NCPA - National Center for Policy Analysis


April 18, 2008

During Wednesday's Democratic debate, Sen. Barack Obama repeated his vow not raise taxes on middle-class earners, whom he describes as people with annual incomes lower than between $200,000 and $250,000.

But Obama has also said he's open to raising -- indeed, nearly doubling to 28 percent -- the current top capital gains tax rate of 15 percent, which would in fact be a tax hike on some 100 million Americans who own stock, including millions of people who fit Obama's definition of middle class.

But why should he increase the capital gains tax when history shows that a higher rate brings in less revenue?  According to the Wall Street Journal:

  • The most recent such episode was in the early 1990s, when Obama was old enough to be paying attention.
  • That's one reason Jack Kennedy proposed cutting the capital gains rate.
  • And it's one reason Bill Clinton went along with a rate cut to 20 percent from 28 percent in 1997.

For her part, Hillary Clinton said that she, too, was open to hiking the capital gains tax rate, just not by as much as her rival.  "I wouldn't raise it above the 20 percent if I raised it at all," she said.  Of course, she too promised during Wednesday's debate not to raise "a single tax on middle-class Americans, people making less than $250,000 a year."

Both candidates would have voters believe that taxes on investment income only affect the rich.  But that's not what Internal Revenue Service returns show:

  • The reality is that the Clinton and Obama rate increases would hit millions of Americans who make well under $200,000.
  • In 2005, 47 percent of all tax returns reporting capital gains were from households with incomes below $50,000, and 79 percent came from households with incomes below $100,000.

Source: Editorial, "Obama's Tax Evasion," Wall Street Journal, April 18, 2008.

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