(Bloomberg) Hillary Clinton is calling for a 4 percent tax surcharge on Americans making more than $5 million annually, a move that would lead to the highest top U.S. income tax rate in 30 years.

Proposing the 4 percent surcharge, which would apply to just one-fiftieth of 1 percent of Americans, based on 2013 federal data, kicked off an effort by Clinton this week to unveil measures aimed at ensuring the wealthy pay a higher effective tax rate than the middle class.

With the surcharge, that small group of the highest earners would pay as much as 43.6 percent in federal income tax on income from wages. A spokesman for Clinton’s leading rival for the Democratic presidential nomination, Senator Bernie Sanders of Vermont, called it “too little too late."

“Now she can say she is going after the wealthy," said Steven Bankler, a CPA in San Antonio, Texas, who has analyzed presidential tax returns for more than 20 years. "And what industry is big at $5 million salaries? Wall Street and CEOs, which is one of the things that Sanders has been hitting her on."

Clinton’s push comes as Sanders has gathered strength in key early-state polls. He also wants to raise taxes on the wealthy; he has hinted that he’ll propose a large increase in the top marginal income-tax rate, now 39.6 percent. Sanders plans to release a detailed tax plan before the Feb. 1 Iowa caucuses.

‘Buffett Rule’
Clinton has also endorsed "the Buffett Rule," a proposal named for billionaire investor Warren Buffett that would set a minimum tax rate of 30 percent for those whose incomes top $2 million. Buffett endorsed her in December. Together, the Buffett Rule and Clinton’s 4 percent surtax would have the effect of significantly raising top earners’ taxes on capital gains, which are now taxed at a 23.8 percent top rate. (The rate was 28 percent when Clinton’s husband, Bill, took office in 1993. Congress cut it to 20 percent during his presidency.)

“Right now, we’re behind and we have to get the wealthy and the corporations to pay their fair share,” Clinton said at a campaign rally in Waterloo, Iowa.

The surcharge would raise $150 billion over a decade and would be imposed on two out of every 10,000 taxpayers, said a Clinton campaign official who asked not to be named.

Economic Impact
As tax policy, the surcharge idea runs counter to most fundamental tax-overhaul proposals, which "aim to broaden the tax base as a means to lower marginal rates," said Kyle Pomerleau, the director of federal projects at the Tax Foundation, a non-partisan tax research organization based in Washington.

Also, attaching high new rates to investment income raises the cost of capital and can be a drag on the economy, he said.

"It would raise more revenue and have a smaller impact on the economy if Clinton instead limited itemized deductions for high-income taxpayers," Pomerleau said.

What distinguishes Clinton’s proposal is setting the surcharge’s threshold at $5 million—a level that few Americans can relate to, said Tim Steffen, director of financial planning at Robert W. Baird & Co.
“Because so few would be affected by this, it will probably get a high level of support,” Steffen said.

50 Percent
The proposed surcharge could bring the combined federal, state and local taxes on high earners to more than 50 percent in some regions, meaning “at that high level of income, the government keeps more of your income than you do,” he said.

While Clinton has said a tax code that favors nurses and truck drivers over hedge fund managers could pay for job, infrastructure and health-research initiatives, Sanders said the plan isn’t bold enough.

“At a time of grotesque income and wealth inequality and when trillions of dollars have been transferred from the middle class to the top one-tenth of 1 percent over the last 30 years, Secretary Clinton’s proposal is too little too late,” Sanders campaign spokesman Michael Briggs said in a statement.

Internal Revenue Service data show that the top 400 taxpayers who made an average income of $265 million in 2013 paid a 22.9 percent federal income tax rate, up from 16.7 percent in 2012. Clinton’s surcharge would build on increases sought by the Obama administration that took effect in 2013, said New York University law professor and Clinton adviser David Kamin.

‘Tax Gaming’
“This tax helps respond to the fact that the highest income taxpayers often pay low effective rates, in part because of the tax gaming and planning that is unique to those at the very high end,” Kamin said.

Daniel Shaviro, a tax professor at New York University School of Law, said Clinton’s proposal on its own doesn’t affect high-income taxpayers’ ability to shelter or otherwise legally understate their true "economic" incomes for tax purposes. Still, he said, that doesn’t mean it wouldn’t have an effect.

“I wouldn’t call this a radical proposal,” Shaviro said. “Keep in mind that, pre-1986, rates well above this used to apply to people starting at much lower income levels, even adjusting for inflation.”

Even if Clinton wins the presidency, her plan isn’t going to be approved “unless there are some tectonic shifts in Congress,” said Alex Raskolnikov, professor of tax law at Columbia Law School.

Republican Positions
The Republican presidential field, in contrast to the Democrats, is largely opposed to raising taxes.

During a Monday speech in his home state, Florida Senator Marco Rubio charged that Clinton’s “answer to every problem is to raise taxes and create a new government program,” according to prepared remarks. And he said some Republicans—including Senators Ted Cruz and Rand Paul—back the introduction of a value-added tax.

“It’s not just her, or the avowed socialist running against her," Rubio said. "Believe it or not, multiple Republican candidates for president support new taxes on the American people."

Republican front-runner Donald Trump said Saturday in Iowa, “Wall Street has caused tremendous problems for us. We’re going to tax Wall Street.”

Millionaire Clinton supporter Bernard Schwartz would be hit by the surcharge. He said he doesn’t mind.

“I’m in favor of it,” said Schwartz, 89, a former chief executive officer of the satellites company Loral Space & Communications and now a private investor. Last year he gave at least $1 million to Priorities USA Action, a super-political action committee supporting Clinton, he said. “Can people in the highest levels of income in this country afford to pay more taxes than they do now? Of course they can. It’s unquestionable.”

—With assistance from Lynnley Browning, Max Abelson, Margaret Collins and Billy House.

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