Hillary Clinton targets the rich--with a Nerf gun

Sock it to ‘em!

That’s Hillary Clinton’s attitude toward the wealthy, if you go by the letter of her latest economic proposal. There are a few unstated aspects of her plan, however, that sharply weaken its impact.

The Democratic presidential candidate wants to revamp the capital gains tax in a way that would reduce financial speculation and encourage public companies to focus more on long-term investments. As part of the bargain, the plan would raise taxes on some wealthy investors and funnel a few extra bucks to the U.S. Treasury.

The current capital gains tax has two brackets for top earners with incomes greater than $413,200: For investments held less than a year, the tax is 43.4%; for all others, it’s 23.8%. (Those figures include a new Medicare contribution tax included as part of the Affordable Care Act.) Clinton would keep those two bookend brackets but add 4 more between them, based on how long an investor held onto the stocks, bonds or other types of assets that produced the gain. The tax would stay the same for assets flipped within less than a year (43.4%) or after 6 years or more (23.8%). For all other transactions that produced a gain, the tax would rise, compared with current levels.

The logic behind the plan is solid. One common complaint of CEOs is the pressure to maximize shareholder value (also known as doing whatever necessary to pump up the stock price), sometimes at the expense of other priorities that would be better for the company in the long term. Not everybody thinks “quarterly capitalism” is a problem, but it’s certainly worth exploring at a time when economic growth is chronically weak.

Clinton’s plan also shows fealty to the middle class, since the 15% of taxpayers assessed capital gains taxes in a given year are heavily clustered near the top of the income scale. Lower-income families sometime enjoy capital gains as well, but they're taxed at lower rates, based on your regular income-tax bracket. Clinton would leave those tax rates alone.

Her plan, however, is also somewhat disingenuous. Here’s why:

It would complicate the tax system instead of simplifying it. If there’s any consensus about how to fix the convoluted U.S. tax system, it’s this: Simplify it and make it easier for taxpayers to comply. Clinton’s plan would do the opposite, by adding more brackets and conditions. To the extent there’s any momentum in Washington to reform the tax code, Clinton is swimming against it, reducing the likelihood reformers would embrace her plan if she made it to the White House.

It will never pass Congress. It’s not clear who will win the White House in 2016, but it is clear that at least one chamber in Congress—the House—will remain in Republican hands. And Republicans seem sure to oppose any tax hike unless it’s paired with deep spending cutbacks or other concessions that would be anathema to a Democratic president in the first place. President Obama’s 2016 budget, for instance, calls for raising the lower capital gains bracket for top earners from 23.8% to 28%, and that has no chance of getting through Congress.

Other tax plans would go much further. Bernie Sanders, who represents the leftward extreme of the Democratic presidential field, wants to tax capital gains at the same rate as income, which would be a de facto tax hike for most people earning capital gains. Warren Buffett supports that idea in principle, which is why the so-called Buffett Rule would tax investment income for wealthy people at the same rates as labor income for middle-income families. Clinton doesn’t need to move as far left as Sanders, who also wants to raise the top income tax bracket to 90%. But she’s not even going as far as Warren Buffett, a billionaire CEO who’s generally friendly to Wall Street. For the wealthy, the best tax plan is a theoretical one they'll never have to deal with.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.