Your Economy (No Politics)

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"Barack Obama wants to raise capital gains taxes to a rate of 20%. He even stated on CNBC that he would consider raising capital gains up to 25% percent."
"Later on, he even hinted that he would raise capital gains as high as 28%."

http://www.barackobamataxplan.com/investments/

In this article, we’ll discuss Barack Obama’s tax plan as it relates to Capital Gains.

As we’ve said before, Capital Gains Taxes are basically taxes on money you make from selling a non-inventory based asset for an increased price. This applies to non-inventory assets like stocks, bonds, precious metals, and property.

Capital Gains Taxes are also applied to dividends, which are payments made by a corporation to its shareholder members. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend.

So if you own stock in a company that pays dividends, you can be taxed on the income those dividends bring you under the capital gains tax.

Under the Bush Tax Cuts, rates for long term capital gains and dividends are 15% for taxpayers in the top four tax brackets. Taxpayers in the 10% and 15% brackets pay no taxes on long-term capital gains.

John McCain has stated he wants to make those rates permanent.

Barack Obama wants to raise capital gains taxes to a rate of 20%. He even stated on CNBC that he would consider raising capital gains up to 25% percent.

Later on, he even hinted that he would raise capital gains as high as 28%.

Barack Obama’s justification for the high capital gains rate is the economy under Bill Clinton. However, the capital gains rate during the Clinton administration fell from 28 percent at the beginning of his Presidency to 20 percent with the signing of the Taxpayer Relief Act of 1997 in August of that year. Interestingly, the economy managed only two years of growth of 4 percent or more in the decade previous to the 1997 capital gains cut—but notched three straight years of such growth in 1997, 1998, and 1999 after the Capital Gains tax was lowered.

A majority of American households now own stock, either directly or through their IRA, 401k, or union pension fund. Especially senior citizens, 30% of whom use capital gains income for their retirement. An increased capital gains tax means that all Americans will suffer increased tax rates - yet another “hidden” tax raise on all Americans Barack Obama does not publicly discuss.

According to the National Center for Policy Analysis (NCPA), which conducted a study on the economic effects of the Bush Tax Cuts in regards to the Capital Gains tax, President Bush’s investment tax
cuts helped stimulate the economy and increase government revenue, and raising the capital gains tax rate, as Barack Obama is now proposing, would be harmful to the economy at a time when it is once again in need of stimulus.

Faced with a fragile economy early in his presidency, President Bush responded with a series of tax cuts, including reduced taxes on capital gains and dividend income. These measures were designed to stimulate capital investment and produce more jobs. The study notes that the stimulus package had positive effects on the economy and government finances. The economy grew, the government gained revenue and the rich now pay a larger share of taxes than ever. For example:

The rate of business capital investment underwent a U-turn — from negative business investment spending in the two years before the tax cut to an average annual increase of more than 10 percent in the three succeeding years.
In the four years since the cut, federal revenues increased $740 billion and revenues from the capital gains tax nearly doubled to $110 billion.
There was a sizable “unlocking effect” from the lower tax rate, meaning that investors voluntarily sold stock and other assets at a much higher volume once the tax rate was reduced, nearly doubling the amount of capital gains realized.
The study notes that the cuts are scheduled to expire after 2010, increasing the capital gains tax from 15 percent to 20 percent, which is higher than most developed countries. Raising the capital gains tax to a rate of 28 percent or higher, like Barack Obama is suggesting, will place the U.S. at a competitive disadvantage.

The NCPA is an internationally known nonprofit, nonpartisan research institute with offices in Dallas and Washington, D. C. that advocates private solutions to public policy problems. If you’d like to read their study for yourself, you can do so here.

If you are someone who wishes to enjoy the economic benefits that come with lower income tax rates, you will want a President who wishes to lower capital gains taxes to stimulate economic growth. If Obama should be elected, you may see a run on selling on Wall Street to try and take advantage of the lower capital gains taxes while they are still in place, which could hurt the market in the short run.