Did Obama Blink on Capital Gains Taxes?

Team Obama gave me some pushback—or at least a firm-but-friendly nudge—regarding my post from last week, "With Polls Close, Obama Blinks on Taxes." I was personally sent an E-mail from a top Barack Obama adviser containing a transcript of Senator Obama's interview last March with CNBC's Maria Bartiromo. This portion was highlighted:

BARTIROMO: "How do you plan to change the tax code when it comes to capital gains? How high will that 15 percent rate go?"

Sen. OBAMA: "Well, you know, I haven't given a firm number. Here's my belief, that we can't go back to some of the, you know, confiscatory rates that existed in the past that distorted sound economics. And I certainly would not go above what existed under Bill Clinton, which was the 28 percent. I would—and my guess would be it would be significantly lower than that.

So what's the big deal, right? Obama says he wouldn't go above 28 percent for capital gains rates and last week, advisers Austan Goolsbee and Jason Furman revealed that their boss favored a 20 percent rate for families making $250,000 or more. That is below 28 percent, no doubt. Simple math. So it's certainly not a flip-flop.

But an important "evolution" in thinking, perhaps? Like me, Greg Valliere of the Stanford Group thinks so:

Obama's move toward the center on issues ranging from gun control to oil drilling took still another interesting turn this week: his aides said he would raise capital gains and dividend taxes to 20 percent, not the mid-20s that he seemed to favor during the spring. Withering criticism from Wall Street made a difference, and his willingness to address investor anxiety has to be considered a plus.

A few observations:

1) Why even mention a 28 percent gains rate, which opens yourself to charges that you may "almost double capital gains taxes" unless you are seriously considering it?

2) Obama advisers certainly led me to believe they were seriously considering the higher rate, contrasting it, in fact, with John Edwards plan to tax capital and labor income at the same rates, close to 40 percent.

3) In a now famous debate exchange last April with moderator Charlie Gibson, Obama didn't protest a whit when Gibson suggested that almost 100 million Americans who own stock would be affected by the higher cap gains. Nor did he protest at the suggestion that the rate might be as high as 28 percent. That was the same exchange when Obama revealed that he wanted to raise taxes in the interest of fairness—ignoring economic efficiency—and seemingly didn't know that higher rates can lead to lower revenues. And as Gerald Prante of the Tax Foundation noted at the time:

Obama appeared to assume that even if we were indeed on the right side of the Laffer Curve (where revenues decrease from cutting tax rates, all else equal), he still doesn't want a free lunch [by getting more revenue from lower taxes]. Any truly concerned liberal who favors increasing the size of government given such a situation would merely seek to find the rate that maximizes tax revenue, and then the progressivity issue could have been dealt with on the spending side by using that money to expand a social program (or a tax/spending program like EITC).

4) The cap gains hikes are supposed to help pay for the rest of Obamanomics, particularly his decision to keep intact so many of Bush's tax changes. And given Obama's spending plan, this campaign is on the hunt for revenue so as to not throw away the Democrats' aura of fiscal responsibility bequeathed from the 1990s. This from Obama's September 2007 economic speech:

We've lost the balance between work and wealth. I will close the carried interest loophole, and adjust the top dividends and capital gains rate to something closer to—but no greater than—the rates Ronald Reagan set in 1986.

So from all that, we might conclude that by waiting until right before the Democratic National Convention to reveal that he is going with the lower cap gains rate (as well as a smaller proposed increase in payroll taxes) means Obama is tacking to the center for the general. That's a place where voters care more about taxes than in the Democratic primaries and might better understand that raising taxes when the economy is weak is right out of the "How to Turn a Downturn into a Depression" handbook. So Obama moves to the center, but voters might wonder if a Pelosi/Reid-led Congress will let him stay there if he occupies the White House in 2009.