On Sunday, Hillary Clinton put an end to two years of speculation by announcing that she will run for President in 2016, immediately making her the overwhelming frontrunner for the Democratic nomination.
Despite the fact that Clinton has served both as a Senator and as Secretary of State, little is known about her views on tax policy. Of course, because a Democrat currently resides in the White House, her plan will likely focus on minor tweaks to the existing body of law, as opposed to the dramatic overhauls -- or some would say, abolishment -- of our current income tax regime that will be pitched by Republican candidates Ted Cruz and Rand Paul, who both favor a flat tax.
So what tweaks can we expect? A quick look at Clinton's voting records lends some insight:
Shortly after becoming the first female senator in New York history, Clinton voted against the Economic Growth and Tax Relief Reconciliation Act of 2001, or as the bill has become known: the Bush tax cuts. This bill was the first phase in sweeping tax cuts enacted by President George W. Bush. It dropped rates for all taxpayers, with the top rate on ordinary income falling from 39.6% to 35%. Clinton did, however, go down swinging, voting yes on two amendments to the bill that failed to pass -- the first would have increased the tax deduction for college tuition costs from $5,000 to $12,000, and the second would have limited the reduction in the top two tax brackets (39.6 and 36%) while expanding the standard deduction and the 15% tax bracket for married couples.
Two years later, Clinton again voted no on the second round of Bush tax cuts -- the Jobs and Growth Tax Reconciliation Act of 2003 -- which dropped the top rate on long-term capital gains from 20% to 15%, and the top rate on dividends from 39.6% to 15%.
In 2005, Clinton voted yes on extending the first round of Bush tax cuts, some of which were set to expire. While not in favor of the tax cuts for the wealthy and the reduction in the top rate for qualified dividends and capital gains, Clinton voted yes in order to extend increased Section 179 expensing limits and the itemized deduction for state and local sales taxes, while also expanding the AMT exemption to prevent middle-class creep of the alternative minimum tax.
One year later, Clinton again voted to extend enhanced Section 179 expensing limits and to increase the AMT exemption, agreeing to retain the reduced rates on capital gains and dividends through 2010. This was only after unsuccessfully attempting to amend the bill to extend the reduced rates only through 2008.
Also in 2006, Clinton voted against permanently repealing the estate tax. Months later, she again voted no on a bill that would make increases to the estate tax exemption and reduction in the estate tax rate enacted as part of the Bush tax cuts permanent. In subsequent years, Clinton would repeat her stance against an enhanced estate tax exemption, voting against raising the exemption amount to $5 million in both 2007 and 2008.
In 2007, Clinton also voted against repealing the AMT, explaining that the same results could be achieved by simply indexing the exemption for inflation.
Finally, as her run in the Senate came to a close and the Bush tax cuts were nearing expiration, Clinton voted to restore a top rate of 39.6% on those taxpayers with taxable income in excess of $1,000,000.
During her 2008 run in the Democratic primaries, which she eventually lost to Barack Obama, Clinton laid out a framework for dealing with the pending expiration of the Bush tax cuts. Specifically, she proposed:
- Maintaining the reduced rates for taxpayers earning less than $250,000, while letting the cuts expire for those earning in excess of that amount. This was the same position embraced by President Obama, though he eventually relented, raising the rates at the end of 2012 only for those with taxable income in excess of $450,000.
- Increasing the rate on capital gains and dividends to a maximum of 20%. This was subsequently done by President Obama for taxpayers with taxable income in excess of $450,000.
- Making college and health insurance more affordable, retirement security possible, though she didn't say how.
- Freezing the estate tax exemption at $7 million per couple.
- Removing the limitation on the amount of wages or self-employment income subject to social security tax. In 2015, taxpayers will pay a 6.2% payroll tax on the first $118,500 of wages or SE income. Under a Clinton-type proposal, the limit would be removed, and all wages and SE income would be subject to the 6.2% social security tax.
- Expanding the child tax credit.
Summary
While campaigning in 2008, Clinton was asked about her stance on the Bush tax cuts, to which she responded, "We're going to take things away from you on behalf of the common good." That is a refrain we've heard throughout President Obama's eight-year presidency -- that the rich must pay their "fair share."
This quote, when taken with Clinton's voting record, allows us to reach some logical conclusions. If elected, Clinton would continue the policies of the existing regime, seeking to raise the taxes on the wealthy while enacting and expanding breaks for the lower and middle class. Clinton may well seek to lower the threshold at which the higher 39.6 rate is applied (perhaps closer to the $250,000 President Obama originally proposed?) while dropping the estate tax exemption to an amount below the existing $5.43 million. If you believe her 2008 campaign conversations, she may even be willing to subject additional wages to payroll taxes.
Unless a Republican candidate arises with a more moderate tax plan, the 2016 election could stand to be more divided on tax policy than any one issue, with a Republican pitting a flat tax -- which unequivocally reduces the tax burden of the wealthy -- against Clinton's potential desire to increase taxes on the rich.
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