Last April 24, I noted here a letter from Laurence D. Fink to the chief executives of Fortune 500 firms. Fink, Chairman of BlackRock, the world’s largest asset manager (approximately $5 trillion), expressed alarm at how “short-termism” was skewing the economy. A low capital gains tax (20 percent) on any stock held more than a year provided an incentive for shareholders, investors, and executives to value quick returns rather than long-term growth in productivity, work force skills, and innovation.
Fink had a remedy. He proposed taxing gains on investments held less than three years as ordinary income (around 40 percent) and investments held for less than six months at an even higher rate. The rates on capital gains would then tail off, even dropping to zero after ten years of ownership.
Now Hillary Clinton has taken up the idea, proposing a different schedule of rates—ordinary income rates for the first two years, then declining not to zero but the present rate over six years—but using the same principle. “Since when was one year considered a long-term investment?” Mr. Fink wrote last spring. Hillary improved on that line by pointing out that one year “may count as ‘long-term’ for my baby granddaughter, but not for the American economy.”
This sort of proposal, as I wrote here in April, does not address a lot of questions about the capital gains tax, either its fairness or its effectiveness. I simply quoted William A. Galston and Elaine Kamarck, who wrote on a Brookings Institution blog that “Fink has opened up a crucial debate, and it’s time for Congress and presidential aspirants to join it.”
Right-wing denunciations were immediate.
Ones I skimmed ranged from “destructive” to “incredibly stupid.” A fairly technical column in The New York Times (i.e., one that I had a hard time following) argued that her proposal misunderstood investment strategies and that there were better ways to accomplish the same end. As Galston and Kamarck said about Fink’s remedy, “We can argue the merits of this idea, and we should. But the main point should be beyond argument. We need more builders and fewer traders …. And to get them, we’re going to have to change the laws governing corporate and investor behavior.”
That is evidently unthinkable for David Brooks, who offered one of the silliest reactions to Hillary’s proposals in today’s Times. Taking off from another Times writer’s challenge to non-profit do-gooders to stop shying away from fundamental criticisms of corporate capitalism, Brooks announced that America was now on the verge of a Great Debate about radically restructuring capitalism versus ameliorating “its rough intensity” with a safety net.
In a prime example of Brooks’s weakness for making an argument by framing it in a grandly inflated framework, he hauls out all the standard shorthand about “government planners” and the “beauty of capitalism” and “market signals” and “creative destruction” and “greatest reduction in poverty in human history” and “dynamism … always in danger of being stultified … by governing elites.”
How much of this is true how much is ornamental façade for more complicated, not to say darker, realities can be saved for the Great Debate. For now, Brooks’s key ideological move is to place Hillary’s thinking in the camp of, yes, reconfiguring capitalism. Her capital-gains proposal is based, he claims, “on the assumption that government officials are smart enough to tell investors how they should time their investments.” Her other proposals about corporate governance “are based on the idea that federal officials know better than executives how they should run their own companies.”
Such nonsense. The existing capital gains tax advantage as well as its dubious definition of “long-term” already reflect assumptions about the value and timing of investors’ decisions. Corporations are already entities of various sorts enjoying legal status and advantage (persons, remember?) in exchange for observing certain rules about conduct and governance. To jigger the capital gains tax schedule or modify corporate governance is, for better or worse, no fundamental challenge to the “underlying system.” Such proposals fall in a long line of progressive incrementalism.
Too bad Brooks doesn’t expose the real evil genius behind the new attack on capitalism: Laurence D. Fink, Chairman of BlackRock.