House GOP Framework Is The Right Approach on Capital Gains Tax

Hillary Clinton has called for at least $1 trillion in new, higher taxes, while Donald Trump has called for reducing taxes on families and businesses across the board. Clinton’s tax hikes would make the code more confusing and complex, while Trump’s has unveiled a pro-growth tax plan that would simplify the code for all taxpayers. Trump has called for lowering business taxes for corporations and small businesses, while Clinton has not proposed either.   

On capital gains taxes, Clinton has proposed an increase in the tax to counter the “tyranny of today’s earnings report.” Her plan calls for a byzantine capital gains tax regime with six rates. She has also called for taxing carried interest capital gains as ordinary income.

While he has proactively proposed pro-growth reforms for other areas of the code, it is less clear what Trump has proposed with capital gains taxes. So far, he has called for repealing all Obamacare tax hikes which would reduce the top rate from 23.8 percent to 20 percent. But he has also proposed treating carried interest capital gains as ordinary income. ATR opposes this specific provision of the plan and recommends that it be scrapped in favor of the approach taken by the House GOP.

The long-term policy goal of liberals is higher taxes, with ALL capital gains taxed as ordinary income.  Sometimes they deride the capital gains tax as a “loophole” that needs to be closed, but this is not the case. The capital gains tax hits income that has already been subjected to income taxes and has been reinvested to help create jobs, grow wages, and increase economic growth.

The proposal to treat carried interest capital gains as ordinary income is merely step one of the Left’s desire to hike the capital gains tax from the current 23.8 percent rate to the top income tax rate of 39.6 percent.

And the fact is, carried interest capital gains are indistinguishable from any other type of capital gain. Individuals that derive income from carried interest pay the same capital gains taxes rates as everyone else, as they should.

Trump’s plan can be improved by following the lead of House Republicans with a proposal to lower the tax rate on all capital gains. The revised Trump tax plan already shares many similarities with the House GOP tax plan, like consolidating the existing seven income tax brackets into three: 33, 25, and 12.

Clinton has called for the most complex capital gains tax in modern history and Trump has an opportunity to again contrast this with his calls to simplify the code and encourage strong growth.