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.