Hillary Clinton is on the campaign trail telling us that as president, she will “build a growth and fairness economy.” But following in the footsteps of Obama, with his same “progressive” policies, she will deliver neither growth nor fairness, as he has failed to do.
Hillary tells us, “We can’t create enough jobs and new businesses without more growth” and “We must raise incomes for hard working American workers, so they can afford a middle class life.” She adds, “Raises need to rise to keep up with cost, paychecks need to grow.”
But she has never indicated that she understands how to produce such results, or what policies would produce them.
Let us review “the way the world works” to create new jobs and rising wages. As RealClearMarkets economist John Tamny explains in his new bestseller Popular Economics, there are no new jobs without investment first. That investment is what finances the creation of new businesses and the expansion of existing ones.
That is where new jobs come from. As at least someone on Hillary’s staff recognizes, “Small businesses create more than 60 percent of new American jobs on net.”
Those new businesses, and the expansion of existing ones, increase the demand for labor, which bids up wages. Further investment adds to that by financing capital and equipment, meaning new “tools” for workers to produce more effectively and efficiently. That increases the productivity and output of workers, which provides both the incentive and the cash flow to finance pay raises.
That process playing out over decades, and centuries, is what created America’s middle class, and the world famous “American Dream.” Politicians like Hillary and her fellow progressives need primarily to stay out of the way, and let it happen.
Great political leaders like JFK and Ronald Reagan affirmatively work to remove burdens that slow that process down: taxes, especially on capital investment, regulations blocking and burdening the process (see, e.g. Keystone Pipeline), and runaway government spending, deficits and debt, that drain investment funds from the private sector.
That is what Hillary’s husband Bill did as president, working with congressional Republican majorities to extend the Reagan legacy by reducing federal spending, deficits and debt, and slashing the capital gains tax rate by nearly 30 percent. The booming growth resulting from those policies is what balanced the budget, and ultimately produced the largest budget surpluses in history.
But what Hillary is proposing on the campaign trail today is the opposite of those policies President Bill Clinton enacted, and would inhibit the creation of good new jobs with rising wages. Instead of her husband’s historic capital gains rate cut, she proposes to nearly double the current capital gains rate that applies if you sell your capital asset (stocks, bonds, real estate) in the second year after you buy it, from 23.8 percent today to 43.4 percent. That “penalty rate” would then phase down annually for later sales, returning to the current 23.8 percent rate only after 6 years.
That 43.4 percent rate would be the highest capital gains tax rate in U.S. history. Moreover, today that rate would be the highest in the industrialized world. Moreover, Mrs. Clinton fails to recognize that the capital gains tax is a second tax on capital income after the corporate income tax. The U.S. corporate income tax at nearly 40 percent counting state rates on average is also the highest in the world right now. The combination of this tax burden on U.S. capital would crush the capital investment that is the necessary, essential foundation for creating more jobs and rising wages, which is Hillary’s stated goal in her economic policy speeches.
Larry Kudlow called this “inconceivably stupid,” especially because we know from experience that as we lowered the capital gains rate from 40 percent before 1978 to 15 percent under President Bush, we actually increased revenue every step of the way, and when we backtracked from that long term decline in the rate, we actually lost revenue.
Hillary’s proposal is intended to discourage investors from selling assets too soon in her all-knowing, all-seeing judgment, reflecting her “insight” that the economy suffers from too much “short-termism.” She thinks she knows better than current investors and management of American companies what will best grow those companies over the long run.
Moreover, Hillary’s proposal would re-impose a “lock-in” effect on capital, slowing its reallocation to fund new technological innovations and breakthroughs that arise. That too would further stagnate economic growth.
Hillary’s capital gains tax increase would return America to a policy adopted in 1934 that reduced a high capital gains tax rate to start the longer the asset was held. That policy was abandoned precisely because economists recognized the damaging effects of the “lock-in” effect.
But Hillary now proposes to take America back 80 years to that counterproductive policy of the Depression. Just as President Obama’s nearly $1 trillion 2009 supposed “stimulus” package dredged up failed and forgotten Keynesian policies 30 years after Reagan rightly abandoned them.
That just underscores that there is actually nothing progressive about progressivism.
Lew Uhler is Founder and President of the National Tax Limitation Committee and National Tax Limitation Foundation (NTLF). Peter Ferrara is Senior Policy Advisor on Budget Policy and Entitlement Reform to NTLF, and a Senior Fellow at the Heartland Institute. He is the author of Power to the People: The New Road to Freedom and Prosperity for the Poor, Seniors, and Those Most In Need of the World’s Best Health Care, published by Heartland.