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Clinton wants to boost worker pay through corporate profit sharing

Democratic presidential candidate and former Secretary of State Hillary Clinton arrives for a meeting with Senate Democrats at the US Capitol July 14, 2015, in Washington, DC.
Democratic presidential candidate and former Secretary of State Hillary Clinton arrives for a meeting with Senate Democrats at the US Capitol July 14, 2015, in Washington, DC.
Chip Somodevilla/Getty Images

Hillary Clinton wants to give businesses a tax break for sharing profits with their employees. It's the first concrete proposal of what she says will be a comprehensive plan from her campaign to boost income and benefits for low- and middle-income earners.

The root of the plan is a belief that if businesses share more of their profits with employees, those workers will be more committed to their companies and increase both innovation and productivity. On a micro level, both the business and the worker would benefit. On a macro level, the plan might spur growth in the economy.

Some studies have shown companies that share profits with their employees tend to have higher levels of commitment and output. There's an association, though not necessarily a causal effect, according to researchers. More important to most voters, though, profit sharing would certainly increase incomes for workers, and experts say that would lead to greater wealth for employees over time.

Alan Blinder, a liberal economist who believes that sharing profits boosts productivity, praised the plan in a statement forwarded by Clinton's campaign.

"The central economic challenge of our time is raising incomes for American families," he said. "Profit sharing is one new idea to help steer our economy in that direction, and Hillary's proposal would lead to more dollars in the pockets of workers across the country."

How it would work

Clinton's plan would create a short-term incentive for businesses to start sharing profits, and, her campaign says, the price tag — $10 billion to $20 billion over a decade — would be paid for by the familiar closing of tax loopholes that she will identify at a later date.

Some of the details will still have to be filled in, but here's how her campaign says it would work:

  1. Larger businesses that share profits with their workers would get a two-year tax credit equal to 15 percent of the amount they distribute to employees, with a higher fraction given to small businesses. So, for example, a company that gave a worker a $5,000 payout would get a $750 credit.
  2. An employee could not get a profit-sharing distribution of more than 10 percent of his or her current earnings, a mechanism intended to control costs for the company. The payments would also be phased out for higher income workers.
  3. The total tax credit for any single company would be capped to avoid windfall credits for the nation's largest companies.

The Clinton campaign says there would be safeguards to prevent companies from gaming the system to win the tax credits without actually boosting their employees' wages or salaries.

"The credit would only go toward new worker payments that are made over and above an employee's current income," said a Clinton aide, who spoke on the condition of anonymity to give a preview of the plan. "So a company cannot repurpose existing wages or benefits into profit-sharing payments for the purpose of benefiting from the credit without adding to the worker's take-home pay."

The details that still have to be fleshed out

One of the big open questions is whether companies will rush to take advantage of the tax credit. Clinton's camp says that the combined benefit of the tax credit and the possibility of boosting productivity and innovation are enough to make it a popular program.

The range of $10 billion to $20 billion over 10 years suggests that it's not clear exactly how many businesses will agree.

The details of the phase-out provision for higher-income workers and the overall cap on how much an individual company could claim in tax credits remain to be determined, the aide said.

And, of course, she'd have to get it through Congress — a tall order for any policy idea.

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