Obama to cap Capital Gains rate at 20%:
Obama Rounds Out His Tax Plan
By Jonathan Weisman
voices.washingtonpost.com
With John McCain attacking him as a tax raiser, Sen. Barack Obama tied off the loose ends of his tax policies today, saying he would set the tax rates paid on most dividends and capital gains at 20 percent, substantially below where they stood during most of President Clinton's presidency and lower than most Republicans expected.
He also clarified that that a proposal to impose Social Security taxes on incomes over $250,000 would not start until at least a decade from now.
The new details of the Obama tax plan are not new policies but are clarifications on vague statements from the senator from Illinois in the past. Obama has said for some time that he would raise dividends and capital gains tax rates from the 15-percent level reached in President Bush's 2003 tax cuts, but he put the range somewhere between 20 percent and 28 percent. In an opinion piece in the Wall Street Journal today, Obama aides and advisers picked the lowest point in that range -- a decision made as McCain pummels Obama as a tax hiker with a barrage of ads running during the Olympics.
For much of the the 1990s, most capital gains were taxed at 28 percent. The balanced budget agreement reached between Clinton and Republican congressional leaders in 1997 brought that rate to 20 percent. Bush and the Republicans then lowered it to 15 percent in 2003.
Until that year, dividends from stocks and other investments were taxed as ordinary income, as well. And since most of that income went to the affluent, dividends were taxed at higher rates -- as high as 39.6 percent under Clinton. Bush slashed that rate to 15 percent in 2003, one of the most dramatic changes to tax policy of his presidency.
By choosing a 20 percent tax, Obama is bringing tax rates on investments up to a mid-way point for families earning more than $250,000. Families below that level would continue paying the existing 15 percent rate. Obama economic aides Jason Furman and Austan Goolsbee noted that a 20 percent capital gains rate is well below the level set by Ronald Reagan in 1986. And Bush didn't even think to lower the rate on dividends in his first round of tax cuts.
"The idea that a return to the tax policies of the 1990s would harm the economy is supported by neither theory nor evidence nor the longer-term history," said Lawrence Summers, a Treasury secretary in the Clinton administration and a key architect of Clinton's economic policies.
But in seeking middle ground, Obama may be undercutting his claims that he is willing to ask Americans to sacrifice in difficult times. Obama's tax plan would raise income tax and investment tax levels for families earning more than $250,000, but overall, it would actually cost the Treasury money at a time when budget deficits are approaching a half trillion dollars.
Furman noted that inflation numbers released this morning indicate that rising consumer prices this year alone have wiped out the small gains in income that families have made over the last 10 years.
"In an environment like that, families are really hurting," he said, adding that Obama's tax plan is "part of an effort to relieve the squeeze on middle class families." |
