Clinton’s Tax Hikes on the Rich Could Raise $1.1 Trillion Over 10 Years
Democratic presidential frontrunner
Hillary Rodham Clinton is promoting tax measures that would increase
federal revenues by $1.1 trillion over the coming decade, according to a
new analysis. Compared to Republican plans, which typically cut taxes,
her proposal could help stabilize the nation’s ballooning debt if she
also finds a way to reduce existing government spending.
Clinton’s proposals for boosting
taxes on high-income earners, modifying taxation of multi-national
corporations, doing away with fossil fuel tax incentives and increasing
the estate and gift taxes would fall hardest on the top 1 percent of
taxpayers, while leaving 95 percent of Americans relatively unscathed,
according to an analysis released on Thursday by a joint venture of the Urban Institute and the Brookings Institution.
Clinton’s
tax plan, including some leftover ideas from the Obama administration,
would almost certainly encounter stiff opposition from the GOP
controlled Congress which opposes any tax increases. Moreover, Clinton
has advanced a raft of high-priced plans for the middle class –
including relieving college tuition costs and expanding healthcare,
family leave and energy production – that would more than offset the
$1.1 trillion of new revenue over the coming decade.
While
Clinton’s tax proposals are still a work in progress and could end up
being more costly, the report says there is little doubt that the
wealthiest Americans would be hardest hit by soaring marginal tax rates
that would “reduce incentives to work, save and invest.” The 40-page
report doesn’t venture a guess as to the long-term effect of these tax
increases on the overall economy. However, they would almost certainly
slow the growth of the Gross Domestic Product if enacted unless
Clinton’s ambitious domestic proposals succeeded in generating new jobs
and economic activity.
Len Burman, director of the
Urban-Brookings Tax Policy Center, told reporters today on a conference
call that his organization hasn’t conducted a full macro-economic
analysis of Clinton’s plan yet, and probably won’t until later this year
after the Clinton campaign unveils other proposals for providing tax
relief to middle and lower-income Americans.
“I
think a standard macro-economic model would show probably a small
reduction in economic output from the rising marginal tax rates,” he
said. “The actual effect is a little complicated because it depends not
only on how it affects changes to work, savings and investment . . . but
it also depends on what the money is spent for.”
Clinton, the former secretary of state and first lady, unveiled her tax proposals on March 3. Among her proposals:
- A 4 percent surcharge on adjusted gross income above $5 million.
- A 30 percent effective tax rate on adjusted gross incomes greater than $1 million – the so-called “Buffett Rule” that would guarantee wealthy people pay tax rates at least as high as those of lower-income people.
- An increase in the estate tax and limiting the tax value of specified deductions and exemptions to 28 percent.
If
these and scores of other proposals were approved, taxpayers in the top
1 percent of the income distribution, with annual incomes above
$730,000, would see their tax burdens increased by more than $78,000,
according to the report. That would amount to a reduction in after-tax
income of 5 percent. By contrast, most Americans who earn less than
$300,000 a year would see little change in their average after-tax
incomes.
According to the study, Clinton’s
proposals would increase federal revenue by $1.1 trillion over the first
10 years of the plan and an additional $2.1 trillion over the following
decade. The top 1 percent of U.S. households would be obliged to pay
more than three quarters of the total tax increase.
Related: Sanders’ Plan Would Raise Taxes a Staggering $13.6 Trillion over a Decade
The
combination of the 4 percent surtax on adjusted income over $5 million
and the new 30 percent minimum tax would effectively drive up the
average marginal tax rate on all forms of capital income for the
wealthiest Americans and discourage investment, according to the report.
For instance, the average marginal tax rate on interest income would
shoot up by 4 points – from 36.8 percent to 40.7 percent – within the
very highest income tier. Meanwhile, the effective marginal tax rate on
dividends would rise from 24.0 to 30.3 percent.
Clinton’s
tax proposals contrast sharply with those of her Democratic rival, Sen.
Bernie Sanders of Vermont, as well as billionaire Donald Trump and the
two other remaining major GOP candidates, Sens. Ted Cruz of Texas and
Marco Rubio of Florida.
Sanders, the
self-described democratic socialist, has advanced a soak-the-rich tax
plan that would raise taxes by $13.6 trillion over the coming decade to
help pay for his proposals for universal government health care, free
college tuition and other measures, according to an analysis by the
non-partisan Tax Foundation. Sanders is seeking the largest tax hike in
modern times, one that would boost the top marginal income tax rates to
54.2 percent and likely slow the growth of the economy by 9.5 percent in
the long-term, according to the analysis.
On the
Republican side, Trump, Cruz and Rubio have all proposed major tax
reforms to spur economic growth, but all at enormous potential costs to
the Treasury. Trump’s plan, for example, would drain the federal coffers
of $9.5 trillion over the first decade and another $15 trillion over
the second ten years, according to a separate Tax Policy Center study.
Cruz’s
revolutionary idea to switch from the current federal tax code to a
simple, European-style “flat tax” would add $8 trillion to the deficit
over the coming decade, according to a new study by the Committee for a
Responsible Federal Budget. And Rubio’s tax cuts and simplification plan
would reduce federal revenues by $6.8 trillion over a decade, according
to the Urban-Brookings Tax Policy Center.
“Those
are really big deficits,” Burman said today in raising a red flag about
many of those proposals. “And I think it’s safe to say . . . if there
were not pretty big spending cuts to offset those deficits, the deficits
would have a negative effect on the economy. The way that works is, the
government borrows more and more money and pushes up interest rates,
which actually makes the government’s problems even worse in the ways we
didn’t explicitly reflect in our analysis.”
Culled from The Fiscal Times:
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