Hillary Clinton's Plan To Restore Tax Fairness

(Cartoon image is from liberalamerica.org.)

The cartoon above bluntly states the truth about our tax system, and how unfair it is. Republicans will tell you that the rich (and corporations) taxes are too high. That is ludicrous. Thanks to loopholes of all kinds, they pay very little in taxes -- many times a smaller percentage of their income than many in the middle class.

Hillary Clinton wants to restore tax fairness, and insure that the rich pay their fair share of taxes. Here is her proposed policy as explained at hillaryclinton.com:

Throughout her career, from voting against both Bush tax cuts to calling for the end of special tax breaks for Wall Street money managers, Clinton has stood for making the most fortunate pay their fair share. Last month, Clinton stood side-by-side with Warren Buffett and spoke about the importance of tax fairness. Today, she is offering a plan to build on the “Buffett Rule,” crack down on tax gaming and sheltering, and ensure that the super-wealthy pay their fair share by.

In combination, these proposals will raise between $400 and $500 billion in revenue over 10 years for investments that will drive strong growth and raise the pay of middle-class families. The full details of Clinton’s plan are described below.

1. Implement a multi-millionaire “Fair Share Surcharge.” Clinton is calling for a multi-millionaire surcharge as a direct way to ensure that the most fortunate pay their fair share. As a result of loopholes and the “private tax system” of lawyers and accountants who enable complex strategies to shelter and lower the bill on income for the most fortunate, some of the wealthiest taxpayers continue to pay low effective rates on their income. Today, one-quarter of the top 400 taxpayers who make on average $250 million per year pay less than a 20 percent effective Federal income tax rate[3] – and the top 400 taxpayers pay an overall effective rate that is around 7 percentage points lower than the mid-1990s, a period of strong, shared economic growth. As part of her plan for expanding on the Buffett Rule, Clinton’s plan calls for a 4 percent multi-millionaire “Fair Share Surcharge” on the top 0.02 percent of taxpayers on their income above $5 million per year – affecting roughly 2 out of every 10,000 taxpayers. The experience of the past few years shows that a surcharge can directly raise the effective rates on the very-highest-income taxpayers, in ways even their tax maneuvers cannot game: as a result of President Obama securing the end of the high-income Bush tax cuts and other measures, the effective rate paid by the top 400 taxpayers rose from less than 17 percent to the most recent rate of 23 percent.[4]

2. Shut down the “private tax system” for the wealthiest, starting by immediately closing specific egregious loopholes. Some of the most fortunate taxpayers in the country – often those making multiple millions per year, or with billions of dollars in wealth – are able to game the system by sheltering their income or using exotic tax gaming to avoid paying their fair share. As a recent New York Times story explained, “Operating largely out of public view…the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans.”[5]

• End the Bermuda reinsurance loophole, and tax gaming through complex derivative trading: High-income money managers have used loopholes related to foreign reinsurance – often located in Bermuda – to avoid paying their fair share.[6] And they take advantage of complex derivative trades to lower their tax bill.[7] Clinton would build on proposals from both Democrats like President Obama and Republicans in Congress to close down these two loopholes.

• Close the “Romney Loophole” that allows sheltering multiple millions in retirement accounts: According to data from the Government Accountability Office, roughly 1,000 taxpayers have accumulated close to $100 billion dollars in tax-preferred retirement accounts, with balances of more than $10 million per taxpayer.[8] Clinton believes that we should encourage robust retirement savings by American families – but that retirement accounts should not become a shelter from taxation for the most fortunate. She would build on proposals by President Obama in calling for closing down the so-called “Romney Loophole”[9] by limiting the ability of the very wealthiest to game the system by sheltering large incomes in tax-preferred accounts.

• Close the “carried interest” loophole: For almost a decade, since she was a Senator, Clinton has called for closing the “carried interest” loophole that allows hedge fund, private equity, and other Wall Street money managers to avoid paying ordinary income rates on their earnings. With the top 25 hedge fund managers making more than every kindergarten teacher in the country combined, there is absolutely no reason for this tax loophole.

• Commit to tax fairness beyond closing these specific loopholes – especially on capital income: Beyond these specific loopholes, Hillary will continue to take steps to ensure the most fortunate cannot game the system and avoid paying their fair share. Already in this campaign, she has called for raising capital gains rates for short-term trading, in order to encourage long-term investment. But long-termism should never be an excuse for persistently and continuously sheltering income from fair taxation. That is why Clinton will go beyond the loopholes identified above to reform capital taxation, and explore additional measures to prevent high-income taxpayers from misclassifying income as capital gains or avoiding paying tax on some income at all. She will make strong enforcement against the “private tax system” for the extremely wealthy a priority for her administration.

3. Restoring fair taxation on multi-million dollar estates. Clinton is joining President Obama and other Democrats in calling for returning the Estate Tax to 2009 parameters, and lower the exemption for the Estate Tax from almost $11 million today, while raising the Estate Tax rate. Hillary has called for Estate Tax reform for more than a decade, and embraced similar proposals in her 2008 presidential campaign. The Estate Tax only impacts the very largest estates, and the reformed Estate Tax would only affect the wealthiest 4 out of every 1,000 estates in the country.[10] Her plan would also crack down on loopholes in the Estate Tax, including methods that people can now use to make their estates appear to be worth less than they really are.[11]

4. Ensure millionaires can no longer pay a lower rate than their secretary. When Hillary stood with Warren Buffett last month, he pointed to his own taxes as proof of the fundamental unfairness of our tax system. He has earned billions and yet, year after year, he pays a lower effective tax rate than his secretary.[12] In addition to the surcharge and specific loophole closers outlined above, Clinton is reiterating her call for the Buffett Rule, which ensures that millionaires must pay at least a 30 percent effective rate. Plain and simple, this rule of basic fairness ensures that the wealthiest Americans no longer pay a lower effective tax rate than the middle class.