Hilary Clinton’s View on Economic Policy

Reviewed: April 19, 2016
By FinanceWeb

With the middle class in decline for nearly 50 years, income inequality is at its highest since the 1920s. Due to this, the Democratic presidential candidates have both created platforms around improving the economic security of the average American. Hillary Clinton’s policies are designed to target the middle class through tax policies, education spending and economic security measures to help the average American.

Building Infrastructure and Supporting Growth

One of Clinton’s goals is to promote investments in education and infrastructure. Her plan for education is to increase tax cuts of up to $2,500 per student and lower student loan rates. She wants to provide community college educations for free and make it possible to graduate from state schools without student loans. Another part of this plan, called the New College Compact, is to invest in scientific research. If all aspects of the plan were put into place, it would cost an additional $350 billion over the net decade. To fund the plan, Clinton wants to eliminate tax loopholes that benefit the wealthy.

As part of her infrastructure goals, Clinton wants to create a national infrastructure bank. This bank would use public and private money to focus on infrastructure projects like broadband services and highways. Her plan calls for $25 billion from the government to start the bank and encourage initial investments.

Other than the infrastructure bank, she wants to spend $250 billion in the next five years on the nation’s infrastructure. Over the course of five years, infrastructure spending would create 3.25 million jobs. The plan would include electric grids, roads, energy systems, bridges and transit systems. Investing in infrastructure is actually one of the best moves for economic policy because it allows the economy to be more productive. For every $1 billion spent on infrastructure, the White House Council of Economic Advisers estimates that 13,000 jobs are created. Standard & Poors estimates that $1.3 billion in infrastructure investment in 2015 would create 29,000 jobs and generate $2 billion extra in the economy. Additionally, the Standard & Poors noted that the additional infrastructure spending would reduce the federal deficit by $200 million.

Tax Policy

Since the labor force participation rate has been falling for years, Clinton wants to make it easier for people to participate through the labor force. She wants to target women specifically through affordable child care, equal pay and paid leave programs. The nonpartisan Tax Policy Center recently reviewed her plan to raise taxes, and it estimated that she would raise $1.1 trillion over the net decade in taxes. In comparison, Bernie Sanders’s tax plan would bring in $15.3 trillion. This is in part due to his advocacy for a universal health care system.

While Republican candidate Donald Trump plans to cut taxes significantly, Hillary Clinton’s plans actually raise taxes. The primary focus of the tax increase will be on high-income households. Overall, the average American would be relatively unaffected. She wants taxpayers to pay a 30 percent tax if they earn more than $1 million annually. Individuals with an adjusted gross income higher than $5 million would have a 4 percent surtax.

On average, the top 1 percent of households would see their tax bills increase by $78,000. This would lower their average after-tax income by 5 percent. In essence, the top 1 percent of earners would pay 75 percent of Clinton’s tax increase. Economically, the effects of this proposal are unclear. The higher tax rates could discourage top income earners from working or investing. Depending on how the money is used, the benefits could counteract the drawbacks from this plan. If the extra tax dollars are put toward the deficit, it would lower interest rates and make it more appealing for people to invest. Likewise, spending the tax dollars on infrastructure projects could boost the economy.

By keeping taxes mostly unchanged for the average American, Clinton’s plan would keep the tax increases from hurting the general economy. Meanwhile, the tax increases would pay off an additional $1.2 trillion of the federal deficit over the next decade.

Taxing Capital Gains and a Higher Minimum Wage

Part of her platform focuses on raising the capital gains tax to 43.4 percent on any investments that last for less than two years. Meanwhile, long-term investments would remain relatively unaffected. The goal of this policy is to restrain short-term, speculative trades from having an over-sized effect on the economy.

Additionally, Clinton wants to raise the federal minimum wage to at least $10.10 per hour. In the past, she previously supported the idea of a $15 an hour minimum wage. To encourage incentives for hard work and businesses, she wants to encourage profit sharing between companies and their employees. This would be done by a 15 percent tax credit to businesses that agree to give their employees a percentage of the profits.

There are a few flaws with the profit-sharing plan. The plan is only intended for the first two years after a company begins. It is phased out for the better paid employees, and it would cost $20 billion over 10 years. While profit sharing is an interesting idea and already done in some manner by many businesses, the costs are significant for the government and not covered by current taxes. Additionally, it stands to reason that a plan advocated for as an excellent choice for businesses and employees would need the government to fund it.

Sources:

http://www.investopedia.com/articles/markets/111315/look-hillary-clintons-economic-policies.asp
https://www.hillaryclinton.com/issues/plan-raise-american-incomes/

http://www.economist.com/blogs/democracyinamerica/2015/07/clinton-economic-plan
http://www.ibtimes.com/donald-trumps-tax-plan-vs-hillary-clintons-policy-how-would-your-paycheck-be-affected-2329159
http://www.forbes.com/sites/beltway/2015/07/21/hillary-clintons-complex-gimmicky-profit-sharing-plan/#6cbcf44a4e61
http://taxfoundation.org/article/details-and-analysis-hillary-clinton-s-tax-proposals
http://money.cnn.com/2016/03/03/pf/taxes/hillary-clinton-taxes/