Hillary Clinton’s Tax Plan Will Destroy US Jobs Market
Hillary Clinton’s proposed tax increases on people with high incomes and on businesses would constrain economic growth, leading to lower wages and about 697,000 fewer jobs, according to a right-leaning policy group’s analysis.
The Democratic presidential nominee’s tax plan, which includes proposals to raise taxes on multimillionaires and impose a “financial risk fee” on banks, would change economic behavior enough to reduce US GDP (gross domestic product) by 2.6% over the long run, according to a study prepared by the Washington-based Tax Foundation. In that slightly smaller economy, wages would be 2.1% lower, the report said.
By itself, “the plan would reduce the after-tax incomes of the top 1% of taxpayers by 6.6% but increase the after-tax income of all other income groups by at least 0.1%,” the analysis said. Still, after accounting for smaller economic growth that would result, “all after-tax incomes would fall by at least 0.1%t in the long run,” it said.
After accounting for that reduced tax base, Mrs. Clinton’s plan would increase federal revenue by $663-B over 10 years, the Tax Foundation determined, a number that’s less than 50% of some previous estimates.
The lower number stems from the group’s use of a method called “dynamic scoring,” which seeks to account for changes in economic behavior that would result from changes to the tax code.
In the case of Mrs.Clinton’s plan, higher marginal rates on both capital and labor income would mean that the economy wouldn’t grow as much as it would without the effects of those changes, according to the analysis. Dynamic scoring can be controversial among economists, who disagree on the best way to construct the models they use.
Because dynamic-scoring models anticipate that people will work, buy and invest more when their taxes are lower — generating economic growth, the models typically find that tax cuts cost less than other models predict.
On a “static” basis Mrs. Clinton’s plan would raise $1.4-T in new federal revenue over a decade, the study found. That amount matches the overall estimate for Mrs. Clinton’s plan that another group, the Tax Policy Center, released this week.
Analysts have moved quickly to reassess the tax plans of both Mrs. Clinton and Donald Trump, the GOP nominee, over the past 6 weeks as both candidates announced major revisions to their plans.
Economists at the Tax Foundation have previously worked with Donald Trump’s campaign to help evaluate his tax plan. The campaign has yet to publish full details of how that plan would work.
The Tax Foundation published an analysis of Trump’s latest plans that provided a range of amounts for its effects. On a static basis, Trump’s proposals would reduce federal revenue by $4.4-T to $5.9-T over 10 years, the group found, while on a dynamic basis, the reduction would range from $2.6-T to $3.9-T.
The group’s analysis of Donald Trump’s plan also found that it would increase economic growth by at least 6.9%, increase wages by at least 5.4% and result in at least 1.8-M more jobs.
One of Mrs. Clinton’s most recent proposals ie overhauling the estate tax to require much higher payments from the largest estates would raise $309-B over 10 years on a static basis, but just $7-B under dynamic scoring, according to the analysis.
“Clinton’s new estate tax proposal has the single largest economic impact of all her policies,” the Tax Foundation’s director of federal projects and the study’s author wrote Tuesday. Its effect alone accounts for about 40%of the economic impact of Mrs.Clinton’s plan, he wrote.
“This is because the much higher marginal estate tax rates would greatly reduce the incentive to save and invest,” he wrote. As a consequence, collections of individual and payroll taxes would decrease, he said, and that is what explains the decline from $309-B to $7-B.
Under current tax law, the estate tax applies a 40% rate to estates worth more than $5.45-M.
Mrs.Clinton wants to raise that rate to 45% and apply it to estates worth more than $3.5-M. Then, she wants progressive rates on higher-value estates: 50% on those worth more than $10-M; 55% for those worth more than $50-M and 65-M for those worth more than $500-M. Note: Those dollar values are 2X’s for married couples.
Mrs. Clinton’s plan to overhaul the taxation of capital gains by creating a 6-year scale of graduated tax rates would raise $35-B over 10 years on a static basis, but would actually reduce revenue by $47-B under the Tax Foundation’s scoring.
Her plan for capital-gains taxes, which is designed to reward long-term investors, would apply a 20% rate to gains on assets held more than 6 years. The rate would gradually increase for gains on assets held for shorter time periods, topping out at 39.6% for assets held less than 2 years.
Another new Clinton tax plan proposal would double to $2,000 per child the amount of the child tax credit that’s available to families with children under the age of 4.
She wants to also increase the amount of that credit that can be paid as a refund to families who owe no federal income tax. That boon for middle-class taxpayers would cost about $199-B over 10 years on a static basis, and $220-B under dynamic scoring, the report said.
Overall the Trump tax plan is more conducive to economic and jobs growth than is the Clinton tax plan, which would include massive social spending if she were to be elected President of the United States.