What's Wrong with Taxing Capital Gains?

Capital Gains taxes were asked about in the last Democratic Presidential Primary Debate.

Capital Gains are the profits someone makes from investments on Wall Street. Reporter Gibson asked both Obama and Hillary on raising these taxes.

Here is the exchange:

GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton," which was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28 percent.

But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.

So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness.

Obama went onto try to tie the desire to raise capital gains to 28% by referring to a loophole which private equity hedge fund managers are using to only pay 15% on personal income. Below is Hillary's response:

CLINTON: I wouldn't raise it above the 20 percent, if I raised it at all. I would not raise it above what it was during the Clinton administration.

GIBSON: If I raised it at all. Would you propose an increase in the capital gains tax?

CLINTON: You know, Charlie, I'm going to have to look and see what the revenue situation is. You know, we now have the largest budget deficit we've ever had, $311 billion. We went from a $5.6 trillion projected surplus, to what we have today, which is a $9 trillion debt. I don't want to raise taxes against on anybody.

Ok, firstly there are loopholes in the corporate and partnership tax code that allow these private equity and hedge fund managers to make billions while being taxed at a 15% tax rate instead of the 35% tax rate, which is what working people are paying in taxes.

Now there have been a series of bills introduced into Congress to close these loopholes:

Sander M. Levin introduced H.R. 2834, Charles Rangel has this an a provision in his House Tax Bill H.R. 3970.

In the Senate, Chuck Grassley along with Max Baucsus introduced S.1624 - To amend the Internal Revenue Code of 1986 to provide that the exception from the treatment of publicly traded partnerships as corporations for partnerships with passive-type income shall not apply to partnerships directly or indirectly deriving income from providing investment adviser and related asset management services.

Those private equity loopholes can be addressed separately, not directly connected to the actual capital gains rates, so Obama, trying to advert his capital gains tax increase, by discussing the private equity and hedge fund managers loophole, well the implication and connection is a little misleading.

So, what's the point? Closing these loopholes does not imply one has to raise the capital gains tax to 28%.

What about Gibson's claim that lower capital gains taxes generates more revenues in capital gains? Well, it appears in the short term that's partially correct and frankly I searched high and low on capital gains rates and found conflicting information and so did Fact Check.org in terms of the long term research on the effect of capital gains.

Gibson’s claim is partially right. Cutting the capital gains tax rate does stimulate at least a temporary, short-term increase in revenue by giving owners of appreciated assets (such as real estate or stocks) an incentive to sell them and turn their paper profits into cash. The boost in capital gains income can offset the loss to the government from the lower rate

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Since there is so much conflicting information, clearly most analysis must be done to create a tax policy that is Progressive. It's very clear the rich are getting richer and the middle class is being wiped out in the United States. Tax code has huge ramifications on our economy and I cannot think of a single policy area more misunderstood as well as ignored by the American people. The most boring areas of policy and law are precisely where corporations love to focus. Complex, difficult to analyze, understand, obscure legislation are the best places to hide loopholes and special interest incentives. It's a very nice way to increase greed and not be scrutinized!

Unfortunately digging into policy positions and proposals is almost near impossible since corporations have phony think tanks out there plus, there is just an ungodly amount of spin attention and almost no media objective coverage on the candidates actual proposals, especially tax proposals. Once again, there are strong differences between Obama and Hillary and you must dig them out to realize it.

In trying to find some objective analysis on Tax policy proposals, I did find the Brookings Institution and Urban Institute comparison/contrast of Obama and Clinton, but I don't think they have all of the proposals. Clinton mentions capital gains tax breaks in a variety of other proposals. It's very tough to find actual position statements, even on their websites. Here is a search results on capital gains for Hillary Clinton. The search for Capital Gains by Barack Obama is here.

Remember that corporations, small business generate jobs and also we are in a global economy so what may at first seem like a great idea to tax those greedy bastards, upon analysis, might not lead to more investment and job growth for Americans, within the United States.

Let's look at this stuff folks and start talking about it. No one is buying us off to make assumptions or misleading statements here!

Meta: 

Comments

Rather ask yourselves what happens if...

...........you don't tax capital gains. 1932 is what happens. The money piles up in the uber-rich's accounts and does not 'create more jobs....' or 'stimulate consumption....'. Eventually the income and asset stratification gets so bad, see 'Bank Holiday', the economy grinds to a halt.

To me 'Bonehead' Gibson is just mouthing more supply side bs. Economists have clear proof that breaking the Pareto Rule, already not correct due to Pareto's lack of understanding of discontinuous functions much less basic sociology, as was done by FDR and his tacticians resulted in what Krugman and others call the Great Compression. Generally considered a good thing by the average citizen and the work of the Devil by such as Bush, Reagan and the rest of the uber-rich's sockpuppets.

Obama's ignorance on this subject is typical for him. He's not ready now, nor probably never will be, ready to lead due to sheer unadulterated ignorance of basic policy and the theory that underpins GOOD policy as opposed to his hero Reagan's 'conservative' economics which basically said:

'I got mine and I intend to keep all of it..'

Which in a modern economy, or an old one for that matter, just doesn't....

...work.

How much should you?

Should have been the question that maybe I didn't amplify, what exactly should that capital tax gains be and what about a Progressive structure based on overall income?

As we could see Gibson wasn't necessarily regurgitating the supply-side rhetoric or those corporate agenda folks (I really dug into this one), so to me the question is where is the level that creates investment, also helps 401ks and so on and where is the level that overtaxes it?

Before slamming Obama here, let's go look at the payroll FICA tax issue. It sure does seem currently like a regressive tax.

Mother Jones

Another grid style comparison contrast of Obama/Clinton on Economics here.

Capital gains tax is a way to steal people's homes

I've been out of work for 5 years and had a few job offers in other cities, but just can't afford to pay $100K in capital gains tax on my house just to take a job in another city where
the job pays $100K. I would have to work 10 years to save up from that $100K capital gains tax just to move. So, I stay in
my house and draw down on my savings. THe headhunter said he
can't find people with 20 years job experience to be managers who can move and
so his company is moving the whole department offshore including 20 jobs for younger workers.
So I call the home tax, the "outsourcing tax".
Another friend drives
2 hours in the morning and 2 hours at night because he can't
afford to move an give the government $100K in capital gains.
Remember, when you sell a home, you need the same amount
of money to buy another home. Better to just
waste gasoline than lose life savings.

you have an exemption

I have no idea what you are talking about for you get an exemption up to $250k of profit. article on exemption.