A Hillary Presidency Means Higher Capital Gains Taxes for Everyone

If elected president, Hillary Clinton will push for higher taxes on American families and businesses. While her campaign wants you to believe this will be limited to “the rich” and large corporations, Hillary has already said she would be willing to accept higher taxes on all Americans.

Outright raising marginal rates is a political loser, so Clinton is instead calling for a set of convoluted and confusing tax hikes under the guise of closing “loopholes.” In all, she plans to raise taxes by more than $1 trillion over ten years, just like President Obama did when he signed 20 new or higher taxes into law through Obamacare.

One way a Clinton presidency will increase taxes is through incrementally increasing the capital gains tax. Bit by bit, this takes aim at cracking the firm conservative opposition to raising the capital gains tax with the end goal of all capital gains taxed as ordinary income.

As part of this strategy, Clinton has also called for six new rates on assets held longer than one year, with a top rate of 43.4 percent, far greater than the current top rate of 23.8 percent. Clinton proposes to create the most complex, byzantine capital gains tax in modern history. She claims that this will clamp down on “reckless” short-term investment.

However, Hillary’s proposal does not align with the decision-making of investors. They make choices based on value, not time. Conversely, her proposal will actually decrease investment (and reduce federal revenues) by forcing decisions to be made based on tax purposes.

Clinton also wants to move the needle on higher capital gains taxes by closing several self-proclaimed “loopholes,” such as section 1031 “like-kind exchanges,” and carried interest capital gains.

Like-kind exchanges allow an investor to defer paying capital gains taxes on certain assets when they use those earnings to invest in another, similar asset. Investors can do this again and again until they ultimately cash out.

Hillary’s proposed limitation on like-kind exchanges would arbitrarily punish a reallocation of resources and undercuts investment. It would also cost the economy more than $13 billion in GDP every year, if used to finance new government spending. Rather than facing repeal, Section 1031 should be expanded as the model for all capital gains because it allows the freedom to reinvest.

Hillary also wants to increase carried interest capital gains. While this provision is often derided as a “loophole,” carried interest capital gains are indistinguishable from all other types of capital gains. It is simply the expert investor’s share of an investment partnership, as allocated to the managing partner.

Efforts to hike carried interest capital gains are really about trying to erode the capital gains tax so that more and more investment income is subject to higher tax rates.

The Obama presidency has already seen the top rate on the capital gains tax increase from 15 percent to 23.8 percent. If Obama had his way, the rate would be even higher as past budget proposals have called for a 28 percent rate.

Rather than hiking the capital gains tax, it should be lowered or repealed.

Any “gain” or profit from a stock or bond is hit by the capital gains tax, so this tax affects all Americans who have invested any money into the stock market, whether it is their retirement fund or any supplemental income.

The capital gains tax discourages investment because it taxes income that has already been subjected to income taxes. It is undoubtedly a form of double taxation. Economists agree and studies have shown that an increase in the capital gains tax would have serious adverse economic effects. Some have even labeled the capital gains tax as unconstitutional.

Regardless of who is president next year, the path forward on the capital gains tax should mirror the proposal put forward by the House GOP “Better Way” tax reform plan. This plan – spearheaded by House Speaker Paul Ryan (R-Wis.) and Ways and Means Chairman Kevin Brady (R-Texas) – reduces the top rate to 16.5 percent and creates a 50 percent deduction based on the taxpayer’s bracket.

The Clinton playbook of higher capital gains taxes through an incremental approach is not new. Despite the rhetoric of the left that they are only closing loopholes, it is clear that their end goal is higher taxes for everyone, not just the wealthy.

Natalie De Vincenzi is a federal affairs associate at Americans for Tax Reform.


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