the top-earning 1% of u.s. households<u+2014>and especially the top 0.1%<u+2014>have a lot to lose from hillary clinton <u+2019>s tax proposals. the democratic presidential nominee would concentrate her tax agenda on fewer than 1.5 million households by adding layers of taxation and sealing gaps that let some of their earnings get taxed relatively lightly. she would impose the highest marginal tax rates on top earners since the 1986 revamp of the tax code and boost taxes on business income, investments and estates. she would cap tax breaks while targeting a series of narrower tax-avoidance and -deferral techniques used in the real-estate and private-equity industries. the democrat sees having the rich pay more as a way to pay for tax breaks and expanded benefits for middle-income families, and she has said households earning less than $250,000 wouldn<u+2019>t see a tax increase. her proposals add up to about $1.9 trillion in tax increases over a decade, according to the committee for a responsible federal budget. mrs. clinton<u+2019>s tax proposals, and those of her rival, republican donald trump, are likely to be discussed in sunday<u+2019>s second presidential debate. she has argued for using the tax system to combat rising inequality, and she returned to that argument in a new ad after mr. trump in the first debate said it was <u+201c>smart<u+201d> that he hadn<u+2019>t paid taxes in some years. mr. trump has pitched deep tax cuts and a repeal of the estate tax, and he told mrs. clinton at the first debate, <u+201c>you are going to drive business out.<u+201d> the clinton tax plan would advance nearly all of president barack obama <u+2019>s unfinished business on taxing high-income households. then she would adopt sen. bernie sanders<u+2019>s structure for a higher estate tax and tack on a few ideas of her own, such as a 4% surcharge on income over $5 million. more so than the current tax code or mr. obama<u+2019>s proposals, mrs. clinton<u+2019>s policies are targeted specifically at the ultrawealthy. <u+201c>this is skewed very, very heavily toward the top end,<u+201d> said howard gleckman, a senior fellow at the tax policy center, a project of the brookings institution and the urban institute. <u+201c>it<u+2019>s<u+2026>a little bit like shooting a mouse with a machine gun. she really is designing this so it<u+2019>s very hard to avoid tax on your income at the very top.<u+201d> overall, mrs. clinton<u+2019>s proposal would add about 4% to federal tax collections over the next decade and push taxes as a share of the economy higher but not past the post-world war ii peaks. but the brunt of that impact would fall on a sliver of the population, with nearly 80% of the higher taxes hitting the top 1% of households and more than half hitting the top 0.1%, according to the<u+00a0>tax policy center. the center, using a broader definition of income than is shown on tax returns, sets about $732,000 in annual household income as being in the top 1% and $3.8 million for the top 0.1%. the tax policy center analysis doesn<u+2019>t yet include her most recent proposals, such as taxing unrealized capital gains at death and implementing a 65% tax on estates exceeding $500 million a person. mrs. clinton<u+2019>s proposals, even if she were elected, would face strong resistance in congress, where republicans are almost assured of retaining control of at least the house and where democrats haven<u+2019>t acted on some of the ideas mr. obama tried to advance. the share of u.s. income earned by the top 1% has roughly doubled over the past 30 years, according to estimates by economist emmanuel saez and others. the top 1% now get about 17% of the nation<u+2019>s income before taxes and pay 28% of federal taxes as a result of the progressive tax code, according to the tax policy center. that is in part the result of changes mr. obama pushed through congress, which the<u+00a0>white house says<u+00a0>increased average tax rates on the top 0.1% of households by nearly seven percentage points. mrs. clinton<u+2019>s proposed tax increases, in combination with tax breaks for parents, caregivers and people with out-of-pocket health care costs, would make the u.s. even more reliant on high-income taxpayers than it is now. a proposal to impose a minimum 30% tax rate on households with incomes over $2 million would prevent people from paying low tax rates by getting the majority of their money from investments. another change would apply the 3.8% tax created in the 2010 health law to active business income. the repeal of what is known as the step up in basis would tax appreciated assets when given as gifts during life or death, applying the income tax in a place it doesn<u+2019>t reach now. mrs. clinton also could also use rules, internal revenue service enforcement priorities and narrower proposals to congress to go after arcane tax-avoidance techniques. <u+201c>whenever we see them, we are attacking specific loopholes in the tax code,<u+201d> said michael shapiro, an economic policy adviser to mrs. clinton. other than the changes in taxation at death, mrs. clinton<u+2019>s plans don<u+2019>t do much to address the ways wealthy americans can increase their net worth without reporting taxable income, said gabriel zucman, an economist at the university of california, berkeley. <u+201c>there<u+2019>s a big disconnect between taxable income and the real income of rich people,<u+201d> he said. <u+201c>that requires more fundamental reform of taxation than adding four points on the top bracket.<u+201d> her proposals send the campaigns back into longtime arguments: what happens to the economy when you cut taxes at the top? republicans see the growth in the 1980s and the late 1990s growth after capital gains rate cuts as proof that people are more willing to save, work and invest if they can keep more of what they earn. <u+201c>when the pie is as large as possible, then you have the least questions about the distribution of that pie,<u+201d> said donald luskin, chief investment officer at trend macrolytics. <u+201c>we<u+2019>re not having a serious economically driven conversation about this. we<u+2019>re just having a populist appeal.<u+201d> democrats and other analysts point to the economic expansions after the 1993 and 2013 tax increases as proof that those links between top tax rates and growth are tenuous at best. <u+201c>when you look at periods of extremely strong growth in the united states, there was a tax system that was more progressive than what we<u+2019>re proposing,<u+201d> mr. shapiro said. write to richard rubin at richard.rubin@wsj.com
hillary clinton targets tax hikes at the very top    - wsj
richard rubin