WASHINGTON -- When ABC News anchor Charles Gibson questioned Barack Obama in the April 16 Democratic presidential candidates' debate about the freshman senator's plan to raise capital gains tax rates, he told Obama it would bring in less revenue, not more.
Gibson repeated this little-known fiscal reality throughout his exchange with Obama (probably the first time a network anchor has ever uttered this fact in a presidential debate). But the Democratic presidential frontrunner remained unmoved by the certainty that raising this tax on millions of investors, homeowners and other ordinary people would worsen the budget deficit.
Obama did not disagree with Gibson's premise. Instead, he pointed to a relatively small number of hedge fund managers whom he said make millions, maybe billions, and who paid a tax on their gains that could be lower than the tax rate paid by their secretaries. He did not mention that if secretaries had a gain on the sale of assets such as stock -- and more than 50 million Americans own stocks -- they would pay the same capital-gain rate too.
But Obama dodged the tax-revenue problem Gibson raised, as well as the larger issue of using the tax code to encourage capital investment in the economy to stimulate business expansion, job creation and economic growth. The fact is that whenever the capital gain tax rate has been cut, it brings in more tax revenue to pay the government's bills, and when it is raised it brings in less. Why? More people are encouraged to take advantage of the lower rate and sell assets such as stocks when they can pay a smaller share to the feds. When the rate is raised, many tend to hold their assets to avoid paying a bigger chunk of any gain to the government. That's why every cut in the capgain rate has been followed by a sizeable rise in revenue, as Gibson pointed out.
Obama would not say how high he would raise the capital gains tax, but he has vowed to increase it along with the top income tax rate as part of a extensive string of tax increases to bankroll his ambitious social-welfare spending agenda. The Illinois lawmaker, who has been in the Senate little more than three years, isn't into growth economics. When he talks about taxes, it is in terms of "fairness" -- even though the top 10 percent of income earners pay most of the income taxes -- and reducing the deficit.