Hillary Rodham Clinton offered a detailed agenda Friday meant to encourage American companies to invest for the future — and focus less on short-term profits.
Her prescriptions were notable but incremental: tax increases for high earners who sell their investments within six years, steps to curb executive pay and corporate stock buybacks, and an endorsement of New York state’s plan to raise its minimum wage to $15 an hour for fast-food workers.
In a speech directed at both middle-class families and corporate boardrooms, Clinton criticized U.S. corporations, particularly publicly traded ones, for “quarterly capitalism” — taking steps to boost profits instead of plowing money into worker training, research and development, and other measures that improve corporate competitiveness and national economic growth over time.
“Quarterly capitalism as developed over recent decades is neither legally required nor economically sound,” she said at New York University’s Stern School of Business. “It’s bad for business, bad for wages and bad for our economy.”
Clinton peppered her remarks with detailed statistics on corporate behavior and economic incentives. She quoted the founder of the investment firm Vanguard and surveys of corporate executives, and she reeled off figures such as the ratio of chief executive pay to typical worker pay (300 to 1) and the percentage of stock shares among the 1,000 largest U.S. companies that are controlled by institutional investors (70 percent).
She sought to tie short-term investment behavior to the stagnation of middle-class wages, which she has dubbed the most important economic challenge facing the country.
Looking to history, she warned that reduced long-term investments could drain the nation’s ability to innovate and spawn new products and industries.
“What if an activist hedge fund had persuaded AT&T to maximize cash flow and close Bell Labs before the transistor or the laser was invented there?” she said. “What if Xerox had decided that its Palo Alto research park wasn’t doing enough to boost share prices in the short term. A young Steve Jobs would never have visited, and the personal computer revolution might not have happened.”
None of her proposals is likely to spark a large controversy, except perhaps her plan to raise capital-gains taxes on some shorter-term investments made by high-income investors.
Those investors who fall into the top federal income tax bracket of 39.6 percent, which is roughly those earning upward of $400,000 in income a year, would pay higher taxes on investments held between one and six years.
Currently, gains realized in less than one year are taxed at a base rate of nearly 40 percent, and everything else is taxed at 20 percent. Clinton would extend the 39.6 percent rate to investments held for up to two years. Then she would implement gradually declining rates for investments held for several years after that, ending with the 20 percent rate for those held longer than six years.
Conservatives called the plan a tax increase on investors and complained that it would be a symbolic move, at best, for the problem Clinton seeks to address.
“I think she misunderstands,” said Steven Moore, an economist at the Heritage Foundation who has consulted with several Republican presidential candidates on their tax plans. “There’s no relationship between how long somebody owns a stock and the time horizon that a company is using to make investment decisions. The company doesn’t care whether the same people are holding their stock for a long time or if it’s constantly turning over.
“It won’t affect their investment decisions one iota.”
Liberal activists had critiques, too. If Clinton wants strong grass-roots support, the progressive activist group Democracy for America said in a statement that she must embrace “bold” solutions to income inequality and aggressively combat powerful interests. “Today’s speech hits those notes in some ways,” the group said, “but fails to do so in others.”
Often in the speech, Clinton offered detailed descriptions of the forces that are driving short-term investment thinking but offered relatively modest plans to combat them.
After lamenting that large companies are spending more on dividends and stock buybacks — which reward investors immediately — as corporate profits remain near historical highs, Clinton proposed only to require companies to file much more detailed quarterly disclosures about those actions.
She promised to “reform” the tax treatment of chief executive stock compensation, which she said can lead executives to be “more focused on the long-term growth and strength of the companies they run and less on the short-term fluctuations in its share price” — but she did not specify what that reform would look like.
She said she will seek a review of securities regulations surrounding activist investors, such as Carl Icahn, who buy large stakes in companies and then often force their boards to take swift action to benefit shareholders right away. She said she’d like to explore instituting incentives for new corporate structures that reward companies for investing in workers.
Empowering workers and paying them more, Clinton said, would be good for the economy and corporate America both. In that vein, she endorsed a proposal put forth by state officials in New York this week that would raise wages for fast-food workers to $15 an hour.
That endorsement could put her in a tricky spot on the wage issue. Clinton has long supported a higher minimum wage but has stopped short of supporting activists’ push for a $15-an-hour federal wage. She appeared to justify her support of the New York proposal on the grounds that New York City is more expensive to live in than other areas.
“Let’s also remember that the cost of living in Manhattan is different than in Little Rock and many other places,” she said. “So New York or Los Angeles or Seattle are right to go higher” than the federal minimum wage.
New York’s proposal, however, wouldn’t just apply to Manhattan — it would apply to the whole state.