Ok, admittedly, this week’s rant is not that well thought out. I was listening to the radio, and it struck me how despite the fact that the capital gains tax rate is going to go from 15% to 20%, and the income tax rate for people making more than $200,000 per year (the people who hire other people, or start companies, for example), the person on the radio was clinging to the viewpoint that it was not a tax increase, but rather simply the expiration of an unfair tax cut.
Wow, I thought. Thank goodness, it’s not a tax increase! My college study of the 1930’s left me with two impressions, and this was as a 21 year old. First, if you find yourself on the bad side of the collapse of an asset bubble (how to avoid it is clearly a different subject) then make sure you don’t cut lending capacity. (Oops, we badly messed up on this one with an accountant led plan to change the mark to market rules for banks and insurance companies that directly affect regulatory capital…ouch!)
Secondly, and particularly if you don’t successfully maintain lending capacity, don’t raise tax rates.
Now, on this one, we still have a chance to stop it. It does not matter if we call it an expiration of an unfair tax cut for the rich, or have the guts to call it a tax increase, either way, it’s bad, very bad. On top of a 20-40% decline in asset values, the people who are supposed to hire and invest our way out of this are also facing an increase in the capital gains tax rate from 15% to 20% and an income tax rate increase from 35% to 40%, while simultaneously having deductions phase out and Medicare contributions go up. After something that sounded almost as bad in the early 1930’s, the economy and the stock market tanked for five years. Yeah, that’s right — that’s why it’s a rant.
I may have actually said some of this on the show, but now i’m not sure.
Listen in at Value Line Observer – Feb 5 2010
Val Hughes
