If you believe the polls, Hillary Clinton will be the next president of the U.S.
On her campaign website, she discusses proposals that may be of interest to investors. A number of the propositions still lack specifics. The following proposals relate to capital gains, corporate stock buybacks and executive compensation:
Capital gains
- Clinton wants to encourage long-term investment “by raising rates on the top tax bracket to ordinary income levels on short-term gains and graduating rates downward the longer an asset is held. Clinton’s plan would raise capital gains rates for investors in the top capital gains income bracket for shorter-duration gains while maintaining current preferential rates for long-term investments. This will only affect couples making more than $465,000 per year.” The table below shows the varying tax rates by duration of holding period.
From hillaryclinton.com
- There would be “zero capital gains taxes on small business stock held for the long term. Clinton’s plan would provide for zero capital gains taxes on qualified small business stock held for more than five years."
- “Zero capital gains tax option in hard-hit areas – including manufacturing and coal communities facing the departure of plants and production. To encourage impactful investment in areas that need it most, Clinton’s plan would offer the chance to eliminate capital gains taxes entirely for certain long-term investments in hard-hit communities, from inner cities to the Rust Belt to coal country to Indian country."
Corporate buybacks
- “Potentially as a result of short-term pressure, large public companies now return $8 or $9 out of every $10 they earn directly back to shareholders, either in the form of dividends or stock buybacks. Investors and regulators alike need more information about these transactions. Capital markets work best when information is promptly and widely available to all. Other advanced economies – like the United Kingdom and Hong Kong – require companies to disclose stock buybacks within one day. But here in the U.S., companies can go an entire quarter without disclosing buybacks. Clinton's plan will increase transparency for buybacks in the U.S.”
Executive compensation
- “The Dodd-Frank financial reform legislation passed in 2010 called for new regulations regarding disclosure of executive compensation. Many rules have yet to be put in place including a requirement to publish the ratio between CEO pay and the paychecks of everyday employees. Clinton pledged to defend Dodd-Frank from Republican attacks and finally get the promised rules on the books. She would also reform the 'performance-based' tax deductions available to top public company executives, which have too often created a perverse incentive for them to seek big payouts that could come from a temporary rise in share price. And she would expand disclosure requirements under Dodd-Frank's 'say-on-pay' rule to include an explanation of how executive compensation will promote the long-term health of the company.”
Parting thoughts
Warren Buffett (Trades, Portfolio) is a Hillary Clinton supporter. He is well-known for his focus on creating long-term shareholder value. I wonder how much influence he has had on Clinton’s proposals. The politician is acknowledging “too many pressures in our economy today are pushing businesses toward short-termism — a focus on the next earnings report or the short-term share price rather than the sources of long-term growth and lasting value: workers and their skills, R&D and physical capital.”
It will be interesting to see how investors will adapt their investing behavior if she gets elected and is able to implement her policies. How would people attempt to circumvent the new laws? There would be no tax rate difference between holding a stock for 30 seconds versus two years. That might make the stock market more volatile. It might also make investors shift funds into blue-chip companies where there was more confidence of steady price appreciation. Perhaps ETFs would become even more popular. There needs to be more detail on the capital gains affecting small business stocks but perhaps small cap stocks would gain more exposure.
I’m interested in what others think. What do you think would happen to the stock market if the above Clinton policies were enacted?
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