Hillary Clinton, the Democratic presidential frontrunner, targeted the Cayman Islands and other offshore centers in an interview with MSNBC on Monday.
Outlining her income tax plans, should she become the next U.S. president, Mrs. Clinton said she will end tax abuses and apply a surcharge to income gains even if they are generated offshore.
“We are now in a position, I think, where we can go after some of these schemes that you did read about: the kind of misclassifying of income, trying to make it look like it’s capital gains when it is really ordinary income, going ahead and routing income through the Bahamas or the Cayman Islands or wherever,” she said.
“So I want to have a surcharge that wherever the income comes from, wherever the income is, it would be on the adjusted gross income and it would give us a chance to try to get around and end some of these abuses that are taking place in the tax system.”
Mrs. Clinton has proposed a 4 percent tax surcharge on Americans making more than $5 million annually, to ensure that the wealthy, who are the most likely to benefit from tax planning, pay a higher effective tax rate than the middle classes. Mrs. Clinton plans to close “egregious loopholes,” like the “Bermuda reinsurance loophole,” whereby a hedge fund or hedge fund investors make a capital investment in an offshore reinsurance company, which then reinvests that capital and the premiums it receives in the hedge fund.
Tax on the investment is deferred until the investment is liquidated and then taxed at the lower capital gains tax rate.
Her plans further target the “Romney loophole,” a reference to the 2012 presidential candidate’s disclosure that he had accumulated more than $100 million in his retirement account, in part through the legal deferral of income tax on his offshore fund investments. Mrs. Clinton wants to limit the ability of the very wealthy to game the system by sheltering large incomes in tax-preferred accounts.
In addition, she endorsed the “Buffett Rule” proposal, named after billionaire investor Warren Buffett, which would set a minimum tax rate of 30 percent for earners with an income of more than $2 million.
The measures are necessary, the Clinton campaign said, because “as a result of loopholes and the ‘private tax system’ of lawyers and accountants who enable complex strategies to shelter and lower the bill on income for the most fortunate, some of the wealthiest taxpayers continue to pay low effective rates on their income.”
Asked whether she would aim at raising the capital gains rate, which was cut by her husband, former President Bill Clinton, from 28 percent to 20 percent, she said that those cuts were part of a budget deal and “middle class folks, poor people got something for it” in return.
Instead, she is proposing a different capital gains structure. “You would pay ordinary income tax for holding an asset for less than two years and then it would drop until in the sixth year it would be 20 percent,” she explained.
However, it is unclear whether the tax proposals would affect the ability of high-income earners to legally shelter or understate their true income for tax purposes. In any event, implementing the tax plans would first require a major power shift in Congress, commentators noted.