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A word on capital gains; dividend taxes
Glenn Hubbard
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TEXT OF COMMENTARY
Kai Ryssdal: Boy, there's nothing like a good discussion about tax policy to get the political juices flowing, huh? All right ... I kid. But there is a debate over taxes happening this election cycle. Commentator and economist Glenn Hubbard has been listening. And he's noticed something interesting.
Glenn Hubbard: With all the bickering over tax policy between the two presidential campaigns, you might have missed an important area of relative agreement:
Keeping dividend and capital gains tax rates low.
In 2003, President Bush and the Congress agreed to reduce the tax rate on dividends from as much as 35 percent to 15 percent; the tax rate on capital gains was also reduced to 15 percent. Many economists say these changes in tax policy raised stock prices, and stimulated business investment. By reducing the bias against corporate-equity financing, these lower taxes reduced leverage by nonfinancial companies. Even with all the turmoil we're seeing in financial companies, nonfinancial corporate balance sheets are relatively healthy. And that's cushioned the entire sector.
Senator McCain has supported the 2003 tax change and wants to make it permanent. After some to-ing and fro-ing, Senator Obama has said he also supports a low tax rate on dividends and capital gains. His economic advisors cleared up his position in The Wall Street Journal when they wrote that Obama now supports a 20 percent rate. Raising taxes on dividends and capital gains to this level would adversely affect investment and stock prices. But it's still low by historical standards. It's also a lot less than the tax rate the candidate proposes on the incomes of successful small business owners.
This relative convergence -- assuming Senator Obama's position does not shift again -- is welcome. A recent important economic study by economists Raj Chetty and Emmanuel Saez shows that the efficiency cost to the U.S. economy of raising dividend taxes roughly cancels out the amount of revenue raised!
Our federal government needs to restrain spending to keep taxes low. And among taxes, keeping tax rates on dividends and capital gains -- returns to saving and risk-taking -- low is in our long-term economic interest. That a conservative Republican and liberal Democratic presidential candidate are close to agreeing should be news.
Ryssdal: Glenn Hubbard is the dean of the business school at Columbia University. He used to run the Council of Economic Advisers for President Bush.
Good point, Mary, and while I'll be 'holding my nose come november, as the phrase goes, and voting Blue.
I support the lower dividend/capital gains tax policy, and all I have going is a just a year's worth of 401k.
Here it is as I understand it, (and I may be dead wrong, but that is the glory of the internet!) :
If you have reasonable belief that making an investment of $500 in Apple will bring you $300 NET at the end of the year ([total share value $850 - initial investment $500] x capital gains tax rate 0.15%(long term) )
Gross $350 - $52 = ~$300
Now consider the long term rate going to Obama's suggested 20%
gross profit $350 - (350 x 0.20)
resulting in $280 NET profit.
Not drastic, but knowing from the start that even if you do well you will still be making less off of your risk. This can really sour investment at every level.
Clinton reduced the Cap gains rate, and Bush followed suit. It may be the one beneficial thing 'dubya' has done for the country in the entire 8 year debacle.
Are you kidding? Hubbard gave BO more than the benefit of the doubt. The candidate can not articulate his own position on taxes and has to have statements released on the topic. In the end those statements mean nothing because as a Democrat, BO will always favor tax increases over any other revenue generating method.
In a commentary tonight critical of Senator Barack Obama's financial and tax plans, an opinion piece read by Glenn Hubbard identified him as dean of Columbia Business School and a former member of Bush's Council of Economic Advisors. Neither Mr. Hubbard nor your newsreader bothered to mention that Hubbard is also an endorser of John McCain's campaign and that his name is featured prominently on the McCain Web site. That makes his commentary a conflict of interest if he's a journalist and a free advertisement for McCain if he's a campaign advisor. I really had expected better of your program.
