Hillary Rodham Clinton’s fiscal policies are premised on a commitment to roughly $1 trillion of new spending programs, tax breaks for the middle class and a “Buffet Rule” style surtax imposed on the wealthiest Americans.
Like many of her Democratic and Republican rivals in the 2016 presidential campaign, the former Secretary of State’s budget and tax proposals are still a work in progress.
So far, she has called for subsidies for college tuition, pricey infrastructure construction, subsidized childcare programs and other proposals targeted to the middle class. She vowed that no one making less than $250,000 a year would be stung with higher taxes.
In contrast to Sen. Bernie Sanders’ call for as much as $18 trillion of new spending over the coming decade for a raft of domestic programs financed through steep tax hikes on upper-income Americans, Clinton has been selling her approach as pragmatic and fully paid for down the road.
But a new analysis of her tax plans by the non-partisan Tax Foundation released Tuesday raised perplexing questions about how she actually intends to pay for her domestic agenda, whether wealthier Americans have anything to fear from her tax proposals and whether her approach will be good for the U.S. economy.
Her tax plan includes an increase in the marginal tax rates for Americans with incomes over $5 million a year, a new 30 percent minimum tax along the lines proposed by billionaire Warren Buffet, and returning the estate tax to its higher 2009 levels.
According to the Tax Foundation analysis:
- The plan would increase federal tax revenues by $498 billion over the coming decade on a “static basis,” meaning taking the least optimistic view of long-term revenue growth. That doesn’t amount to even half of what she wants to spend.
- But if the economy begins to lose steam, Clinton’s plan would end up raising just $191 billion over the next 10 years. That means there would be just a fraction of the new revenue she would need to cover the cost of her domestic initiatives.
- The lion’s share of the additional tax revenues would come from capping itemized deductions as part of the “Buffet Rule” and imposing a 4 percent surtax on taxpayers making more than $5 million annually.
- Clinton’s ideas for rewriting the long-term capital gains rates would actually reduce revenues because it would increase the incentive to postpone selling off assets.
It’s always difficult to assemble a major fiscal package because of all the variables that go into it, the seat of the pants revenue estimates and shifting budget baselines. And for sure, Clinton’s proposals will need a lot of tweaking and refinement.
Moreover, the Tax Foundation analysis didn’t consider Clinton’s proposed tax credits for caregivers and others, nor did it count a proposed new tax on high frequency trading.
But the more troubling implications of the Tax Foundation analysis is that Clinton’s proposals, as currently written may hurt the economy while only nicking the incomes of wealthier Americans compared to the rest of the taxpayers.
If enacted as drafted, Clinton’s tax plan would reduce Gross Domestic Product by 1 percent over the long term because of “slightly higher marginal tax rates on capital and labor.”
According to the Tax Foundation’s economic model, the plan would lead to a 0.8 percent reduction in wages, a 2.8 percent smaller capital stock and 311,000 fewer “full-time equivalent jobs.”
What’s more, on a static basis, Clinton’s tax plan would lead to just a 0.7 percent reduction in after tax income for the top 10 percent of taxpayers and a 1.7 percent lower after-tax income for the top 1 percent of taxpayers – the very income groups that Sanders has vowed to soak.
When taking into account the projected reduction in GDP, after-tax income for just about all taxpayers would decline by at least 0.9 percent.
“If enacted, her tax policies would result in a reduction in the size of the U.S. economy in the long run,” the study concluded. “This would decrease the revenue that the new tax policies would ultimately collect. The plan would lead to lower after-tax incomes for taxpayers at all income levels, but especially for taxpayers at the top.”