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There's a big problem with Clinton's plan to raise taxes on corporations

Nicole Sinclair
Markets Correspondent

When it comes to their economic plans—and particularly their tax plans—the differences between Donald Trump and Hillary Clinton are stark.

But while Clinton’s plan is generally viewed as more progressive, Harvard Business School professor and tax expert Mihir Desai said she’s getting some things wrong.

Higher corporate taxes affect workers

Desai said Clinton’s progressive goals are well-served by her “middle out” and “ground up” growth strategy to build the middle class, as opposed to Trump’s contrasting “trickle down” approach, which emphasizes tax cuts for the wealthy.

And during the debate, Clinton explained she was going to pay for her plans in a fiscally responsible way. “We are going to have the wealthy pay their fair share,” she said.

However, what she said about corporations was more disturbing, Desai said.

“We are going to have corporations make a contribution greater than they are now to our country,” Clinton added on debate night.

“It’s important to realize that corporate taxes themselves aren’t necessarily borne by high income types, and in fact, they may well be borne by labor,” Desai explained.

Desai added that it is misleading to suggest by getting corporations to pay their fair share we’re actually getting high-income types to pay more—and that Clinton’s rhetoric may have been pulled a bit left as a result of the primary contest with Bernie Sanders.

“It’s a good political rhetoric because people love to think about big, fat corporations as being the enemy,” Desai said. “In reality, the corporate tax is borne by shareholders and workers and consumers … and, in fact, there’s a fair amount of evidence that a good chunk of it’s borne by labor.”

The personal tax conundrum

Meanwhile, Desai explained that Clinton’s plan to raise taxes on higher-income individuals may not include some reforms that would make a progressive agenda more simple.

Clinton’s plan to raise taxes on the wealthy—but not on individuals making under $250,000 a year—may need some reform, he said.

How so? A new tax bracket.

“The top bracket has become really big. About 20 years ago, it was only 0.1% of the population that was in the top bracket and now it’s 1% of the population and that’s because high incomes have been growing faster than inflation,” Desai said.

A new bracket at $1 million and up would be more simple than a “Buffett rule” or proposed 4% surcharge on the wealthy along with new capital gains regime.

“I appreciate the fact that she’s trying to do redistributive things,” Desai said. “I’d like to see it be done in a much simpler way than what she’s doing.”

And as for Trump’s claim that lowering taxes on the wealthy will pay for itself?

“That’s clearly not right and the analysis that has followed his plan suggests that’s not right,” Desai said.

In the end, he explained Clinton’s plan is viable because it’s fiscally responsible—or revenue neutral.

While not much time was spent on taxes during the debate—perhaps due to fatigue that no reforms have been made in this arena in 30 years, according to Desai—it remains crucial.

“I’m always struck by how little attention tax policy gets when we talk about the economy,” Desai said. “It is the major tool we have left to think about ways to provide a stimulus, to think about ways to encourage innovation, to think about ways to change behavior.”

Maybe, after all, something will get done.

“Depending on how the election falls out, we may have a real opportunity to do something in those first 100 days to do something substantial,” he said.

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