(Adds details, Clinton’s comments on shift from her 2008 position, reaction from fund managers)
By Jonathan Allen
NEW YORK, July 20 (Reuters) - U.S. presidential contender Hillary Clinton’s proposed plan to overhaul capital gains taxes aims to foster long-term growth by taxing some short-term investments at higher rates, an aide for her campaign said on Monday.
Although details of the plan have yet to be finalized, it would create a sliding rate scale based on the length of an investment, rather than treating all assets held over a year as “long term,” an aide with the Democratic candidate’s campaign said.
Under her proposal, first reported by the Wall Street Journal, profits made by an individual selling an investment held for less than a year would continue to be taxed at regular income rates, which can rise to 39.6 percent for top earners, the Journal said.
Clinton’s plan would raise the maximum tax rate on capital gains made on assets held at least a year but no more than perhaps two or three years, currently 23.8 percent, to at least the 28 percent proposed by President Barack Obama, according to the Journal and a brief statement from a Clinton aide.
Clinton, the favorite to win the Democratic Party’s nomination for the 2016 presidential election, has not ruled out raising it as high as the regular income tax rate, the Journal said.
She also would add additional time thresholds after which the tax rate would drop, rewarding individual investors who hold assets longer than the current one-year threshold, although some tax experts question whether this would in turn alter a company’s investment behavior for the better.
Clinton will give more details about the plan in a speech later this week, the Journal said.
The campaign has not said how much extra tax revenue it estimates the proposal would raise.
Supporters of such a proposal say it would discourage activist investors from focusing on pushing for quick changes in a company to boost stock prices at the expense of investments, including long-term research, that take more time to bear fruit.
Neera Tanden, the director of the left-leaning Center for American Progress think tank and a long-time Clinton adviser, said in a report last month that this sort of reform would “provide focal points for investors beyond a year ahead.”
But some tax economists who spoke to Reuters on Monday said the proposed reform may not have much social benefit, and overstated a link between the timeframes of a company’s investments and the length of time for which a given investor retains stock.
“My general impression is deep skepticism,” Leonard Burman, director of the non-partisan think tank the Tax Policy Center and a former senior tax economist in President Bill Clinton’s Treasury Department, said in a telephone interview.
“Frankly, I don’t see the logic in trying to encourage people to hold assets for longer than they want to,” he said.
He said there were already strong incentives for individuals to hold onto assets, and the dividends they can produce, for a long time. He also noted that vast amounts of assets are held by entities, including non-profits, foreigners and retirement funds, not subject to the individual capital gains tax.
Clinton’s proposal comes as part of her plan to fight what she sees as an excessive focus on quick profits in capital markets.
Several fund managers and financial planners said they did not think the proposals would significantly change corporations’ or shareholders’ behavior, although they would probably cause a small increase in costs for brokerage firms.
Clinton’s plan to revamp capital gains tax rates appears to be a shift from her position in 2008, when she last sought the party’s nomination and vowed not to raise long-term capital gains tax rates above 20 percent, if at all.
Asked about this shift in an online forum with the public on Monday, Clinton wrote that “the increase in short-termism has grown in urgency since 2008, and the urgency of our solutions has to match it.” (Additional reporting by Amanda Becker in Washington and David Randall in New York; Writing by Susan Heavey and Jonathan Allen; Editing by Dan Grebler)