain other deductions,” the report said.
The plan, however, does not just hit the rich. Middle-income Americans would pay an estimated $44 more a year, and the fourth quintile would pay an estimated $143 more, the think tank found.
While the plan would generate $1.1 trillion in the first 10 years with an addition $2.1 trillion in the following decade, it would make filing more complicated.
Capital gains taxes would be more convoluted because of a new rate based on holding periods. Clinton said the move is aimed at getting people to hold on to their assets longer.
“Currently, an asset held for less than one year is taxed at ordinary income tax rates, with a top rate of 43.4 percent (the statutory 39.6 percent rate plus the 3.8 percent net investment income surtax), and assets held longer than one year have a top rate of 23.8 percent (a preferential 20 percent rate plus the 3.8 percent surtax),” the Tax Policy Center said in its report. “Clinton proposes taxing assets held less than two years at ordinary rates, reducing the rate roughly 4 percentage points for each additional year an asset is held, until a minimum 23.8 percent top rate is reached on assets held more than six years.”
She would also hike the top estate tax rate from 40 percent to 45 percent, bringing in $161 billion over 10 years.
“Clinton’s proposals would decrease incentives to save and invest, but only for filers in the top decile (table 6). However, these filers receive most investment income,” the report reads. “The 4 percent surtax on AGI over $5 million and the new 30 percent minimum tax would push up marginal tax rates on all forms of capital income for high-income filers.”
Instead of lowering the corporate tax rate to give companies an incentive to stay in the country, Clinton floated three proposals in an attempt to prevent corporations from moving abroad.
The first would put an “inversion test” in place to try and stop U.S. businesses from merging with companies overseas to reap the benefits of their lower tax rates. Under current law, if U.S. shareholders own 80 percent or more, the company is subjected to the country’s rates – that number would be lowered to 50 percent.
The second is aimed at stopping earnings stripping, a tactic used by corporations to lower their tax burden through interest deduction to offshore headquarters. The third would implement an exit tax on companies trying to leave.
In addition to tax hikes, Clinton would also offer clean energy tax incentives, and she’s expected to propose more tax cuts aimed at the middle class in the near future.
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