House Health Care Bill Comes With a 69% Capital Gains Tax Increase


Hmmm. Unemployment is above 10%. It’s so bad, the White House will hold a “jobs summit” next month. You know, democrats still believe they can magically create jobs. Oh yes, they think they can create jobs even while racking up debt like we’ve never seen and raising taxes to pay for it.

The Wall Street Journal’s editors are demanding combat pay for reading the monstrous House health care bill. They deserve it. What they found is what amounts to a 69% tax on capital gains.

House Democrats are funding their new entitlement with a 5.4% surtax on incomes above $500,000 for individuals and above $1 million for joint filers. The surcharge is intended to snag the greatest number of taxpayers to raise some $460.5 billion, and so the House has written it to apply to modified adjusted gross income. That means it includes both capital gains and dividends.

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.


While families of all income levels realize capital gains, Internal Revenue Service data from 2007 show that 58% of overall capital gains revenue was reported by taxpayers with adjusted gross income above $1 million—and would be subject to the new 25.4% rate. The actual percentage of revenue subject to the penalty would be higher when counting individuals with income above $500,000.

Some readers may think that this 5.4% surtax can’t possibly make it into a final Congressional bill due to Senate opposition, but we wouldn’t be so sure. Mr. Obama hasn’t said so much as a discouraging word about the House bill. And we’ve seen in the past 10 months that when Mr. Obama’s campaign promises clash with the priorities of House liberals, the liberals always win.

The liberals may alwasy win, but they never learn. Not only will tax receipts to the government drop, thereby putting us deeper in debt with their reckless spending, we’re sure to see even more jobs killed. How is this good for America or our economy?

Related: Read about the Tort Bomb buried in the PelosiCare bill.