The voices of Tax Policy Center's researchers and staff
Democratic presidential frontrunner Hillary Clinton has offered a new tax subsidy to encourage firms to share profits with their employees. The idea of profit sharing is worth debating, but Clinton’s specific proposal is enormously complicated and depends on budget gimmicks to add up.
Her basic idea: Give firms a 15 percent tax credit for each dollar of profit they share with employees. But to avoid all sorts of legitimate problems, including potential abuse and high costs, her plan becomes very complex very quickly.
For example, firms could only take the credit for up to 15 percent of the profits they share. Profits eligible for the credit would be capped at 10 percent of an employee’s wages. The credit would phase out for high-income employees, and the per-firm size of the total credit would be capped. Small businesses would be eligible for a bigger credit.
The details will matter, or course, but this is far from simple. And given its complexity, one wonders whether many firms would bother with it.
Then there is the temporary design of her plan. Clinton has proposed this as a two-year tax break. She says it’s to subsidize start-up costs and that, once firms begin their profit-sharing programs, they’d no longer need the tax benefit. But that would leave out new firms that start up after the credit expires. And it ignores the way Washington works. Should this idea become law, nobody will be shocked if it turns into yet another tax extender.
Of course, pitching this as a two-year plan low-balls the potential cost. The Clinton campaign calls it a $20 billion subsidy over 10 years. But if it were continued for the full decade, the true cost would be vastly higher.
Finally, there is the way she’d pay for the plan. Like nearly every other presidential candidate, she’d fund her new idea by closing unidentified corporate “loopholes.” Clinton says she’ll describe these later in the campaign. And I hope she does. But, for now, she, like just about everyone else in this race, fails the Dave Camp test. The former House Ways & Means Committee Chair, you’ll recall, was the rare politician willing to describe, in detail, exactly which tax subsidies he’d dump to pay for his version of tax reform.
Profit sharing is an intriguing concept. And it would be good to debate why, if it is the win-win for businesses and their workers that Clinton claims, government needs to subsidize it.
But, unfortunately, she distracts from the concept with a plan that is overly complex and filled with fiscal gimmickry.
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