It is a different matter to change the tax accounting for hedge and equity fund managers, who today get to pay lower capital gains taxes on earning from hedge and equity partnerships even though they have no personal funds at risk. Warren Buffet was heard once to remark that this put him in a lower bracket for much of his income than his secretary. Yet, congressional efforts to change the tax code to require ordinary income treatment for this kind of partnership income for wealthy Wall Street bankers have repeatedly been blocked by, guess who, Wall Street bankers.
But raising and not lowering the tax on venture capital investment in highly risky start-ups, most of which fail and most of which are hundreds of times more risky than hedge and equity fund investing, is an entirely different matter if you are trying to restart growth in the economy---and you made a promise to do so in a nationally televised address to the nation. One can only assume that President Obama is looking right while going left. Yet there appears to be no one around who is willing to hold his feet to the fire. If he promised policy that could potentially create jobs and alleviate tour nation’s economic stress, then the American people should demand some answers.
No wonder that there is some cynicism about President Obama's highly public promises--such as his promise to provide more transparency in government. Recall also his very public (and positive) recognition of Congressman Paul Ryan at his now-famous televised appearance at the Republican retreat just two days after the State of the Union, where he described the Congressman as a "sincere guy" with "some ideas in there [his budget proposal] that I would agree with." Within days Ryan's proposal had been thoroughly attacked by the Democratic National Committee at the instance of the White House.
The issue of capital gains taxes on innovation is not trivial – innovation needs investment to thrive and survive. In addition, if innovators know there will be a reward for their work, then they will do what they do best: innovate. I highly doubt that in our free country that one will find citizens who are willing to pour their life, including their resources, into a project that won’t benefit them in some way. And in the game of business and market innovation, that way is a financial reward.
It could be argued that Bush 41 lost reelection because then Senate Majority Leader George Mitchell blocked enactment of the cut in 1989 by beginning on that issue the Senate practice of requiring 60 votes for most legislation. If 41 had been successful, it is unlikely that his later agreement to raise ordinary income rates slightly would have caused as much trouble for him politically as it did.
Given the high drama of a proposed reduction in the capital gains rate 20 years ago, one might have expected more public debate about a total elimination of the tax on small business, which even the most conservative Republicans have never had the guts to seriously propose. But, then again, maybe the media silence is appropriate, because the commitment was apparently never meant seriously to begin with.