NCPA - National Center for Policy Analysis


February 11, 2009

The Wall Street Journal says one question someone should ask President Obama is: Why doesn't his economic stimulus bill include his own campaign proposal to eliminate the capital-gains tax for small businesses?  

  • The House bill omits it entirely, and the Senate version offers a rate reduction to 7 percent from the current 14 percent, but only on investments made in the next two years.
  • That lower rate would apply to less than 2 percent of all capital gains.

Obama's original promise to cancel the capital gains tax for small enterprises was highlighted on his campaign Web site under "Small Business Emergency Rescue Plan." A few weeks before the election, advisers Austan Goolsbee and Jason Furman touted their boss's pro-growth credentials by noting in this newspaper that "he is proposing additional tax cuts" that included "the elimination of capital gains taxes for small businesses and start-ups."

The revenue loss would be minimal, especially as compared to the rest of the $800 billion spend-a-thon, because any untaxed gains would only be realized well into the future.  The Journal says it would prefer an across-the-board capital gains cut rather than a targeted reduction.  But the proposal would at least signal some Democratic interest in encouraging businesses to take risks again -- the only way the economy is going to recover.

So what happened?  

  • According to the Journal, the obstacle is House Democrats, who oppose any cut in capital gains tax rates.
  • The objection seems to be wholly ideological, a concern that such a cut -- even for start-ups, rather than for current capital holdings -- would validate Republican tax-cutters.
  • The White House decided not to fight Democrats to add the President's own pro-growth idea to a bill whose supposed purpose is to promote growth.

This looks like an early example of Obama repeating a mistake that President Bush made too often -- refusing to challenge a Congress run by his own party, says the Journal.

Source: Editorial, "The Missing Obama Tax Cut; He promised to eliminate the capital-gains tax for small businesses," Wall Street Journal, February 10, 2009.

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