Why? It's one of many ways that the President believes he can generate increased revenues to the federal government, given his dual goals of funding more government programs (ahem, "entitlements") as well as achieving greater "income equality" (ahem, making the rich poorer). It's that simple.
And a lot of people those people listening to the President's mischaracterization of the capital gains tax believe him.
The problem is: The President is dead wrong. Concerning the capital gains tax, consider three facts with examples:
- It's a tax on income that was already taxed when first earned. For example, suppose you save $10k after paying income taxes. You then invest it some good stocks and you make a tidy 20% profit after 3 years (6.67% annually). So, you sell. Now it's time to pay the government for the privilege of generating that $2k capital gain. Even if the annual rate of inflation is greater than the annual rate of profit--meaning that you actually lost money in the market--you must pay capital gains tax on that $2k profit.
- It encourages individuals to consume (spend) rather than to invest (save). Why would anyone invest hard-earned $$$s when perhaps 35% of the profit will go to the federal government? Think of it this way: You can invest $10k in the market with no promise of any profit and a guaranteed 35% capital gains tax on any profit. If you make a $2k profit (sell for $12k), you walk away with $11.3k. So, why not just go ahead and spend that $10k today rather than hope to pay the federal government an additional tax of $700 tomorrow on money the IRS has already extracted from you in income taxes? Or, worse yet, lose on your investment?
- Yes, spending money on purchases means paying the sales tax. But, when you've already paid the capital gains tax on the $2k profit ($700) after having paid income tax on the money and then decide to spend the $1.3k to purchase a new television, you will have to pay the sales tax, too. So, there goes another 5% to 10% in sales taxes (depending upon the state in which you reside).
Has the President explained all of this when touting the alleged virtues of the capital gains tax for a "fair and balanced" presentation? Certainly not.
Think that's bad? It gets worse.
Extrapolate all of this to a national scale and what happens, according to an economist at the Tax Foundation, Kyle Pomerleau, is that the increasing the capital gains tax rate slows economic growth by discouraging investing and encouraging consumption. But, desirous of paying lower taxes, corporations move to countries wit lower capital gains tax rates, making it easier for corporations to raise capital overseas. That means even less investment in the United States which inevitably leads to fewer jobs.
Guess who's hurt the most? Those people sitting in the audience and listening to and applauding President as he mischaracterizes the capital gains tax.
The Motley Monk would guesses that the President's mother or grandparents must never have read "Robin Hood" to him because Robin Hood didn't take money from the rich and give it to the poor. No, Robin Hood took money from the government (ahem, the "Crown") and gave it back to the taxpayers, just like Presidents Ronald Reagan and George W. Bush did. And the economy grew...meaning more jobs, more income to the government, and less tax burden on workers.
Let the discussion begin...
To read Kyle Pomerleau's discussion of the capital gains tax, click on the following link:
"The High Burden of State and Federal Capital Gains Tax Rates."