EDITORIAL: PelosiCare hikes capital gains taxes

President Obama repeatedly has declared that the government needs to take over health care to keep America competitive, yet the version of reform that is emerging attacks the heart of this country’s investor class.

It always has been obvious that new regulations will only add to medical costs. Simply paying doctors and hospitals less than their costs merely shifts the burden to others. But that is just the beginning of the competitiveness-killing details of the legislation.

One of the many bombs buried in House Speaker Nancy Pelosi’s more-than-2,000-page health care bill is a dramatic increase in capital gains taxes. On top of Mr. Obama’s intention to increase capital gains taxes in 2011 from 15 percent to 20 percent, Mrs. Pelosi’s bill will increase the maximum rate for the supposedly rich to 25.4 percent. Even Democrats have to recognize that this will discourage investment - the money that drives job creation.

People work hard. The rich and successful will be paying more than 50 percent of their income in taxes. Some of the amount remaining is invested, but the government will be taking an even larger share of anything made there. Economists have warned about the double taxation of income for years because those with enough to make significant investments are less likely to take risks with their money as the government takes more and more of the reward when an investment succeeds.

The capital gains tax is also a disaster because it taxes nominal, not real, income. Over 10 years, if inflation totals 20 percent and the value of an investor’s stock goes up 20 percent, the investor isn’t any wealthier. Yet, if the investor sells, he’ll have to pay a capital gains tax on the increase that reflects only inflation - meaning that the investor lost money because of the tax.

There is nothing in the health care bill that will increase America’s competitiveness. Even the Democrats can’t spin an increase in the capital gains tax as a way to boost investment or jobs.