O’ gets an “F” on Schedule D

After the recent PA debate, Obama’s people complained that much of the time was wasted on cheap personal politics. I can see their point, and the moderators seemed to be overcompensating for criticism that the media has been too easy on Obama. However, maybe the reason Obama’s people want us to focus on the personal attacks is that when he was posed a couple of substantive questions about his economic plans, he failed miserably to provide an intelligent answer, or even a direct one. From a recent Wall Street Journal editorial:

But Mr. Obama has also said he’s open to raising – indeed, nearly doubling to 28% – the current top capital gains tax rate of 15%, which would in fact be a tax hike on some 100 million Americans who own stock, including millions of people who fit Mr. Obama’s definition of middle class.

Mr. Gibson dared to point out this inconsistency, which regularly goes unmentioned in Mr. Obama’s fawning press coverage. But Mr. Gibson also probed a little deeper, asking the candidate why he wants to increase the capital gains tax when history shows that a higher rate brings in less revenue.

“Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20%,” said Mr. Gibson. “And George Bush has taken it down to 15%. 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%, 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?”

Mr. Obama answered by citing rich hedge fund managers. Raising the capital gains tax is necessary, he said, “to make sure . . . 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.”

But Mr. Gibson had noted that higher rates yield less revenue. So the news anchor tried again: “But history shows that when you drop the capital gains tax, the revenues go up?” Mr. Obama responded that this “might happen or it might not. It depends on what’s happening on Wall Street and how business is going.” And then he went on a riff about John McCain and the housing market.

To be fair, I think the WSJ was a bit simplistic and unbalanced in their criticism, because while capital gain revenue may have gone up when rates went down, that doesn’t mean total tax revenue didn’t decrease. It’s possible that people simply moved money from fixed-income assets into those producing capital gains, and that the reallocation from highly taxed income to capital gains resulted in a net decrease in total tax revenue, the increase in capital gains taxes notwithstanding. I don’t know if that’s the case, but you’d think a competent newspaper reporter might have bothered to find out.

Regardless, the important thing is that Obama didn’t make this case, or any case, for that matter. His first answer was diversionary, and his second was just plain dumb. He essentially said “Maybe it will, maybe it won’t, but I’m going to do it anyway.” Great. For what it’s worth, he had a much more reasoned response to these kinds of questions during a recent interview with Maria Bartiromo, so maybe he just had a bad night.

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