TIME Hillary Clinton

Hillary Clinton Courts Both Liberals and Wall Street with Tax Plan

Democratic Presidential Candidate Hillary Clinton Campaigns in Iowa
Bloomberg—Bloomberg via Getty Images Hillary Clinton, former U.S. secretary of state and 2016 Democratic presidential candidate, pauses while speaking during a campaign event in Cedar Rapids, Iowa, U.S., on Friday, July 17, 2015.

A rollout of economic policies continues

Hillary Clinton on Friday proposed a significant hike on capital gains taxes for some investors, a plan favored both by progressive economists and some Wall Street investors.

The proposal is intended to combat short-term investing, which Clinton argued diverts capital away from important business expenditures.

“American companies need to break free from the tyranny of quarterly earning reports so they can do what they do best,” Clinton said speaking at New York University in Lower Manhattan on Friday. “Real value comes from long term growth, not short term profits.”

Clinton’s capital gains plan calls for a sliding scale of taxes on investments, with some short-term investments taxed at higher rates than they are now.

Currently, top earners pay a tax rate of 39.6% on investments held for less than a year, a rate that matches those earners’ income taxes. After holding those investments for a year, the rate for top earners drops to 24%.

But under Clinton’s plan, the tax rate for top earners on capital gains would remain at 39.6% in the second year, and then drop at a staggered rate over six years to their current levels. It would amount to nearly doubling capital gains tax rates in the second year.

“The current definition of a long-term holding period—just one year—is woefully inadequate,” Clinton said, calling on companies to abandon what she has called “quarterly capitalism” in favor of more farsighted investments in research and development, talent and physical capital.

A six-year sliding scale, Clinton said, would “provide real incentives for long-term investments.”

Clinton’s plan for a tax hike is aligned with some voices on Wall Street and financial institutions. Larry Fink, the CEO of BlackRock, the largest asset manager in the world, called earlier this year for a plan similar to Clinton’s. In a March letter to the executives of the 500 largest companies in the United States, Fink recommended holding the capital gains tax rate at income tax rates for three years—39.6% for the highest earners—and eventually dropping over a period of 10 years.

“We believe that U.S. tax policy, as it stands, incentivizes short-term behavior,” Fink said, using language similar to Clinton’s speech on Friday. “We believe that government leaders around the world—with a concerted push from both investors and companies—must act to address public policy that fosters long-term behavior.”

A number of other major business figures have openly lamented so-called economic short-termism, including Dominic Barton, managing director of McKinsey & Co., Paul Polman, CEO of Unilever and others.

Economists, particularly those on the left, have also criticized the relatively low rate of capital gains tax, arguing it acts an income subsidy for the wealthiest Americans.

The Joint Committee on Taxation, a nonpartisan Congressional committee, found that low rates on capital gains taxes will deliver in 2015 an effective subsidy of $120.3 billion to investors, most of them wealthy: a separate report by the Congressional Budget Office found that 68% of the benefit of low rates on capital gains and dividends go to the top 1% of earners.

Clinton’s plan, some economists say, would reduce inequality in the tax code and create incentives for shareholders to hold longer-term investments.

Clinton’s proposal “is a way to target an inefficient tax subsidy—a tax subsidy that subsidizes growing inequality—in a way that encourages more long-term planning by investors,” said Harry Stein, director of fiscal policy at the Center for American Progress. “I view this as a piece of a larger agenda to encourage more of a long term outlook.”

Clinton’s plan is meant in part to slow activist investors, who tend to buy large amounts of company stock and call for higher dividends, share buybacks and other strategies to boost share prices. Some executives complain that makes it more difficult for companies to invest in long-term employees or facilities, stunting long-term growth.

Republicans have been quick to criticize the plan, pointing out that Clinton said during the 2008 campaign that she would not raise capital gains taxes above 20%, “if I raised it at all.” They argue that capital gains taxes harm economic growth by preventing investment.

“Sadly, Hillary is not wise enough to have learned the simple lesson from those decades: reducing the capital gains tax is part of any pro-growth agenda,” said Grover Norquist, president of the conservative Americans for Tax Reform.

Leonard Burman, the director of the nonpartisan Urban-Brookings Tax Policy Center and the top tax economist during the last two years of President Bill Clinton’s administration, said he doubted the plan would significantly change investor behavior.

“I’m sympathetic with her objective, but I don’t think her proposal is going to solve it,” Burman said. He added that the plan might actually encourage some shareholders to pull investments out of a company earlier than they would otherwise: under the new plan, investors who could sell shares after six months gain no tax benefits by waiting until after a year, and little benefit for waiting more than two.

Read more: What to Know About Hillary Clinton’s Economic Proposals

Clinton has laid out a number of specific proposals so far in her campaign intended to spur growth, including providing tax credits to businesses that hire apprentices, tax incentives to encourage corporate profit-sharing, as well as broader proposals like raising the minimum wage and supporting unions. The tax plan is part of Clinton’s slow-drip of proposals designed to boost economic growth and incomes.

It’s unclear if the proposal was enough to satisfy progressives, who are calling for significant overhauls of the tax code. Charles Chamberlain, executive director of the grassroots progressive network Democracy for America, suggested that the speech did not go far enough in targeting income inequality.

“If Secretary Clinton wants to earn the enthusiastic support of grassroots progressives that means standing up, staking out genuinely bold positions on income inequality, and aggressively taking on the powerful, greed-driven institutions that have dominated the Democratic Party and held back the prosperity of the American people for far too long,” said Chamberlain.

TIME Personal Finance

This City Now Has America’s Highest Sales Tax

USA, Illinois, Chicago, Grant Park, Chicago Skyline
Wolfgang Kaehler—LightRocket via Getty Images It's not just the buildings that are sky-high.

A new hike is aimed at filling a gaping pension shortfall

Chicago has long had a steep sales tax, but a vote by Cook County commissioners Wednesday night made the city’s rate the highest in the nation.

The commissioners approved a 1% hike, which bumped the sales tax rate in Cook County—where Chicago is located—from 9.25% to 10.25%. The increase passed with the minimum number of votes needed and is aimed at helping bail out the pension system for county workers.

Chicago’s 10.25% sales tax rate, which goes into effect January 1, 2016, surpasses four cities in Alabama—Birmingham, Montgomery, Macon, and Mobile—that previously captured the highest sales tax title, according to the Tax Foundation. They all have city sales tax rates of 10%. Other cities near the tip-top are Fayetteville, Ark. (9.75%) and Santa Monica, Seattle, and Tacoma, Wash., which all have sales tax rates of 9.5%.

Cook County Board President Toni Preckwinkle, who advocated for the hike, said the increase would generate an estimated $474 million more in sales tax per year and is necessary to ward off the “pension tsunami” that’s closing in on the county. The retirement fund has a shortfall of $6.5 billion—a figure that’s growing by $360 million per year.

MONEY Taxes

450 Billion Reasons Why John Oliver Is Right About the IRS

Last Week Tonight With John Oliver
Eric Liebowitz—HBO/Courtesy Everett Collection

The Last Week Tonight host argues for increasing the IRS's budget. Here's why doing so could save taxpayers money in the long run.

On last night’s Last Week Tonight, John Oliver made news with an argument he acknowledged many viewers might find hard to believe: The Internal Revenue Service, the most maligned of all government organizations, needs more money, not less.

The whole segment is worth watching. (Mostly safe for work, depending on where you work. Maybe use headphones.) But the key point is that the IRS has had its funding cut by about 10% in the last five years, and by nearly 20% if you adjust for inflation. In that same time period, the IRS has also significantly cut enforcement staff.

 

So what if enforcement is weaker? It may mean more people are getting away with paying less than they owe. Every five years, the IRS calculates what’s known as the “tax gap”—the amount of taxes owed minus what is actually paid—and the results are a pretty ugly. The most recent report, produced in 2012 for tax year 2006, puts the tax gap at $450 billion dollars. (The gap shrinks to “only” $385 billion once you take into account late payments and money recouped through enforcement.) Think of it like this: Every dollar someone gets out of paying ultimately has to be made up by the rest of us taxpayers, in the form of higher taxes.

It’s important to note that closing this entire tax gap is likely impossible. The U.S. tax system is build on voluntary compliance, and a very large portion of the government’s losses come from people underreporting their incomes from sources that are hard to verify, such as a self-employed person understating profits.

Detractors have argued the IRS shouldn’t get more funding until it improves its performance. The agency has been rocked by allegations that it targeted conservative non-profit groups in delaying their tax exempt status, and Republicans, like Senator Rob Portman, still harbor deep mistrust toward the agency.

That said, the Treasury Department estimates a $1 investment in the IRS’s enforcement ability returns $6 in revenue, and that’s not counting the deterrent effect on potential cheats, which Treasury says may be three times higher. Finding a way to close just a small portion of the tax gap would save the public huge amounts of money.

Read Next: 3 Ideas That Could Make the Tax System Work Better for Everyone

TIME Congress

America’s 11 Most Endangered Historic Places

Alan C. Spector Frank Lloyd Wright's Spring House in Tallahassee, Fla.

Since its inception 27 years ago, the National Trust for Historic Preservation's annual list of America's 11 Most Endangered Places has saved more than 250 places.

This year’s list of America’s 11 Most Endangered Historic Places spans locations from New Jersey to Hawaii and includes everything from a medical care home for veterans to a Frank Lloyd Wright creation.

The list, released annually by the National Trust for Historic Preservation, features an array of places of cultural or architectural importance that are deteriorating or are at risk of destruction. Since its inception 27 years ago, the list and the awareness it generates have helped to save more than 250 endangered places.

But this year, the list has made an addition that’s not a place – the Federal Historic Tax Credit, which has been placed on ‘watch status.’ Some members of Congress are calling for the elimination of the Federal Historic Tax Credit as part of recent tax reform efforts, estimating that the provision could increase federal revenues by $10.5 billion between 2014 and 2023. The National Trust reports that the tax credit has created more than 2.4 million local jobs, leveraged nearly $109 billion in private investment for communities, and preserved more than 39,600 buildings, since it was signed into law in 1986.

Here are the National Trust for Historic Preservation’s selections for 2014.

 

1. Battle Mountain Sanitarium –Hot Springs, S.D.

Battle Mountain Sanitarium VA Medical Center Campus, Hot Springs, SD, Buddenborg 6.110104_mr

For over a century, the sanitarium offered medical care to the region’s veterans. It has been claimed as one of the few National Historic Landmarks owned by the Department of Veterans Affairs, but they are currently moving forward with plans to abandon the building.

 

 

2. Bay Harbor’s East Island – Miami-Dade County, Fla.

BayHarborIsland-1_crMiami-DadeCountyOfficeofHistoricPreservation_mr

Development proposals have put a collection of buildings constructed in the unique Modern Miami Architectural style at risk for demolition.

 

 

3. Chattanooga State Office Building – Chattanooga, Tenn.

ChattanoogaStateOffice5_mr

A change in ownership put this Chattanooga downtown landmark under the threat of demolition.

 

 

4. Frank Lloyd Wright’s Spring House – Tallahassee, Fla.

FLW_SpringHouse_86a_crAlanC.Spector_mr

Constructed in 1954, the Spring House is the only built private Frank Lloyd residence in Florida and one of the few of the architect’s houses that remain. However, weather and time have led to severe deterioration.

 

 

5. Historic Wintersburg – Huntington Beach, Calif.

HistoricWintersburg_rear of 1910 Mission and 1910 manse_crChrisJepsen_OrangeCountyArchives_mr

This property that part of the story of Japanese American immigrants in Southern California and is currently threatened with demolition.

 

 

6. Mokuaikaua Church – Kailua Village, Kona, Hawaii

MokuaikauaChurch_3469589800_0208e7d390_SteveConger_mr

Earthquake damage and the ravages of time have deteriorated Hawaii’s first Christian Church, built in 1837.

 

 

7. Music Hall – Cincinnati, Ohio

CincinnatiMusicHall_SpringerAuditorium_crCincinnatiSymphonyOrchestra_mr

Since its construction in 1878, the Music Hall has played a key role in Cincinnati culture. Despite its National Historic Landmark status, the music hall has suffered significant deterioration and is in need of repair.

 

 

8. The Palisades – Englewood Cliffs, N.J.

Palisades_3021510249_crPaulWRomaine_mr

Despite the designation of the cliffs along the Hudson River as a National Historic Landmark, the LG Corporation plans to build an office tower in the scenic landscape.

 

 

9. Palladium Building – St. Louis, Mo.

ThePalladium_6516788587_c400d44c65_crMichael Allen_mr

The Palladium Building was once home of a 1940s nightclub that contributed to the development of African American music. However, lack of protection from local and national historic designations has left the building’s future uncertain.

 

 

10. Shockoe Bottom – Richmond, Va.

ShockoeBottom_7736982152_a41e5437fa_crTVNEWSBADGE_mr

The potential development of a minor league baseball stadium threatens the home of Solomon Northrup’s jail in 12 Years a Slave. Shockoe Bottom was a center of the American slave trade and still holds many underground artifacts.

 

 

11. Union Terminal – Cincinnati, Ohio

UnionTerminal_1_crCincinnatiMuseumCenter_mr

The Cincinnati icon, built in the Art Deco style, is currently in need of extensive repairs to salvage it from its deteriorated state.

 

 

 

TIME Tax Policy

U.S. Corporations Parking More Cash Abroad To Avoid Tax

Multinational companies have $1.95 trillion outside the United States, according to a Bloomberg analysis. Among the worst offenders are tech companies Microsoft, Apple and IBM.

U.S.-based companies are increasingly parking their earnings in offshore accounts, with some of the largest companies adding $206 billion to their accounts in low-tax countries to avoid forking over taxes to the IRS.

Multinational companies have $1.95 trillion outside the United States, according to a Bloomberg analysis of 307 corporations, up 11.8 percent from last year. Microsoft, Apple and IBM were among the biggest offenders, adding $37.5 billion to cash piles held outside the United States.

Taking advantage of loopholes in the tax code allows companies to make it look as though they earned profits offshore, preventing the federal government—which has run a deficit for over a decade—from taking a share of the money pot. Estimates on the amount of annual revenue the U.S. loses range from $30 billion to $90 billion.

[Bloomberg]

TIME Taxes

Obama Cracks Down on Tax Dodgers

U.S. President Barack Obama at a press conference at the Fairmont Hotel in San Jose, Calif., on June 7, 2013.
JEWEL SAMAD / AFP / Getty Images

The federal government is prosecuting more Americans for tax crimes under President Barack Obama than it did under his predecessor George W. Bush, according to a report published Tuesday.

Using data obtained under the Freedom of Information Act, the non-partisan watchdog group Transactional Records Access Clearinghouse (TRAC) found that the Justice Department under Obama has filed an average of 1,568 criminal tax prosecutions a year, up from 1,303 a year under Bush.

Prison time for those found guilty of tax crimes is also increasing, according to the report. Those convicted now face 27-month sentences on average, up from 25-month sentences under Bush.

The increase in prosecutions — which peaked at 2,100 in 2013 — is partially due to an uptick in tax refund fraud.

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