More job destruction by Democrats and Health Care reform

Posted by Jason | Posted in Economics, Government | Posted on 12-11-2009

1

As part of the health care reform bill, house Democrats put a new surtax into the bill of 5.4%. This is going to increase the effective capital gains rate by 69%. Capital gains is the tax term used by our government to explain investment income. For example, if you buy a stock at $5 and sell it at $10, you have a capital gain of $5. Now, capital gains also counts real estate investments, and Democrats were talking about repealing the owner occuppied housing exeption in the last election. So potentially, this could effect every American if Democrats get their way in the long run. As we know, anytime government wants more money they just seek out profitable sectors of our economy and decide to tax it. If most American’s have their saving sitting in their houses, surely you will see government eventually targeting that for more revenue.

That surtax takes effect on January 1, 2011, or the day the Bush tax rates of 2001 and 2003 expire. Today’s capital gains tax rate of 15% would bounce back to 20% because of the Bush repeal and then to 25.4% with the surtax. That’s a 69% increase, overnight. The last time investors were hit with anything comparable was 1986, when the capital gains rate jumped to 28% from 20%, a 40% increase, as part of the Reagan tax reform that lowered income tax rates.

The 1986 experience was not a happy one. Tax revenues from capital gains surged before the increase took effect in 1987, as investors moved to cash in at the lower rate. Revenues then plummeted. Total realized capital gains didn’t again reach their 1985 level of $172 billion until 1996. By 1992, the federal government was barely getting more in revenue ($29 billion) at the 28% rate than it did in 1985 ($26.5 billion) at the 20% rate.

Rate reductions, as in 2003 when Republicans cut the rate to 15% from 20%, have typically had the opposite effect. Treasury receipts from capital gains climbed to an estimated $117.8 billion in 2006 from $49 billion in 2002.

via Health-Care Surtax Applies to Capital Gains – WSJ.com.

Ok, so how is this going to effect the stock market? It will definitely hinder the stock market growth. If you are buying and selling stocks, your return will be decreased, which means you are less likely to take the risk. If less people are willing to take the risk, there will be less capital to fund businesses. On top of that, businesses, especially small businessses, have capital gains as well. If their capital gains is taxed more, they are less likely to invest in expanding their business because the investments now become more risky. Businesses look at after tax profits. As the article says, capital gains revenue to the government actually went down after increases in the rate. That means there was less investing and less turner of investment. Capital was held up in the system instead of flowing through the system.

Government isĀ  the land of idiocy. They think we live in a static world where they can say, hey look at all that money. Let’s take some, and for some reason people are going to just say “Oh ok George, here you go.” Reality is much different. People’s behavior changes, and the government does harm to all of us. This increase will hinder our economy, and worst yet, it will destroy more jobs.

VN:F [1.9.21_1169]
Rating: 0.0/10 (0 votes cast)

Comments (1)

The short-sightedness of our government representatives is astounding and the ignorance of the American people is even worse. Congress is unwilling to learn from past mistakes, and the people of this country are willing to reward them by re-electing them.

To think that demand for capital is inelastic and that taxation has no market effect is the most ludicrous thing I’ve ever heard. Their economic policy advisors should be shot.

VA:F [1.9.21_1169]
Rating: 0.0/5 (0 votes cast)

Write a comment