How to Destroy an Economy, Tip #37,865: Adopt Hillary’s Capital-Gains Tax Plan

Image: Shannon Stapleton/Reuters

(H/T Robert Wenzel)

Hillary’s Inconceivably Stupid Capital-Gains Tax Scheme

By Larry Kudlow

The weakest areas in the weakest recovery since World War II are investment in new plants and equipment and investment in new business startups. These are the biggest job-creators, and their slump is a key reason for the subpar labor recovery, with low participation rates and an increase in involuntarily part-time workers.

So if investment is the problem, what does Hillary Clinton go out and do? She proposes jacking up the tax on investment. It’s almost inconceivably stupid.

In her latest economic speech, Clinton proposes doubling the capital-gains tax rate on the profit made from asset sales (stocks, bonds, real estate) held a day less than one year up to two years. Right now, if you take a capital gain a day more than one year, you are taxed at a 20 percent rate. Actually, it’s 23.8 percent when you include the health-care surtax. So under Clinton’s brilliant new play, you’d be taxed at 43.4 percent — the top individual capital-gains rate of 39.6 percent plus the 3.8 percent Obamacare surtax.

That means instead of keeping 80 cents on the additional dollar of profit, you’d only keep 56.6 cents — a 30-percentage-point reduction in the take-home-pay reward for taking an extra dollar’s investment risk.

This will create a tall barrier to investment — what we don’t need. If you tax something more, you get less of it.

Clinton complains about too much “short-termism” in the economy. But her program might well create more of it. That’s because she has a sliding tax-rate scale, whereby assets held two to three years would be taxed at 39.8 percent and assets held three to four years at 35.8 percent. And you don’t get back to the statutory 20 percent capital-gains rate unless you hold an asset for six or more years.

Who’s going to lock themselves into that? What if new investment opportunities arise? Want to convert your current holding into cash so you can invest in your brother-in-law’s start-up? Maybe it’s the next Facebook. Who knows? The point is, the Clinton plan exacts a huge tax penalty on the movement from old capital to new.

The late Jude Wanniski called this re-oxygenating the economy. Ms. Clinton would snuff that out. Her short-termism fear will lock us into long-term economic stagnation.

By the way, the numbers are actually worse, because capital gains are already taxed as corporate profits. What investors pay is a double tax.

So let’s go back to Hillary’s top cap-gains rate of 43.8 percent. The government takes 35 percent of your profit in corporate taxes, leaving 65 cents to be taxed a second time as capital gains at the new 43.8 percent rate. That results in a take-home profit of 37 cents on the dollar.

Is that enough to reward the risk of investing in the next Uber? Except for Mayor Bill de Blasio, who hates Uber, most people would say no.

But that’s Hillary’s plan.

How powerful is the capital-gains tax? The nonpartisan Tax Foundation rates it among the top three economic-growth influences on the economy, along with full cash expensing for new investment in plants and equipment and the corporate tax. And compared with the rest of the world, the U.S. has fallen far behind in terms of this investment-tax-penalty grouping.

This is government tinkering at its worst. The reality is that Hillary Clinton is attempting to punish success and redistribute income.

Did someone say “tax the rich”? Clinton proposes an income threshold of $484,850 for married couples filing jointly. Oh, my gosh! Successful economic activists! Let’s get ’em!

Ironically, history shows that periods of higher capital-gains tax rates produce less revenue as a share of all federal revenue and as a fraction of GDP. Hillary’s not even redistributing efficiently.

And then there’s what some call the “Charlie Gibson effect.” Gibson interviewed then-Senator Obama in 2008 for ABC News. Obama said he’d raise the capital-gains tax from 15 percent to 28 percent. But Gibson reminded Obama that when Bill Clinton and George W. Bush lowered capital-gains tax rates, revenues actually increased. In other words, the Laffer curve. But Obama said it didn’t matter because he wanted to be “fair.”

It also doesn’t matter to Hillary Clinton. She wants to beat Bernie Sanders, or at least cuddle up to the Vermont socialist. What nonsense. Bad economics and bad politics. Voters will understand this.

Goofy ideas like this make me yearn for a 15 percent flat-tax rate on everything. Personal income, corporate profits, capital gains, dividends — everything. But that still leaves me with a double-tax problem for investment and savings. So it’s probably time to blow up the corporate-tax code altogether. That would get us to the 4-percent-plus growth path advocated by some of the Republicans on the campaign trail.

And that would get us some “long-termism” economic growth — just what the country yearns for.

Larry Kudlow is CNBC’s Senior Contributor and author of American Abundance: The New Economic & Moral Prosperity.

Among Millionaire Voters, Hillary is the Favorite

Image by Getty

Hillary Clinton has never had a reputation for championing — at least in practice — your everyday American. After all, she fully supported the Wall Street bailout in the midst of the 2008 financial crisis, further cementing the financiers’ backing for her presidential run in 2016. She is cozy with Goldman Sachs’ Gary Gensler, and is reportedly preparing to choose him as the country’s next treasury secretary if she gets elected.

Now we have a report from CNBC on a survey showing that Mrs. Clinton is the favorite candidate among millionaire voters, surpassing even Jeb Bush for the top spot:

“The survey, which polls 750 Americans with a net worth of $1 million or more, found that 53 percent of millionaires would vote for the Democratic ex-Secretary of State, compared with 47 percent for the GOP presidential hopeful, in a hypothetical general-election match-up. Clinton had the support of 91 percent of Democratic millionaires, 13 percent of Republican millionaires and 57 percent of Independent millionaires.

“The CNBC Millionaire Survey skews more Republican than the broader voting population, which makes the support for Hillary even more notable. Of the millionaires polled, 34 percent were Independent, 31 percent were Republican and 34 percent were Democrats (a few didn’t give an affiliation).”

There’s nothing wrong with having millionaire support per se, but this is yet another indicator of Mrs. Clinton’s crony agenda to benefit the politically connected few. It also comes with the usual dose of irony, considering her campaign is framing her as an enemy of the 1% who is fighting hard for the middle class and the poor. Many Americans already know whose interests she really has in mind, but it’s time for her liberal supporters to dig a little deeper as to why the banks have been pouring cash into her campaign.