Investment Gains Taxes Increase - The Worst Tax Policy Ever?

by Xin Lu on 20 June 2008 38 comments

Yesterday Paul Michael wrote an article comparing the income tax policies of McCain and Obama and suggested that he would vote for Obama because Obama's tax policy would benefit everyone but the uber-rich. In the comments on the article there are many great comments about the candidates' tax policies and how it is not so simple to say that Obama's plan is better. One particular comment that stuck out to me is about Obama's stance on doubling capital gains taxes, and I think that is possibly the worst tax policy ever, and here is why.

Capital gains taxes are assessed on every sale of "capital" we conduct. The capital could be stocks, funds, or a business. Currently, the capital gains tax rate on investments held for more than a year is 15%, and for investments held for less than a year the tax rate is the same as a person's ordinary income. What Obama is proposing is to raise the long term capital gains tax rate back to 28%. He says that he wants to do this "for purposes of fairness" in a debate.

I have no idea why Senator Obama thinks this tax increase is fair in any way to all the individual investors like you and me who are by no means super rich. Actually, I think doubling the capital gains tax would discourage people from saving and investing and that is a horrible thing in my book. When we put our after tax savings in investment vehicles like stocks and mutual funds, all we are trying to do is to beat inflation and protect the wealth we have worked for. Capital gains taxes is already a double taxation on gains of money that has already been taxed. When this tax gets nearly doubled, it is a bigger slap in the face for honest hard working people who are trying to save for the future.

Additionally, many retirees who are liquidating their taxable investments will feel the pain of this tax increase. For most retirees, it is not enough to just live off of IRAs, 401ks, pensions, and Social Security so many people have normal taxable investment accounts. Suppose a retiree saved up a nest egg of $150,000 of which $100,000 is long term capital gains, then this particular retiree will lose $13000 if the capital gains taxes were raised from 15% to 28%. This is a significant amount of money and could be worth several months of living expenses. Is it fair to punish these people who built up their nest eggs honestly and responsibly by investing?

In addition to raising capital gains taxes, Obama wants to raise the taxes on dividends significantly. This will have a similar detrimental effect in dwindling investment gains all across the board for all investors big and small.

So does Obama's tax plan really benefit the people with low and middle income as much as Paul's article states? Well, personally I have always said to everyone I know that your wealth is not about how much income you make, but how much assets you have. It is possible for a family to have a nice plush portfolio without making so much income every year as long as they are good savers and wise investors and these families will be unjustly and severely penalized under Obama's proposal. So I believe in the long run Obama's tax policies punish all those who try to build wealth by investing, and that is not very wise.

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Guest's picture


You are completely off base on this one. For low to middle income workers, savings and investments are generally invested in tax sheltered accounts (401k, IRA, etc). There are no capital gains until you start to remove the money in retirement. When you start removing funds in retirement, they are taxed as income anyway.

I don't know many people in the sub-$150k range who can put away $19,000 a year ($15,000 in 401k, & 4000 in IRA). I know that some people don't have a 401k, but let's face it, most Americans can get out of credit card debt, let alone put away $4000 in an IRA.

Personally, I don't really care about the politics, but your blog entry was factually incorrect.

Xin Lu's picture
Xin Lu

@Jeff - You said that you don't know many people you in the sub-$150k range we can put away more than $19,000 a year.  I know many people who do.  I am one of them, and my parents have done it for many years.   We may not be the majority, but I don't think it's wrong to say that raising capital gains taxes will make a significant impact on our savings.


@Jason - Obama has suggested up to 28% when he said that he won't raise it more than Reagan, but he also suggested 20 to 25%.So it could go up to 28%.  Nevertheless, it's higher.  And as to whether this tax will only be for "the rich" it seems kind of nebulous and the definition of "rich" changes all the time.  Sometimes  I hear 75k is rich according to Obama, sometimes 150k, sometimes 250k.  It's still unclear where he will draw the line so I assume that everyone's capital gains will be affected in writing this article.  

Guest's picture

One can't just look at the tax itself.

One must ask: what is Obama paying for with these taxes? Will I get any benefit out of it?

Part of what Obama will be paying for is some type of universal health coverage. If that will in anyway cause one to spend less on health care costs, then when doing the calculations, one should offset that cost with the additional gains expected.

Obama will use this money to help fund US infrastructure: roads, bridges, etc. Things that most people use every day and that are in sad state of disrepair in many areas.

I am not sure the total amount of these offsets, but taxes are in no way only a "bad thing". The money will go somewhere within the government: make sure it goes somewhere useful to you.

Guest's picture

Whether or not you "get" something from Obama is not as important as the long term viability of our levels of spending. Neither candidate has a comprehensive plan for spending reduction at the federal level, and I especially don't trust Obama to show any kind of fiscal restraint, what with the like legislative sweep of the Democrats. Sadly, I have to very reluctantly vote for McCain. Gridlock is your friend.

Guest's picture

Two major inaccuracies in this post:

1. Obama proposes capping the maximum capital gains rate at 25%, not 28%. (Even 28% wasn't really a "doubling" as the post states.)

2. More importantly, he only proposes raising the capital gains rate on taxpayers in the highest tax bracket. For everyone else, the rate remains the same.

See pp. 8-9 in the report your post links to.

Guest's picture

Though I will probably vote for Obama, I'm not looking forward to paying more capital gains and dividend taxes.

I don't think Xin is off base. I'm sure there are middle income earners out there who invest in stocks and funds without maxing out their tax protected accounts (probably not the best idea, but I'm sure they're out there). Also, just because the majority of people don't max out their IRA, 401k/403b, etc. doesn't mean that there aren't a significant number who do. I'm sure a good number of Wisebread readers are savers who try to max out their tax-protected investment contributions AND sock a little extra into taxable accounts. Our household is well below the $150K you mention, and we manage to max out our tax protected retirement accounts and invest some extra money into taxable accounts.

Guest's picture


Agreed that there are those out there who do max out everything (I'm actually one as well). However, when setting public policy, you have to look at what benefits the majority, while respecting the differing opinions in the minority. If the extra funds are used to say, oh I don't know, maybe add a personal finance class or two for high schoolers, than it benefits everyone, including other investors.

Guest's picture

@ Jeff

Even if only a minority of people make wise decisions with their money, that doesn't mean they should be punished for it. Wouldn't it be more beneficial to the majority if the government fostered and encouraged responsible investments and savings? That way the majority can benefit from intelligent tax policies. How does the majority benefit if they get more money back, but are penalized if they try to invest it or beat inflation? If you think it's wise to promote a culture of immediate spending, then I can't argue with you, but you sound like a person who recognizes the importance and value of saving and investing. So why make it harder for the average person to do so?

Guest's picture

@ Johnny:

I would seriously have to re-examine your thinking on your post.

Why are you voting for this individual if you don't want to pay the higher taxes? If you're voting for someone because he's the "flavor of the month" or because "you want to be a part of history", then you're voting for the wrong reasons.

Voting is about casting your voice onto the person who best represents your values and beliefs, regardless of what the "popular" thing to do is. I mean, this isn't high school. You're not a lemming, following what everyone else is doing so that you can be accepted as "normal". Even trendsetters have to get inspiration from somewhere.

Guest's picture

To suggest that only the Uber-rich pay capital gains taxes frankly defies the facts and logic. Jeff's comments do not consider that EVERY income group has individuals that report capital gains on their tax returns. (Source--,,id=133414,00.html ) On the lower end of the scale those individuals pay zero capital gains taxes. Building finacial security by those who choose to make a positive move in their life should be encouraged not penalized!

It is also interesting to me that the dollar amount of revenues from capital gains taxes has risen significantly since tax rates have decreased. Why? Because there is less reason to put off the sale of assets. Carefully researched history will show that tax increases do not increase revenue. Individuals will either put off transactions or seek other ways to reduce their tax liability. The global trend for taxation has been to reduce taxes and increase the revenues. A great example is Ireland.

Guest's picture


I made no comments about why I'm voting for Obama, and you assume I'm voting for him because he's popular?

Call me a naive idealist, but I plan on voting for Obama because I believe he has a better vision for the direction this country should be taking. If a single fault in a politician's views or policies was enough reason to not vote for someone, no politician would ever get elected. Though I don't look forward to paying more taxes, I'm willing to do it if it provides more revenue for beneficial programs.

Besides, taxes are going to have to go up at some point regardless of who gets elected. We're spending a huge sum of money in Iraq, and the government is going pretty far into the red. Money to pay back the growing debt is going to have to come from taxes (either that or we will have to severely cut back or eliminate a lot of government programs and hope the cost savings is enough).

Julie Rains's picture

I am also one of those people Xin refers to -- moderate income with investments in non-tax-advantaged accounts (though I do have IRAs, etc.) so I am concerned about capital gains taxes. These taxes have been reduced lately but are set to revert to previous levels (see my post on Certainties: Death, Taxes, and Change).

It looks to me that Xin was not saying that 401ks would receive capital gains tax treatment but rather that retirees would need to supplement their income with investments, and thus would incur higher taxes on these "extra" investments at a time in their lives when no more income will be coming in---ever.

However, it is a good point to consider when planning that many retirement assets will be taxed at ordinary tax rates; though the Roth is not to be taxed at all. I know many don't think that the Roth provision will last, but here's hoping that it will.

My understanding is that business capital gains are taxed at ordinary tax rates; whereas housing gains are virtually tax-free (up to a certain amount). I would love to see securities' gains taxed the same way that housing gains are, or at least to see that saving/investing is a good way to build wealth as housing investment.

Guest's picture

Capital gains taxes apply to the sale of EVERY asset, not just stocks and bonds but also houses, businesses, collectibles, etc. Nearly doubling the long term capital gains tax will hurt the economy tremendously. The stock market will sink, investment activity (incl mergers and aquisitions and startups) will decline, and average Americans - especially retirees - will see their portfolios decline in real value.

Millions of Americans invest in taxable accounts, not only because not all have access to tax-deferred retirement accounts but also because such accounts are a relatively new phenomenon. Many fewer boomers utilize 401ks and IRAs than use taxable investment accounts. Plus the use of those accounts has increased dramatically since the capital gains tax IS so low - much lower than the typical income tax rate.

Xin Lu's picture
Xin Lu

yep, you are right Meg, it does go beyond stocks and bonds.  I didn't include real estate because there is a fairly large capital gains tax exclusion on that particular asset class, but the capital gains increase would hurt business owners who want to cash out.  A lot of these business owners are small business owners who want to sell their businesses for retirement. 

Guest's picture

Obama's tax increase will indirectly affect all of us. By taxing the upper income families more you are basically affecting their amount of spending. Whoever said the rich only get richer is probably right, however it doesn't mean that they don't spend that money as well.

Also Obama's plan for universal healthcare sounds a lot like socialized medicine. If anyone has lived in the United Kingdom, you know how difficult it is to see a doctor. I do realize that something needs to be done about medical costs, however I don't believe that this is the way to do it.

Guest's picture

Look, most of the public is ignorant when it comes to economics. Plain truth is that people have better things to do - like survive.

Our economy today is a socialist/fascist mix. Before you get your panties in a knot, I'll explain.

Communism - means of production & distribution OWNED by the state.
Socialism - means of production owned by the state.
Fascism - means of production & distribution heavily regulated by
the state.

The entire tax situation is Kafka-esk (absurd) and every time it's tweaked, complexity is added. The U.S. founders were brilliant men but the constitution they crafted contained a fatal flaw. The document did not link liberty with responsibility. They made an attempt - only wealthy landowners had a vote (in the beginning). These were the movers, the shakers, the doers. But this changed quickly.

They assumed everyone had a sense of responsibility and, in their time, they were right. In today's world, there's is precious little individual responsibility. As a result, everyone expects to be taken care of and failure impossible.

The age of Big Nanny Government is here. Folks, you don't have to look too far out to see the system is going to fail.

Guest's picture

You are amazingly naive if you think Obama will take this new tax revenue and invest in social programs.

The president, no matter who it is, simply can't make congress spend oour tax dollars responsibly. I see an increasse in taxes as just more of my money wasted by congress.

Guest's picture

I wonder what would happen if we eliminated the capital gains tax completely? How would that affect the amount of capital available in our markets? How would that fuel further entrepreneurial ventures and growth? Could the growth attributed to tax-free capital gains then be used to further aid society? Instead of depending on government programs to attempt to aid the same society?

The biggest flaw I see in the capital gains tax as it stands now is that it doesn't take inflation into account at all. Inflation is built into every every asset's future price, and the fact that it's completely ignored when calculating the base is beyond me.

Xin Lu's picture
Xin Lu

You are right Jesse. The tax completely ignores inflation. That is one thing that bothers me about Obama's definition of "the rich", too. We have a crazy AMT system in place right now because back in the 60's the government considered a group of people as rich and then NEVER indexed it for inflation so now the AMT is hitting many middle income families while congress passes very expensive yearly "patches" to remedy the situation. I'm afraid the same thing is going to happen if we single out another group as rich without accounting for inflation, but that's an entirely different discussion.

Guest's picture

i agree with the plan. If your earning dollars - from money sitting in the bank, you should be taxed on that just as much as income you go out and work for. I make under 35K a year and paid 20% of that out to taxes last year - i don't think there should be an exception to people making money off interest.

Xin Lu's picture
Xin Lu

Hi Guest,

First of all, it's "You're earning dollars" and not "your earning dollars".  Second, I highly doubt that you paid 20% in taxes if you earned less than 35k  a year.  Perhaps you are talking about your highest tax bracket.  Finally, interest IS already taxed as ordinary income.  Interest income is completely different from capital gains.   

Guest's picture

well... YOU'RE right there, my mistake (on the typo and c.g confusion.) but your not right on the taxes. My earned income was was $34205.89 and although i got a refund - i still paid IN a few dollars over $7,000. so ..thats actually slightly OVER 20%. (you may take me for a dummy but i can do my countin'.)

Xin Lu's picture
Xin Lu

To the Guest that earned 34205.89 and paid more than $7,000 in taxes. You must have included ALL of your taxes to get to that number. For Federal taxes last year, if you took the standard deduction you should have paid only a little over $4000. Additionally, there was a tax rebate of $600 for this year. Furthermore, if you have children and contributed money into a 401k your taxable income is even lower. The only way you would pay more than $7000 is if you live in a very high tax state and you added your Social Security and Medicare taxes and you included those taxes in your $7000 figure. I highly suspect that you are paying more than you should, but anyway I'm not a professional tax consultant.

Guest's picture

There is no "double taxation" of capital gains. Your facts are not correct. If you believe there is, then you do not have a grasp of the current income tax system. Here are some basics:

Broadly speaking, an individuals monetary gains are taxed as "ordinary income" or as "capital gains". Ordinary income includes wages, and also interest. Ordinary income is taxed at progressive rates depending on how much income one makes in a year. Ordinary income is calculated by starting with the amount of income received, and subtracting out any deductions. Most wage-earners don't have any deductions, and a large number of Americans, ordinary income is typically the amount they earn from work. So if Joe earns $150 from work, Joe pays ordinary income tax on $150 (plus social security / medicare taxes, but those taxes aren't relevant to your post as they very rarely apply to dispositions of capital assets).

Capital gains are profits from the sale of an asset, including intangibles such as stocks or bonds, and also tangibles such as real property. Capital gains are calculated by beginning with the amount received on sale of the item, and subtracting out the amount of post-tax dollars that were paid for the item. This means that if you buy a stock for $100 that you later sell for $150, your capital gain is $50 and you are taxed on that $50. You do not pay tax on what is effectively the return of the $100 you spent in the first place. The reason that you do not pay tax on that $100 is because you paid tax on that in the first place when you earned the money, either through a preceding capital gain, wages, etc.

The system outlines above is repleat with exceptions and special rules. Notably for most individuals, gains from the sale of your principal residence are tax free up to $250,000 (single) / $500,000 (married filing jointly), if the residence has been owned and occupied by you for 2 of the last 5 years. As far as I am aware, no mainstream politician has proposed repealing this very generous exception to the capital gains tax.

Assuming that your policy objections are genuine, consider the lack of parity in the taxation of income from wages versus investments: Why are wage earners "slapped in the face" by being compelled to pay income + other payroll taxes on their wages, while millionaires pay a far lesser % of their income in total tax?

Xin Lu's picture
Xin Lu

Okay, perhaps I didn't explain what I mean by "double taxation" in the article. First of all, when you get dividend income and capital gains from investments, where do you think the extra money comes from? It comes from the profits and growth of the companies you invest in. Dividends especially are directly paid from the coffers from a company you invest in. Those profits are already taxed at the business rate by the government. If you are a business owner yourself and you want to sell your business, you've also paid taxes on your business income already in the process of building your business. Only with business income and growth do we see capital gains and dividends and so yes, I do consider it a double taxation because the government gets a take from the original business and THEN takes a take from the investors that have profited from the well being of the business. If less people are compelled to invest in businesses because of more taxes, then we will see less growth in our economy as a whole, and that is not that great for everyone.

Guest's picture

Plain and simple, capitol is another word for money. Capitol is the major reason why US companies can compete globally. True labor can be cheaper elsewhere and raw materials are the same across the board but the US has more capitol to invest. As a result an American worker is many times more productive than workers elsewhere and we remain the world super power.

Another point, more taxes = less money for all which in turn equals less choices and the end result is less freedom.

Don't let the politicians use fancy words to confuse you into believing that they can spend our money better than we can.

When new countries have started up democracies they use a 0% tax on capitol gains because they know how critical it is. They are not stupid, why are we?

By default, anything the gov't spends money on is a 3rd party purchase. Buying something for someone else with somebody else's money.

Guest's picture

If you're being taxed on cap gains, you should be glad to have the gains in the first place! Plenty of investments lose money, and you're allowed to deduct them from taxes. The government feels your pain. Taxing gains and writing off losses even out the risk of owning capital.

If you want lower, or less cap gains tax, I suggest we also get rid of or reduce deductions for losses. That will be more dynamic and exciting for everyone, including "non-investors".

Guest's picture

"I have no idea why Senator Obama thinks this tax increase is fair in any way to all the individual investors like you and me who are by no means super rich."

Really? Don't you think it has something to do with the fact that for those of us with household incomes under $100,000, 1.4% of income on average comes from capital gains and dividends-- while for those with household incomes over $1 million, 31.4% of income comes from capital gains and dividends? (Source: And so those households earning millions every year are paying only 15% on a whole third of their income, while the rest of us are paying 25% or 28% on most of ours?

Honestly, I personally would be perfectly fine with people from my or any other tax bracket paying higher capital gains taxes-- yes, it's good and responsible to save and invest, but why should that new income get taxed at a level lower than any other new income? Most of us are paying 25% or 28% on our income from work (more, when you count FICA), 25% or 28% on our interest income from savings accounts... it seems kind of overdramatic to get offended about having to pay that much on investment income too. (Why's it so special?) But that's not even what Obama's talking about anyway! He's talking about raising it some (maybe not even 28%, he just said no more than that) for the very highest-income people-- people making more than $250,000 a year. (

"Suppose a retiree saved up a nest egg of $150,000 of which $100,000 is long term capital gains, then this particular retiree will lose $13000 if the capital gains taxes were raised from 15% to 28%."

Um, I suppose so, if they sold it all in a single year, and had lots of other income, and thus made it up into a high enough bracket that year. It seems a lot more likely that people with modest nest eggs would have lower capital gains in any given year and end up in a lower tax bracket where they wouldn't have to worry about the increases...

It seems pretty clear to me that the proposal is about addressing the fact that the highest income people get a disproportionate amount of income from capital gains and dividends, and that they pay a ridiculously low tax rate of 15% on that right now compared to what the rest of us are paying on most of our income. Even without Obama's stated commitment to raising capital gains taxes only on the rich, only a small fraction of upper-middle class folks (let alone average Americans) are paying capital gains taxes and on only a small fraction of their income.

Guest's picture

The notion that people are only paying 15% on their dividents is false. I pay 15 % on my company profit up to 50,000, then another 15% divident tax again. Most companies are paying 35% , the you pay the 15 %. America is tax hell so don't be surprised why businesses have been dismantling and others just not locating here. There are plenty of freer countries around the world. As far as Obama paying for roads and bridges, that just makes driving appear cheaper than it is, wastes fuel and promotes urban sprawl. Taxes should be paid by the users. If he said he will put a $5/gal tax and at the same time repeal all income, capital gains and divident taxes I would be all for it. It would eliminate enormous amount of coruption, favoritism and compliance costs. At the same time there will be millions of people finding ways to conserve fuel, the investment in other energy would explode free of taxes and complicated credits schemes.

Xin Lu's picture
Xin Lu

Um, I suppose so, if they sold it all in a single year, and had lots of other income, and thus made it up into a high enough bracket that year. It seems a lot more likely that people with modest nest eggs would have lower capital gains in any given year and end up in a lower tax bracket where they wouldn't have to worry about the increases...

I just want to say even if a retiree sold that $100k of gains in 2 years, they will still be paying $13000 more overall. The taxes on $100k of gains would be $28k as long as the retiree falls within the 28% capital gains bracket. It's simple math really. Additionally I'd like to make it clear that  you don't need a lot of income to fall into the highest capital gains tax bracket. In fact, your top income tax bracket only has to be 25%. For a single retiree, he or she would fall into the 25% bracket if he or she draws more than $31,850 in income for year 2007. I don't think that is "lots of income" like you said especially if the retiree lives in an expensive state like California. So in the case of a retiree with the nest egg in my example, he or she could withdraw that money over 3 to 4 years and still suffer a $13000 penalty under the new proposal. So I stand by my point that it's highly unfair to not just the uber-rich, but normal everyday investors, too.

Guest's picture

"The taxes on $100k of gains would be $28k as long as the retiree falls within the 28% capital gains bracket. It's simple math really. Additionally I'd like to make it clear that you don't need a lot of income to fall into the highest capital gains tax bracket. In fact, your top income tax bracket only has to be 25%."

I think you're getting things confused. Currently, today, if you're in the 25% income tax bracket or above then you pay the highest capital gains tax, 15% (or to say it a different way, people in the top four income tax brackets all pay the same capital gains tax of 15%.) But what on earth does that have to do with who would pay 28% under proposed tax changes?

The only reason to expect that Obama would raise the capital gains tax rate on people earning $32000 a year is if you're flat-out calling him a liar-- he's clearly said he wants it to apply to just the wealthiest people and not the middle class.

Xin Lu's picture
Xin Lu

Actually I don't think he was very clear about only raising the capital gains taxes on the rich. For example, in this interview he doesn't really mention it:

He also said he will raise the ordinary income taxes for people making more than $75k a year in this particular interview. I hear his definition of upper class change all the time from interview to interview.

He doesn't have to be a liar to change his proposal. In some of the interviews I heard he said that he is still hammering things out. So I don't think I am confused to expect tax hikes for the middle class, just cautious.

Additionally, you are ignoring the market effect this tax hike will have on everyday people's 401ks and IRAS.  If the big guys suddenly sell a bunch of stuff because they no longer want to be invested in the stock market, then a lot of people will see their investments fall.  So sure, you can easily believe that it's only a tax on the rich, but the impact of the move on millions of retirement portfolios would be more hurtful than just a tax hike.  

Guest's picture
John Krumm

Obama know's that in this country you really have to be careful when messing around with the income of folks in the 150,000 to 300,000 bracket. Lot's of these people are true believers in the "meritocracy," and they actually think they are part of the middle class (even though they make up a tiny percentage of total households in the U.S.), and scream bloody murder if you go after their income. Why do you think his proposed Social Security payroll tax increase only kicks in above 250,000? This leaves a nice donut hole in the 100,000 to 250,000 range where peaple can max out their S contributions and get a pay bump heading towards Christmas. My wife is a doctor and we always get a 600$ bump or so a month starting about September thanks to the current contribution cap.

I think he's gambling that the majority of people in this pay range also won't scream about the (in my opinion) much needed capital gains increase, which will affect this income group far less.

Guest's picture

Actually, in that very interview you link he says:

"BARTIROMO: A hundred million Americans own stocks today.

Sen. OBAMA: Absolutely.

BARTIROMO: So it's not just the rich.

Sen. OBAMA: No, no, no, absolutely. And that's why I think that it may be, for example, that you could structure something in which people with certain incomes were exempted from this increase and it would stay at 15. The broader principle that I'm interested in is just making sure that we've got a tax code that is fair for all Americans."

(Incidentally, in that interview, he does NOT say he wants to raise taxes on people with $75,000 incomes, but that he wants to raise the top rate and that only those with incomes under $75K would get a *cut*: "Well, you know, what I've said is that we should go back to probably a top marginal rate of 39 percent what it was before the Bush tax cuts. So I would roll back those Bush tax cuts, I would not increase taxes for middle class Americans and in fact I want to provide a tax cut for people who are making $75,000 a year or less.")

And besides that particular interview, he has been more clear in other interviews and on his website about what he means by wealthy, ie $250K or more a year:

"OBAMA: So the general principle of raising taxes on higher-income Americans like myself, and providing relief to those who haven't benefited as much from this new global economy, I think, is a sound one. And keep in mind on all of these proposals, what I have said is, let's make sure that we define the well-off so that we're not hitting the middle class. I generally define well-off as people who are making $250,000 a year or more, and that means, for example, if we raise the capital gains tax, I would exempt people who are essentially small investors, and really capture the -- those who have done very, very well over the last two decades." (CNBC, June 10th, cited at

On his website he quotes the above interview and also states "Barack Obama Will Only Raise Taxes for Those Earning Over $250,000 Per Year."

Yes, there is always the chance someone will flip-flop once they get into office, but it seems like he is not being at all ambiguous right now about what he is planning.

Guest's picture

Republicans are more business friendly when it comes to taxation policies, however the Republicans squandered public trust in their party with eight incompetant years. Obama will talk about doubling capital gains, but won't get that far. He'll probably raise it slightly, but small business owners and large corporate executives will fight him tooth and nail and keep the increase small.

The populist rhetoric is dangerous, people like the idea of depending on government, but governments are incompetant. Giving my money to the government to help the poor or the elderly sounds great, except that people working for the government can't work anywhere else. That sort of stupidity keeps me from being liberal in my economic views. Increasing taxes won't help the public, it'll only help the government.

Guest's picture

I cant believe anyone is for any type of tax that is basically the redistribution of wealth. I really hate how this country is turning into a socialistic cesspool.

Everyone is all about asking "what is the new president going to do for me?" Whatever happened to caring more about the country as a whole? I really wish a real candidate would talk about the Fair tax, but i know that is only in a fantasy land.

In general, its very foolish to raise taxes for anyone. In general as a country, we need less spending from the government, which in turn means less programs and less taxes. The more money everyone gets to keep out of the paycheck, the better for the economy and population in general.

Well said.

Guest's picture

Now I don't live in the states so i don't really give a crap about the taxation policy but as long as the upfront tax cut you're getting is more than the increase in capital gains tax you're in the money

This is in essence the crux of the problem but it gets a bit complicated since the tax cuts work on all your income, not just the portion that you would invest. The fact that income isn't taxed at a flat % means that a change in marginal tax rates will change the average tax rate paid differently per person depending on their income as this is the weighted average of each marginal tax rate.

Not only that but one must take into account the portion of income an individual puts into savings and that which is used for consumption.

Thus the net benefit from this policy would be the present value of the capital gains lost (actually the formula can be truncated to increase in cap gains tax * amount invested in a relevant instrument) versus the upfront benefit of lower taxes paid in an optimal allocation of income.

One can see now why this is nearly impossible to solve as the optimal allocation is unique to each individual.

It can be generalized however that the more one saves, the more hurt you are by this policy ignoring contributions to 401ks and IRAs which are taxed as income at retirement.

To summarize all of my ranting, if the new tax policy saves you 2% in average tax payable a year your break even point assuming an increase in capital gains tax of 15% would be investing 2/15 of your after tax income in capital assets which are affected by this policy, invest more you are hurt, invest less you are better off.

This is an extreme generalization as it does not take into account the benefits you gain from reallocating your consumption/savings and the type of savings which you can use (tax free investments, bonds which pay interest as opposed to cap gain unless of course you sell them before maturity, etc.)

I'm going to go out on a limb here however and say that this policy is good just because most Americans don't save nearly enough for this policy to hurt them, and not all savings are capital in nature. One also must take into account that the laws affecting capital gains tax may change in the future but the tax savings from lower marginal tax rates are immediate and irreversible.

So to sum up ... again ... the answer to this question is .... wait for it ... MAYBE ...

wow what a political answer, maybe i should run for president

Guest's picture

OOOh, Is $13000 supposed to scare me back in line with the fantasy that I could be a 1%er living in luxury on old money investment income? Let's think about the dollars left in their overflowing pockets. Am I supposed to feel sorry for them when I have nothing left after health care expenses and my 25%?