Capital Gain Hikes Vs. Corporate Innovation
Unusual times call for unusual measures, and with a considerable number of the nation’s financial leaders grumbling over the latest dividend redistribution plan by the 2016 Republican Congress, it’s clear that “unusual” has been taken to new heights.
In an unprecedented move, today House Speaker Rep Paul Ryan announced a tax hike on investment income as part of a loophole-closing measure designed to keep corporations from incorporating overseas in order to avoid taxes. While Republicans have been quick to say that this is not actually a tax increase, those who will be affected certainly don’t view it as any less punitive than if someone had gone out and robbed them at gunpoint – indeed, they would probably consider it more insulting. The top rates on long-term capital gains and dividends will rise from 23.8 per cent to 32.5 per cent, which is a considerable jump even for an emergency tax hike; additionally, the 3.8 per cent surcharge on investment income implemented by the Affordable Care Act (which raises rates to 23.4 per cent) will remain in effect as well (Bloomberg).
“We want the American people to know that we take this seriously,” Ryan said after being asked about how Republicans could justify raising taxes given their position as a “conservative party.” He went on to say that simply cutting the corporate tax rate was not going to be sufficient since that would give companies a disincentive to maintain a physical presence in America or workers domestically – his final point was that he would like to see US companies operating as close to home as possible (Fox News).
“This is not a tax hike!” Ryan said, holding up a 1.2-page plan which was printed on copy paper and illustrated with clipart triangles and squares. “We’re just closing loopholes and removing exemptions – this is totally not a tax increase whatsoever because we promise not to remove the loopholes and exemptions which you depend upon every day of your lives!”
However, private equity executives were clearly unimpressed by Ryan’s presentation, particularly given how it highlights yet another “screw job” from Congress. While the Speaker implied that the move was meant to stem off the corporate flight, executives said it likely had more to do with lawmakers’ desire to pay for infrastructure projects.
“I think it’s clear that they’re trying to offset the cost of all those new roads and bridges they want to build – okay, on second thought, I take it back,” said one anonymous executive whose firm alone is estimated to have at least $15 billion parked offshore. “They ‘should’ be building new roads and bridges, but instead they’re taking our money without asking us or even getting us into some sort of secret ‘backroom deal.’ It’s an absolute disgrace.”
The announcement follows several weeks after Republicans tried unsuccessfully to pass tax reform legislation that would have lowered rates across the board. However, Ryan made it abundantly clear that this latest measure was not meant to replace the tax reform agenda, nor did he have any other upcoming legislation planned.
“We simply don’t have time for anything else – okay, I take that back too,” Ryan said with a chuckle after being asked if there were other initiatives in the works. “I mean this is clearly our focus right now – closing loopholes and eliminating exemptions has always been our primary goal.”
Democrats are equally incensed by the move, calling it both unfair to taxpayers as well as shortsighted. House Minority Leader Nancy Pelosi wondered aloud why Republicans would want to punish investors when it’s clear they are already struggling to make ends meet. She also said she didn’t understand how Republicans could consider themselves fiscally conservative when unpaid-for tax breaks were considered a greater priority than new roads and bridges.
“We think it’s only fair to raise rates on the rich in order to pay for much-needed programs,” Pelosi wrote in an official statement. “And when you look at what this will bring in, it’s not even close – when including additional revenue from closing loopholes, these hikes are expected to generate at least $800 billion over the next ten years.”
She went on to say that it was estimated workers would actually see more take-home pay if all Bush-era taxes were repealed rather than just raised on the wealthy, though she quickly clarified that Democrats didn’t plan to do anything of the sort any time soon.
While the move has been applauded by taxpayers, analysts say the hikes may actually discourage long-term investment and cause corporations to look outside of America for a more favourable tax situation. However, they simultaneously acknowledged that Congress would likely not care even if all executives threatened to pull out their money because companies like Apple “owe us big time” (Fox News).