NOT CAPITAL IDEA

Hill’s ‘gains’ plan a miss with critics

Almost doubling shortterm capitalgains tax rates — recently proposed by presidential candidate Hillary Clinton — would hurt the economy because investment taxes are already excessive, critics say.

“Her proposal would have a devastating effect on capital formation. She is absolutely out to lunch,” says Arthur Laffer, a Reagan administration supplyside economist.

The Clinton plan calls for the tax rate on shortterm capital gains — the sale of properties held for less than two years — from the current average of 28.6 percent to 39.6 percent on highincome earners.

“The mainstream of economists want growth. That means there should be less taxes on investments,” says Mark Bloomfield, president of the American Council for Capital Formation.

“This could create economic stagnation as some people decide to hold on to investments for longer periods,” says Scott Ehrenpreis, a principal with Friedman LLP, heading its tax controversy group.

But Ehrenpreis says the issue is whether the proposal would create jobs, while a market observer says it would create more money for the government.

Greg McBride, a financial analyst with Bankrate.com, says raising investment taxes will generate more revenue for the government but “won’t do much to change investor behavior.” He says investors will adjust and hold on to the securities longer.

The proposal, supporters note, would affect only the top 5 percent of wageearners — those making about $464,000 a year for married couples and $413,000 for singles.

The Clinton rate would then go on a sliding scale, with the capital gains rate reduced to 24 percent over five years. After six years of holding a property before selling, taxpayers would pay what is today the highest tax — 20 percent.

Clinton lists another reason for higher taxes. In a briefing paper, she says her goal is to end the “tyranny” of the shortterm investor. This is someone who frequently buys and sells. This investor speculates at the expense of longterm investing. That, she says, hurts workers who need higher pay.

“Corporate profits are at nearrecord highs, but they are not showing up in the wages of everyday Americans,” she wrote.

“That’s in part because too many pressures in our economy today are pushing businesses toward shorttermism — a focus on the next earnings report or the short term share price, rather than the sources of longterm growth and lasting value: workers and their skills, R&D and physical capital,” Clinton says.

She complains that today, about 75 percent of capital gains “go to those earning more than $1 million a year.”