July 28, 2015
The FT’s Ed Luce takes a look at the “quarterly capitalism” or “short-termism” issue, concluding that it has merit as well as political legs. He points out that “US investment is at its lowest since 1947″ but that last year “S&P 500 companies spent more than $500bn on share buybacks.” He doesn’t, however, think further raising the capital gains tax rate for short-term investment is an effective solution — as Hillary Clinton wants to do — versus reforming executive pay:
It is doubtful such tinkering would be enough to alter investors’ time horizons. The lure of a bird in the hand would still outweigh two in the bush. Many big investors, including pension funds, are already exempt from taxation. Nor is [Clinton’s] proposal likely to deter shareholder activists, whose gains from holding C-suites to ransom will outweigh any new penalties. As long as chief executives’ compensation packages are set by the share price, little is likely to change.
I am more positive that, at the margin, tax reform can help — as I recently told Ben White of Politico. But generally experts who have proposed similar plans would also deeply cut cap gains rates the longer an investment is held, maybe even to zero for investments held 5 to 8 years or so. Clinton’s approach would raise the ceiling but not the the floor. Of course, cutting taxes for wealthier Americans is anathema to Democrats so she is forced to offer a bizarre version of what could be a pretty good idea...
Read the full article at the American Enterprise Institute: Just because Hillary Clinton thinks corporate ‘short-termism’ is a problem, doesn’t mean it isn’t