Firm Insights

Clinton Offers Capital Gains Tax Increase

Author: James F. McDonough

Date: August 13, 2015

Key Contacts

James F. McDonough

Of Counsel

732-568-8360 jmcdonough@sh-law.com

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Presidential contender, Hillary Clinton, announced a proposal for capital gains tax reform. In the plan, capital gains taxes will be increased for assets held for less than six years by top-bracket investors.

The proposed capital gains tax increase

As part of her proposal, the top-ranking tax rate will be 43.8 percent for assets held less than one year, an increase from 39.6 percent. This rate will then be placed on a sliding scale until assets are held for a minimum of six years. These rates will include 39.6 percent from one to two years, 36 percent from two to three years, 32 percent from three to four years, 28 percent from four to five years and 24 percent from five to six years. Following this six-year mark, shareholders will be subject to a 20 percent capital gains tax rate.

This represents a significant increase from current tax rates, as only assets held for under one year are subject to the 39.6 percent tax rate, with each subsequent year at the 20 percent rate. This includes a 3.8 percent tax on net investment income as part of the Affordable Care Act.

The goal of the capital gains tax increase

According to Clinton’s plan, the capital gains tax increase will stimulate long-term economic growth by changing the current tax code. This proposal also calls for a limit on subsidies into high performing industries as well as significant limitations on “hit and run” activist shareholders.

Clinton explained that the objective of the proposed tax increase is to fight short-term profits in capital markets. Citing a recent FactSet survey, Clinton stated that companies in the Standard & Poor’s 500 stock market index spent $566 billion to buy back shares in 2014, representing an $86 billion increase from 2013, the highest since the recession.

Potential impact on profits

Under Clinton’s proposal, shareholders would keep 56.6 percent on the additional dollar amount of the profit, as opposed to the current 80 percent. According to a CNBC report, this would mean shareholders at the top tax scale would be subject to the 43.8 percent rate as well as the 35 percent corporate tax rate.

However, according to the proposal, Clinton also included a capital gains tax break for long-term investments for start-up companies and struggling industries.

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