The surcharge is not, by itself, a game-changer for tax policy or the income inequality debate. It would apply to .02 percent of top income-earners, who would be looking at an effective top marginal income tax rate of nearly 45 percent if the surcharge goes through. Those earners are part of a group that saw its share of national incomes grow over the past few decades, though that share has fallen from its pre-recession high.
Update: Clinton's campaign says the surcharge will apply to income from all sources, including investment income. Clinton's surcharge would also affect those taxpayers' income from investments, such as dividends and capital gains, which are taxed at lower rates than income.
Still, the surcharge is important because it reveals more about how Clinton is thinking about tax policy. She is not, it would appear, interested in coming anywhere close to testing the theories of economists Thomas Piketty and Emmanuel Saez, who have argued based on their inequality research that the top marginal income tax rate should be set as high as 83 percent. (It's just under 40 percent now.) She also doesn't seem to be relying on top-rate hikes to fund her $1 trillion-plus spending agenda, which she promises will be fully paid for: The surcharge, a campaign aide said, is estimated to raise $15 billion a year for the next decade.
Where Clinton is focused instead is on raising the effective tax rate of the very rich. The top 400 taxpayers paid about 23 percent of their incomes in taxes in 2013, the IRS said last month. That's more than they paid in the years before President Obama and Congress raised taxes on the rich in 2012, but it's still less than Clinton and most Democratic leaders believe the rich should be paying.
This is why it matters that Clinton's surcharge would also apply to investment income. One of the big ways that high earners have managed to pay relatively low rates is by hiring financial professionals to spin labor income into investment income through a variety of Wall Street mechanisms. That practice serves to shield income from higher taxation, and maybe more importantly, it contributes to the swelling of the financial sector to a size that economic research suggests is hurting the economy. If the surcharge did not apply to investment income, the incentive to used that income shifting would grow.
Clinton is setting up a clear contrast with Republicans, should she be the Democratic nominee, on the subject of taxing the rich. (Her leading opponent, Sen. Bernie Sanders, has hinted that his tax plan would set up an even starker contrast on this front.) Every top Republican candidate has offered a tax plan that would reduce both marginal and effective tax rates for the very wealthy. Clinton and Sanders wish to raise those rates. It's a fight both sides seem eager to have, and when tax issues finally emerge as a big issue in the race, they'll have it for sure.
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