An interesting – and quite enlightening – exchange occurred during last night’s debate between Barack Obama and Hillary Clinton.
ABC News moderator Charles Gibson brought up the prospect of raising capital gains taxes.
Here’s part of the back-and-forth with Obama that caught my attention:
GIBSON: 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.
SENATOR OBAMA: Right.
MR. GIBSON: And George Bush has taken it down to 15 percent.
SENATOR OBAMA: Right.
MR. 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?
SENATOR OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness. We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year — $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair.
And what I want is not oppressive taxation. I want businesses to thrive and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don’t have it and that we’re able to invest in our infrastructure and invest in our schools.
And you can’t do that for free, and you can’t take out a credit card from the Bank of China in the name of our children and our grandchildren and then say that you’re cutting taxes, which is essentially what John McCain has been talking about. And that is irresponsible.
No, it’s not. I disagree with Sen. Obama. Raising the rates for capital gains taxes is a dreadful idea – particularly during troubled economic times.
John McCain’s position is better:
Low taxes on dividends and capital gains promote saving, channel investment dollars to innovative, high-value uses and not wasteful financial planning. John McCain will keep the current rates on dividends and capital gains and fight anti-growth efforts by Democrats.
That’s how we stimulate economic growth. In my opinion, hiking taxes is standard discredited economic folly.
I’d love to know your thoughts. How would increasing the capital gains tax rate affect your investment habits and decisions? If you have a moment, leave a comment.