Our nation is headed into a double-dip recession. The situation lends urgency to the political debate over whether investors should be rewarded or punished. The economy will have no hope of recovery so long as Washington insists on crushing the entrepreneurial spirit with a capital-gains tax that’s about to go up substantially.
Republican presidential candidates sparred over the issue in New Hampshire on Tuesday. Newt Gingrich, who wants the tax eliminated, asked rival Mitt Romney why his economic plan limited the capital-gains tax rate cut to people who make less than $200,000.
Mr. Romney blamed President Obama. “The reason for giving a tax break to middle-income Americans is that middle-income Americans have been the people who have been most hurt by the Obama economy,” said the former Massachusetts governor. “If I’m going to use precious dollars to reduce taxes, I want to focus it on where the people are hurting the most, and that’s the middle class.”
The blame for the unfortunate use of income brackets in the capital-gains tax rests on President George W. Bush. In 2003, Mr. Bush’s tax cut reduced the capital-gains rate from 20 to 15 percent, but it also created a second capital-gains bracket of zero percent for households whose ordinary income tax rate fell below 15 percent. That enables class war-mongers to increase the top capital-gains tax rate by claiming the change only affects “the rich.”
The Bush tax rates expire on Dec. 31, 2012, after which the rate will return to 20 percent. But that’s not all. Qualified dividends, which are now taxed at 15 percent, will be taxed at the marginal income tax rate, which could be as high as 39.6 percent.
In addition, Obamacare introduced a 3.8 percent tax hike on all investment income, including capital gains, which kicks in when the cuts expire. For those earning at least $200,000, the jump from 15 to 23.8 percent is huge. Mr. Romney’s campaign spokesman confirmed he wants to stop the scheduled rate hike.
Republican presidential candidate Herman Cain’s “9-9-9” economic plan would go a step further and eliminate the capital-gains tax entirely and make up the revenue with a national sales tax. He described the tax during the debate as, “a big wall between people with ideas and people with money.”
Rep. Peter Roskam, Illinois Republican, introduced another option last week. His legislation would permanently cap the capital-gains and dividend tax rates at 15 percent.
“A critical step toward creating a competitive, stable environment for American job creators is preventing drastic tax hikes, especially while our economy is facing near double-digit unemployment,” the chief deputy whip told The Washington Times. “These rates not only affect businesses but also families, senior citizens and investors of all sizes, all of whom would directly feel the effects of dramatic tax increases.”
While some disagree about how much or how fast the capital-gains tax should change, Republicans are agreed that the rate needs to be lower. Mr. Obama, on the other hand, wants to see the rate go up. The capital-gains tax is a barrier to restoring the United States to economic strength. It has to go.
Emily Miller is a senior editor for the Opinion pages at The Washington Times.