Capital Commerce

Obama's Wonderful Disaster

By James Pethokoukis

Posted: October 30, 2008

Portfolio's Matt Cooper suggests that Barack Obama wouldn't raise taxes if elected because no one cares about the deficit right now. (Other than raising, of course, income tax rates on rich folks.) What they care about is avoiding a depression. About that, I will say this: Our economics troubles do provide all the excuse in the world to justify any and all spending increases by calling them stimulus. The fallout from the credit catastrpophe is really a blessing for a future Obama administration since it helps it avoid making any hard choices.  Of course, it also kind of chucks away the party's hard earned reputation a deficit fighters (though much of that was from slashing defense spending -- as Obama may also do). So long, Clintonomics!

So what's my incentive?

If my capital gains are taxed to the extent proposed, what's my incentive to invest in the stock market and attempt to have a higher return rate than the government's 'guaranteed' lower return rate? If I have the means to effect that outcome, don't I have a right to chose how that happens? Don't I have the right to have some control of my retirement and how and where I want that investment to go? I assume the risk by using the stock market to achieve that goal, not let the govt manage it for me. Don't I have the right to determine how I want to spend my retirement? If I know that there will be little or no gain by investing in companies, their capital avialable for investment and growth will decrease. That will shrink employment, lower corporate tax contribution putting more burden on lower income families to make up the difference, thus perpetuating the spiral. Our govt enabled the housing 'bubble' and is now poised to hand over to a 'naturally govt intensive' new administration. Remember, FDR's new deal perpetuated the Great depression and we're setting ourselves up for the same thing if we don't approach the next four years with some caution on how much interference we want to encourage. The current $700B plan was only partially necessary to prevent complete deflation, but served as a political ploy to 'show we still care'. If we return to fundamental (and ethical) lending and borrowing practices (on both sides of the table), we'll earn back some normalcy and then we can apply programmatic fixes for the rest.

top of VA @ Nov 06, 2008 07:35:32 AM

Taxing gains

If you want to tax capital gains at the same tax rate as everything else, then the tax rate on gains from after-tax investment should be zero.

This is easy to see. First look at the zero tax case and suppose you earn $1000 and have the choice between consuming it now versus investing for a $100/year gain.

Now suppose a 25% tax rate. Your choice should now be between $750 now version a $75/year gain.

The 25% income tax produces that result with a capital gains tax of zero, because the gain is on the after-tax income not the pre-tax income.

If you then tax the $75/year gain at 25% you will only end up with $56.25 per year, you will have taxed the gain twice.

Mazzula of VA @ Oct 31, 2008 13:47:21 PM

You have to wonder how Pethoukis can write this with a straight face. Let me just get this clear in my mind. The Bush admin has just partially or fully nationalized large tracts of the banking and insurance businesses. It's proposing a massive bailout for the car companies, and according to the press is preparing a massive bailout of defaulting mortgage holders. In the mean time the three years of budget surpluses bequeathed to them by Clinton have been turned into the highest deficits in history and the total debt we're passing on to our children has doubled from about 5.7 trillion to 10.6 trillion. At the same time the economy is heading into what is forecast to be the worst recession since the early eighties if not the great depression and the entire financial system is hovering on the brink of collapse. Is this guy a total idiot or just so far in the tank for an ideology that has demonstrably failed that he has to pen this bs.

John of CT @ Oct 30, 2008 19:28:33 PM

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Capital Commerce

Capital Commerce

U.S. News business reporter Matthew Bandyk examines the issues, people, and debates that shape the nexus of political and economic life in the nation's capital.

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