December 16, 2010
Obama on Taxes
President Obama's recent statement about economic policy is confusing given his past statements on the subject. On December 15, 2010, President Barack Obama spoke to the press about tax cuts and said:
"And for me, the most important question about an economic idea is not whether it's good short-term politics or meets somebody's litmus test. It's whether it will help spur businesses, jobs and growth."
This conflicts with President Obama's statement when he was a candidate in 2008 discussing the capital gains tax rate. At that time, he appeared to have a litmus test for economic ideas and that test was "fairness." After being told that in recent decades a reduction in the capital gains tax rate caused an increase in capital gains tax revenue, candidate Obama was asked why the capital gains tax rate should be raised. He said that he "would look at raising the capital gains tax for purposes of fairness." He also said that it is "not fair" that people who "amass huge fortunes on capital gains are paying a lower tax rate than their secretaries." President Obama's statements were made on April 16, 2008, at the Democratic Party presidential debate which was broadcast by ABC News and moderated by ABC's Charles Gibson and George Stephanopoulos. The transcript of the debate states:
GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton," which was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28 percent.But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.OBAMA: Right.GIBSON: And George Bush has taken it down to 15 percent.OBAMA: Right.GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness.We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year -- $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That's not fair.And what I want is not oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don't have it and that we're able to invest in our infrastructure and invest in our schools.And you can't do that for free.OBAMA: And you can't take out a credit card from the Bank of China in the name of our children and our grandchildren, and then say that you're cutting taxes, which is essentially what John McCain has been talking about.And that is irresponsible. I believe in the principle that you pay as you go. And, you know, you don't propose tax cuts, unless you are closing other tax breaks for individuals. And you don't increase spending, unless you're eliminating some spending or you're finding some new revenue. That's how we got an additional $4 trillion worth of debt under George Bush. That is helping to undermine our economy. And it's going to change when I'm president of the United States.GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.OBAMA: Well, that might happen, or it might not. It depends on what's happening on Wall Street and how business is going. I think the biggest problem that we've got on Wall Street right now is the fact that we got have a housing crisis that this president has not been attentive to and that it took John McCain three tries before he got it right.And if we can stabilize that market, and we can get credit flowing again, then I think we'll see stocks do well. And once again, I think we can generate the revenue that we need to run this government and hopefully to pay down some of this debt.
There is a conflict between the words of candidate Obama and President Obama. Of course the increase in capital gains tax revenue described by Mr. Gibson resulted from the spur in businesses, jobs and growth that was caused by the reduction in capital gains tax rates. But this did not matter to candidate Obama in 2008 because he had his "fairness" litmus test. Yet now President Obama in 2010 says that the "most important question about an economic idea is not whether it's good short-term politics or meets somebody's litmus test. It's whether it will help spur businesses, jobs and growth." Does this mean that President Obama would favor a lower capital gains tax rate if it spurred businesses, jobs and growth and resulted in increased capital gains tax revenue for the government?
Was candidate Obama telling the truth in 2008 about what he believed? Or is President Obama telling us the truth in 2010 about what he believes or lying to us because he knows that a repeat of his "fairness" doctrine would meet with more disapproval than he would like? Has President Obama changed his mind and abandoned "fairness" as the "most important question" about an economic idea? We will have to wait for the press to ask him.
Allan J. Favish is an attorney in Los Angeles. His website is allanfavish.com. He has co-authored with James Fernald a new book about what might happen if the government ran Disneyland entitled "Fireworks! If the Government Ran the Fairest Kingdom of Them All (A Very Unauthorized Fantasy).