- - Thursday, July 23, 2015

Hillary Rodham Clinton is expected to unveil an overhaul of the capital gains tax rate this week that she says will strengthen the economy and create more jobs.

The only trouble is that her plan calls for raising the tax rate on investors, the ones who provide the lion’s share of investment capital needed for business expansion, which fosters stronger economic growth and creates more jobs.

There have been few details coming out of the former secretary of state’s presidential campaign, which has been very secretive about Mrs. Clinton’s economic policies.

But some reports in the news media suggest that her plan has slower growth and higher taxes written all over it.

Here’s what the Club for Growth said this week under the pointed title “Hillary’s Capital Gains Tax Plan Attacks Investors.”

“You could say that Hillary’s plan follows typical liberal logic by picking winners and losers, only this time she’s targeting investors,” said Club for Growth President David McIntosh.

“The truth is her plan just makes more losers by crushing investors with higher taxes. Some reports say her top rate could be close to 40 percent. The fact is Hillary wants to punish success in order to grow government, and that means the biggest loser will be our economy.” he said.

The Clinton campaign says her plan will raise capital gains tax rates on certain short-term investments held at least a year (now set at 23.8 percent) to at least 28 percent, as President Obama has already proposed — and possibly higher.

The Wall Street Journal reported that Mrs. Clinton’s campaign advisers have not ruled out raising it to 39.6 percent for those in the highest income tax bracket.

Clinton campaign officials have described the plan as an effort to encourage long-term economic growth through a sliding tax rate scale — taxing short-term investments at higher rates and longer-term investments as lower rates.

But the fact of the matter is that this is a smoke-and-mirrors plan to raise taxes on wealthier investors and put the government further in charge of economic decision-making in our capital markets.

Moreover, Mrs. Clinton’s capital gains tax proposal appears to have all the earmarks of playing the game of campaign politics — not fostering economic growth.

With Vermont Sen. Bernard Sanders, a self-described socialist, drawing increasing support from the Democratic Party’s liberal base, Mrs. Clinton has toughened her rhetoric on Wall Street, promising increased regulatory oversight, and now higher taxes, too.

Her tax plan is a full retreat from the position she took in her bid for the presidency in 2008 when she promised not to raise the capital gains tax rate above 20 percent.

“I wouldn’t raise it above 20 percent, if I raised it at all,” she said in her campaign debate with Barack Obama.

Back then, she was following the advice of her husband, President Clinton, who, in his second term, signed a GOP bill slashing the top capital gains tax rate from 28 percent to 20 percent.

That’s when the economy took off as investors quickly sold off underperforming stocks and poured their capital into an explosion of new start-up high-tech firms.

The surge in the capital gains tax revenue slashed the government’s budget deficit, and led to a wave of new job creation from an expanding economy that pounded the unemployment rate down to 4 percent.

Mrs. Clinton says her proposal to lower the capital gains tax rate on long-held investments, and a higher rate on short-term gains, will lift our economy. But that’s not how a free, dynamic economy works.

No one predicted the dot-com boom, or the speed with which new high-tech companies appeared and sent stocks soaring.

A heavy-handed system where investment decisions are governed by the federal government’s tax calendar and not by the free market can wreak havoc with our economy. Investors would be punished by a higher tax rate if they sell their assets at the wrong time.

“Today’s system features a preferential tax rate on assets held more than a year. But it makes no distinction beyond that. Gains on stocks held from 366 days are taxed at the same rate as those held 36 years,” writes Richard Rubin of the Bloomberg.com news service.

And that, in part, may be why her plan is coming under fire from the private equity industry

“Taxing long-term carried interest as anything other than a long-term capital gain would deprive private equity, venture capital, real estate, and many other businesses of the same treatment available to other kinds of businesses that sell a long-term capital asset for a profit,” says Steve Judge, president of the Private Equity Growth Capital Council.

In a recent critique of her proposal, economics writer Chris Matthews of Fortune magazine writes that she is “attaching herself to an issue, short-termism, that likely can’t be changed by tax policy. At the same time, there’s plenty of evidence that short-termism isn’t really a problem at all.”

Indeed, “the assumption that fiddling with the tax code a bit will all of a sudden lead to a boom in investment and long-term thinking is, at best, a distraction,” he says.

And, he adds, if she hopes to win the presidency “she’s going to have to do it by defending the notion that higher taxes on the rich aren’t going to affect the behavior of the so-called job creators in a material way.”

Good luck.

Want to strength the economy and create more jobs? Abolish the capital gains tax, which is double taxation at its worst. Or at the very least, as Bill Clinton showed us, slash it to the bone.

Donald Lambro is a syndicated columnist and contributor to The Washington Times.

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