Check out this segment of the debate last night which depicts quite clearly just how ignorant Obama is on how an economy works. It’s a basic concept really, revenue goes up for the government by lowering taxes. Here he is asked why he would consider raising the tax rate on capital gains when revenue has always gone up for the government when its lowered:
MR. 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.
SENATOR OBAMA: Right.
MR. GIBSON: And George Bush has taken it down to 15 percent.
SENATOR OBAMA: Right.
MR. 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?
SENATOR 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, 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.
You know, I believe in the principle that you pay as you go, and 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.
MR. GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.
SENATOR 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’ve got 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.
So let me get this straight. Obama acknowledges that revenue “may” go down (no may…it does) but Obama wants to set tax policy because 50 individuals made 29 billions dollars. Nevermind that they paid 5 billion in taxes….that doesn’t matter. No, its all about being “fair.”
When it comes down to brass tacks its about getting even with the rich.
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Marxism 101
Obama has to face this fact. If Obama wins, the two more likely figures to influence the capital tax gains percentage are Clinton and McCain.
This is the best line:
SENATOR 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’ve got a housing crisis that this president has not been attentive to and that it took John McCain three tries before he got it right.
Basically, Obama is saying he knows better than history. But he’s not an elitist…NOOOOOOOO.
Are you kidding me?
He had the same reaction to the War in Iraq, I’ll gather the military minds together, the joint chiefs, and I’ll listen to them, but ultimately “the buck stops with me”.
Wow. His arrogance is staggering.
Barry doesn’t CARE to know how the economy works. He will TELL us how it WILL work under the glorious forward march of the proletariat …..
I know it matters which one of these pols gets elected but I have the nagging feeling that the next 4 years are going to suck as hard, politically and economically, as the Carter years.
Keep your powder dry.
Um, I hate to tell you this, but Obama is actually one hundred percent correct when he says “Well, that might happen or it might not”. Read up on the Laffer Curve – wikipedia has a good writeup, but it’s trivially easy to prove. Set tax rates to zero. That’s a drop, and I guarantee revenues won’t go up.
Now, it’s not particularly easy to figure out where the peak of the Laffer curve is, but a value of 10-15% for capital gains wouldn’t particularly surprise me.
Um, I hate to tell you this, but an answer that says it may or may not happen is no answer at all. The Laffer Curve tells us that with tax cuts increases revenue, but to go to zero would mean no money at all going to the government while if the tax rate is 100% the same effect would occur because no one would want to work if all money is seized. I do agree 10-15% is optimal. But Obama wants to double that…hence the post.
the Laffer curve doesn’t tell us “that with tax cuts increases revenue”. It tells us that there’s an optimal tax rate that maximizes revenue, and rates below this decrease revenue, rates above also decrease revenue. So of course his answer was an answer. It could be shorthand for “if we’re on the lefthand slope revenues will decrease, if we’re on the righthand slope they’ll increase, but we don’t know which side we’re on, so it may or may not go up”, which would be a more pedantic way of saying the same thing, entirely inappropriate for a debate.
Now, does Obama understand this? I have no idea. From the way Gibson phrased the question I doubt that he does. I’m not pro-Obama (probama?) at all, but he definitely shouldn’t have been castigated for that answer, because it all boils down to what the purpose of a tax rate is. For every amount of revenue but the peak of the curve there are two tax rates that will achieve it (assuming a continuous curve and some other hand-waving). Fiscal conservatives want the tax rate to be set to the minimum rate necessary. Liberals want the rate set to the “most fair”.
And that optimal rate is a low rate, not close to 30% as Obama wants…..hence the post. He most definitely should of been castigated for his answer because the man obviously just wants to get at the rich. 20% of those with capital gains had an income of less then 50 grand in 2005 so his plans to get at the rich will hurt those in the middle also. Typical Socialist.
Maybe it could maybe it wont is not an answer. Its hedging.
I disagree with Obama here, but to be fair he usually puts his target at 20% not “close to 30%”. Still not a good idea. Obama has lots of Wall Street friends he goes to for advice. He was citing a Buffett reference about secretary’s tax rates during the debate. Maybe Warren put this idea in his head.