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Clinton proposes tax, buyback changes to encourage long-term growth

Saturday, July 25, 2015 - 07:58
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Democratic presidential candidate Hillary Clinton proposed US corporate tax reforms on Friday including a sliding scale for capital gains taxes, greater transparency for stock buybacks and changes in executive compensation to encourage long-term economic growth.

[NEW YORK] Democratic presidential candidate Hillary Clinton proposed US corporate tax reforms on Friday including a sliding scale for capital gains taxes, greater transparency for stock buybacks and changes in executive compensation to encourage long-term economic growth.

Ms Clinton, in a speech in New York, said institutional investors have an obligation to counter "hit and run" activist shareholders. She also said the US government needs to "stop pouring subsidies into industries that are already thriving," such as the oil industry.

Ms Clinton, front-runner in the race for the Democratic Party's nomination, is working to draw in progressive voters in her party while not alienating big-money donors from Wall Street as she seeks to build a broad coalition going into the general election in November 2016.

But Ms Clinton was criticised by Republicans, who generally prefer less regulation of capital markets.

A spokesman for Republican candidate and US Senator Marco Rubio said in a statement that Clinton's tax policy was outdated. "Hillary Clinton's tax proposal picks winners and losers,"said the spokesman, Alex Conant, "and ultimately leaves behind the working class." Ms Clinton called for government and private companies to join in the fight against "quarterly capitalism." "It's bad for business, it's bad for wages and it's bad for our economy," she said of short-term thinking at the expense of long-term growth.

Ms Clinton argued that the tax code and US laws currently allow or even encourage companies to focus on short-term gains in stock prices in a way that undercuts the economy's long-term growth and harms middle-class incomes.

The former US senator and secretary of state also said "there is something wrong when senior executives get rich" while companies and workers suffer. "How do we define shareholder value in the 21st century?" Ms Clinton asked. "Is it maximising immediate returns or delivering long-term growth?" Companies in the Standard & Poor's 500 stock market index spent US$566 billion buying back their shares in 2014, up from US$480 billion in 2013 and the highest amount since 2007, according to research firm FactSet.

She pointed to other countries that require companies to disclose buybacks daily, giving regulators and outside investors more information about the transactions and causes of share price changes. "Here in the US you can go an entire quarter without disclosing," she said. "Let's change that." Ms Clinton's main rival for the Democratic Party nomination, Vermont Senator Bernie Sanders, has drawn crowds of thousands by appealing to progressives, despite being far less well-known than Ms Clinton.

He has, for example, endorsed their call for increasing the federal minimum wage to US$15. Ms Clinton suggested on Friday that while this might make sense in New York City, where the cost of living is high, it made less sense in cheaper parts of the country.

Executive pay, padded out with stocks and options, has become increasingly structured with "perverse incentives" to inflate payouts by focusing on short-term rises in share prices, she said. Companies should accept legal provisions yet to be fully enacted that require them to say, in a ratio, how much more executives are paid than other employees, a disparity that has widened in recent decades.

She was also critical of generous executive pay packages during her last attempt to win the presidency in 2008, when she also ran on a platform seen to be to the left of the more centrist economic policies of her husband, Bill Clinton, when he was president.

Her speech on Friday added to downward pressure on US stocks, which were falling in afternoon trading.

REUTERS