Misguided Tax Hikes
By: David Jackson
It is a simple fact of economics that capital formation is a critical feature of long term economic growth. Through capital formation, new industries are forged and jobs are created, subsequently providing a higher standard of living for all of society. If this is true, then why would the Obama Administration insist on raising taxes on investment income through capital gains and dividends? By increasing the tax rate on investments—like that of capital gains from 15% to 20% before the new ObamaCare surcharge of 3.8% on high income earners–our recovery will more than likely remain at a lethargic crawl.
Given the current economic malaise, the logical observer might suggest that increasing impediments to investment will more than likely pose negative consequences for a recovery. Instead of saving for long term growth, these policies create an incentive for one either to legally hide their savings in tax shelters, or to spend on consumer goods. Either way, revenue from taxes is not likely to increase because the individual will naturally attempt to avoid the forceful hand of government.
This is an unnecessary obstruction to economic recovery. The government should not punish savings through investment at any time, particularly during a weak economic recovery. Even President Obama has accepted on multiple occasions the dire consequences of raising taxes in an economic downturn. However, he continues to project this terrible policy. Without a sturdy industrial foundation built on capital formation, how can one expect new businesses to develop and unemployment decrease?
President Obama rests his argument for tax increases on the Clinton tax rates. However, such historical revisionism neglects fact. In 1997, President Clinton signed a capital gains tax cut into law. The previous year the capital gains tax collected $62 billion in revenue. Following the tax cut, revenue from the tax increased $48 billion to $110 billion in 1999. The President ignores that the tax cut on investment rates preceded the economic boom.
How can President Obama expect to grow the middle class if there are no jobs for employment, no incentives for business creation, and no access to invest in capital? Congress therefore must oppose any and all action to raise the rates on investment income.