On the trail in Iowa moments ago, Hillary Clinton rolled out the first piece of her plan to hit the wealthy with higher taxes. This will ignite a debate about progressive taxation with the GOP candidates, whose plans would deliver large windfalls to top earners — but it may also jump-start an intra-Dem argument over taxes with Bernie Sanders, whose plan is likely to hit the wealthy with a more robust tax hike than Clinton’s will end up doing.
Clinton’s new proposal would impose a four percent “surcharge” on those who make more than $5 million per year, a Clinton aide says. The Clinton campaign estimates that this would hit two out of every 10,000 taxpayers, and raise over $150 billion over ten years.
The hook for this new move is the recent announcement from the IRS that in 2013, the 400 highest-income taxpayers paid an effective tax rate of only 23 percent, due to lower rates on capital gains and other loopholes.
Clinton’s new plan is designed to target the income of the wealthiest taxpayers in a way that gets around any such efforts to pay lower rates, according to Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. To do this, it would impose a hike of four percentage points on whatever effective rate each of these top taxpayers currently pays.
“This is an attempt to say, ‘okay, if you have really high income, no matter what you’re paying now, we’re going to add four percentage points to it,'” Williams tells me. “It’s a blunt instrument. But it’s straightforward and simple.”
The Clinton campaign claims this will help ensure that “the richest Americans pay an effective rate higher than middle-class families.” This has been a longtime goal of Democrats who have pushed the “Buffett Rule” and other similar measures designed to ensure that top earners’ effective overall tax rate does not remain lower than that paid by middle class taxpayers.
But it’s not clear how successful this new Clinton policy would be in terms of moving the tax system towards this goal. That’s because in each individual case, what the taxpayer would pay under her policy would depend on what effective rate they currently pay, and since those differ from one person to the next, so would the end result of her policy.
“The Clinton proposal would surely push some high income taxpayers into paying taxes higher than middle class households,” Williams says. “But because of the nature of their income, some higher income people could still be paying relatively low taxes.”
Williams said he didn’t necessarily quarrel with the Clinton camp’s estimate that this might raise $150 billion over ten years, though he said a lot will depend on the details, such as how exactly the Clinton plan defines taxable income. “In terms of solving budgetary problems, this is chump change,” Williams said. “But in terms of potentially funding a small to moderate sized program, it could have an effect.”
The Clinton proposal seems designed both to draw a contrast with the GOP candidates and to stake out a position in advance of a debate over progressive taxation with Bernie Sanders that will be joined once Sanders makes good on his vow to offer a plan to hit the wealthy with higher taxes. The GOP candidates have offered plans that contain some middle class tax relief but also deliver sizable windfalls to the rich. The Clinton plan — or what we know of it so far — would, by contrast, target the highest earners to pay more than they do now.
But all expectations are that Sanders’ plan will go farther in raising the top marginal tax rate paid by high earners. “I would say Clinton’s four percentage point surcharge is going to collect a lot less revenue from wealthy people than the kind of plan Sanders is talking about in broad brush terms,” Williams says.
If that proves true, that may be how Clinton wants it. Though Clinton insists her plan to regulate Wall Street is superior to Sanders’ proposals — a claim endorsed by Paul Krugman — Clinton has not diectly embraced a number of the more dramatic proposals favored by the Sanders/Elizabeth Warren wing of the party, such as expanding Social Security and hiking the federal minimum wage to $15 per hour. Sanders has talked about middle class tax hikes to fund some of his programs, while Clinton has ruled that out.
So it’s plausible to surmise that Clinton may be looking for a middle ground on high end taxes, too — hitting the very wealthiest taxpayers with higher effective rates, but not going after the wealthy nearly as ambitiously or comprehensively as Sanders hopes to do with higher marginal rates on a much bigger pool of taxpayers.