End the Bermuda reinsurance loophole, and tax gaming through complex derivative trading. High-income money managers have used loopholes related to foreign reinsurance – often located in Bermuda – to avoid paying their fair share. And they take advantage of complex derivative trades to lower their tax bill. Clinton would build on proposals from both Democrats like President Obama and Republicans in Congress to close down these two loopholes.
Close the “Romney Loophole” that allows sheltering multiple millions in retirement accounts. According to data from the Government Accountability Office, roughly 1,000 taxpayers have accumulated close to $100 billion dollars in tax-preferred retirement accounts, with balances of more than $10 million per taxpayer. Clinton believes that we should encourage robust retirement savings by American families – but that retirement accounts should not become a shelter from taxation for the most fortunate. She would build on proposals by President Obama in calling for closing down the so-called “Romney Loophole” by limiting the ability of the very wealthiest to game the system by sheltering large incomes in tax-preferred accounts.
Impose a “risk fee” on the largest financial institutions. Dodd-Frank’s reforms and higher capital requirements on the largest banks are already helping address the problem of “Too Big to Fail.” But, as Clinton has said throughout this campaign, we need to go further to deal with the risks posed by the largest financial institutions. That's why Clinton would charge a graduated risk fee every year on the liabilities of banks with more than $50 billion in assets and other financial institutions that are designated by regulators for enhanced oversight. This proposal will raise $150 billion in revenue over 10 years.
Close the “carried interest” loophole. For almost a decade, since she was a Senator, Clinton has called for closing the “carried interest” loophole that allows hedge fund, private equity, and other Wall Street money managers to avoid paying ordinary income rates on their earnings. With the top 25 hedge fund managers making more than every kindergarten teacher in the country combined, there is absolutely no reason for this tax loophole.
Commit to tax fairness beyond closing these specific loopholes – especially on capital income. Beyond these specific loopholes, Hillary will continue to take steps to ensure the most fortunate cannot game the system and avoid paying their fair share. Already in this campaign, she has called for raising capital gains rates for short-term trading, in order to encourage long-term investment. But long-termism should never be an excuse for persistently and continuously sheltering income from fair taxation. That is why Clinton will go beyond the loopholes identified above to reform capital taxation, and explore additional measures to prevent high-income taxpayers from misclassifying income as capital gains or avoiding paying tax on some income at all. For example, she would limit the tax benefits of “like-kind exchanges,” which prevents capital gains taxation on certain sales. She will rationalize the Affordable Care Act’s net investment income tax to prevent gaming by high-income taxpayers. And she will close the “step up in basis” loophole that lets accumulated capital gains go untaxed when assets are passed on to heirs – a loophole where 80% of the benefits go to the top 0.1% of taxpayers earning more than $2 million per year. Her plan will treat bequests as a realization event. It will include exemptions to ensure this change only affects the high-income families who by far benefit the most from this loophole, and protects middle-class families. And it will contain careful protections and flexibility for small and closely-held businesses, farms and homes, and personal property and family heirlooms. She will make strong enforcement against the “private tax system” for the extremely wealthy a priority for her administration.