Obama’s Proposed Capital Gains Tax Increase Would Kill the Economy

This is something that isn’t often talked about, but due to the current state of the economy, it’s important that this is brought up.

To understand what I’m about to say, you need to understand one principle about American economics: When the stock market suffers (or even only the Dow Jones for that matter), people panic, and the economy nose dives.  This is all a bi-product of people paying too much attention to the stock market (particularly The Dow).  I’m not saying that the stock market doesn’t have an actual impact on the economy, but it’s impact is artificially inflated by both the media as well as average citizens.

Now, on to Obama’s proposed increase in capital gains tax:

For those of you who don’t know what capital gains taxes (CGT) are, they’re taxes on non-inventory assets that are purchased and resold at a higher price (stocks, bonds, gold, etc…).  In America, any of these assets held for less than a year are taxed under the same bracket as income taxes, but anything held for over a year is taxed at 15% (unless the person selling the asset fits into the bottom 2 tax brackets (yearly income of $32,550 or less), in which case it ‘s 0%.  These taxes were lowered under bills proposed and signed into law by Presidents Clinton and Bush (one of the reasons that Cliton was President during such a prosperous time was his lowering of CGT).

Senator Obama wants to let these expire and then raise them.  The new tax would be 25% (and I believe 15% for people in the lowest 2 brackets, but I know that it’d be at least 8%).

Now, who pays this tax?  About 87% of the people who pay CGT make less than $100,000 a year (although I will note that there’s a correlation between lower income and paying less CGT, just because people with lower incomes tend not to have as many assets that are taxed under CGT), so this tax increase will hurt the middle class as well as the wealthy.

So, why will this tax increase hurt the economy?  Let’s say that you aren’t in the bottom 2 tax brackets, so right now if you sold your stock and made $1,000, you’d get to keep $850 of that.  If you sell that stock at the same value after Obama’s tax increase goes through, you’d get to keep $750 of that.  Who in there right mind would sell that stock after Obama gets his tax increase through?  The only way that would make sense is if you had a stock that was increasing in value quickly, and you could make up your losses to taxes by holding on to it for a couple more months (but there’s only a small percentage of stocks where this would be the case).

So what we’ll have is massive amounts of people selling their stocks right before Obama’s tax plan goes through.  And who wouldn’t do this?  You get to keep 10% more of your money.  You’d be insane not to sell it, unless you’ll hold on to it for another 4 years and hope the next President will lower the tax, but that’d be a pretty risky move.

So, you have a large amount of people selling stocks at the same time.  Now, do you remember what I said about America’s attention to the stock market?  What happens when everybody is trying to sell their stocks.  People aren’t buying.  The prices of stocks fall.  The media picks up on this, and so do the American people.  Stock prices begin plummeting, and this sends the whole economy into a downward spiral.

And this is why we cannot let Senator Obama win in November.  His CGT increase will ruin the economy for YEARS to come.  It amazes me that the media isn’t picking up on this, but it’s something that needs to be shared with the American people.

Done Ranting,

Ranting Republican
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12 Responses to “Obama’s Proposed Capital Gains Tax Increase Would Kill the Economy”

  1. Calvin Says:

    You are so right. I have been shaking my head at the Obamaians who have fallen for the false claim that their taxes will go down. They do not understand that he is only talking about their “income tax” and not the many other “taxes” that they pay.

  2. inkslwc Says:

    And capital gains taxes are one of the worst taxes he could raise right now. Lowering the CGTs was one of President Clinton’s best moves that made him President during such a prosperous time.

  3. Obama Lies About Cutting 95% of Americans’ Taxes « Republican Ranting Says:

    […] It’s more Obama lies where he’s just trying to get votes.  And all of this is before he raises capital gains taxes, where 87% of the people affected would be making under $100,000.) […]

  4. Craig Says:

    Raising the capital gains tax may cause some people to dump stock early to beat the clock so to speak, but anyone who’s holding an investment long term or even short term with a large upside isn’t going to sell off their stock to save that 10%. Especially if they stand to make 50% or more on their trade.

    I think raising taxes is a necessary evil right now. Our government has been fiscally irresponsible and the only way to fix the budget for our future will be to trim it where it can be trimmed and raise taxes. Cutting taxes while implementing new programs will only grow our national debt.

  5. Calvin Says:

    Craig – history tells us that if your goal is to raise revenue, raising the capital gains tax will have the opposite affect.

    If the capital gains tax increases, I will take adantage of IRS Code Section 1031 and reinvest tax free. if it stays low, I will just pay the tax and move on.

  6. Rob Adcox Says:

    Um, did anyone forget that it isn’t Obama’s call to make? CGT will be decided by CONGRESS. And I can’t believe the the Democrats -as stupid and as shortsighted as they are- would go along with this tax, knowing what the repercussions would be.

  7. inkslwc Says:

    It’s still his proposed plan.

  8. Josh Says:

    Calvin, it’s gonna be tough to use Section 1031 on a stock sale.

  9. Calvin Says:

    Josh . . . assuming that there will be any gains on stocks to tax!

  10. Durian Says:

    I am skeptical about your statement: “About 87% of the people who pay CGT make less than $100,000 a year.” What is the source of this information? Keep in mind that 401k’s are exempt from CGT. Newt Gingrich recently made a claim in Time to the effect of “We also call for the abolition of the capital gains tax, which would immediately add value to the personal portfolios of every American.” (Time March 23,2009). I know people who own NO stocks / mutual funds / etc., therefore CGT abolition will NOT add value to their personal portfolios. I consider myself willing to listen to various arguments. However, statements like the above about CGT should be substantiated. If not, it is worse than ranting; it is intentionally misleading.

  11. inkslwc Says:

    Durian, that information came from a movie called Hype: The Obama Effect. The statistic is Dick Morris’s, but I subtantiated that statistic with the data here: http://www.ctj.org/html/cgwp698.htm, although I used Morris’s statistic because it was a little bit newer. I’ll try to find his source.

    EDIT: This table would also substantiate the statistic: http://www.taxpolicycenter.org/UploadedPDF/1001201_Capital_gains_tax.pdf.

  12. Monsanto Is Evil Says:

    independent news database…

    Obama’s Proposed Capital Gains Tax Increase Would Kill the Economy « Republican Ranting…

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