No Economic JFK

By INVESTOR'S BUSINESS DAILY

Fiscal Policy: In entertaining a near-doubling of the capital gains tax, Barack Obama shows that, unlike JFK, to whom he so often is compared, he under-appreciates the key link between investment and prosperity.

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Interviewed by CNBC on Thursday, the Democratic presidential front-runner set his sights on boosting the top capital-gains tax rate from the current 15% set by President Bush to "20% or 25%."

"When I talk to people like Warren Buffett or others," he told Maria Bartiromo, "they say, 'Look, if it's within that range, then it's not going to distort . . . economic decision-making.'"

Obama did add that he would consider keeping the rate at 15% for middle-class taxpayers, contending incorrectly that the rich have benefited disproportionately from the Bush tax cuts.

"For us to roll back some of those tax cuts and to put this economy on a more stable fiscal footing, and to make investments in the American people so that they can afford a decent life . . . is actually good long term for our economy and also good for investors and Wall Street," he said.

Unfortunately, Obama's thinking has everything to do with pleasing the Democratic Party's anti-business base and nothing to do with economic reality.

Along with Ronald Reagan and George W. Bush, Jack Kennedy — one of Obama's heroes — ranks with the great tax-cutting presidents of American history. His 1963 proposal called for both a huge drop in the top individual income-tax rate and a significant reduction in the cap-gains rate — which then stood at the very same 25% level Obama now talks of increasing it to.

JFK knew a cap-gains rate even as high as 25% would lock up wealth that should flow to more productive investments. "The tax on capital gains directly affects investment decisions," he pointed out, as well as "the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy."

Under both Reagan and George W. Bush, the connection between reducing cap-gains taxes to a low level and massive economic growth is undeniable — even for Barack Obama.

Indeed, the senator began his answer to Bartiromo's question on the subject by insisting that "we can't go back" to the "confiscatory rates that existed in the past that distorted sound economics." And he added that he "certainly would not go above what existed under Bill Clinton, which was the 28% . . . and my guess would be it would be significantly lower than that."

Yet clearly, Obama doesn't see the full picture. As Fed Chairman Ben Bernanke told Congress when he was chairman of the president's Council of Economic Advisers, the Bush capital-gains and dividend tax-rate cuts "provided incentives for businesses to expand their capital investments." And, as he added, "The effects are evident in the investment and employment data."

Tiny Hong Kong became a global economic powerhouse with its zero capital-gains tax, and the former communist nations of Eastern Europe have been tripping over themselves to bring tax rates on both income and cap gains down to rock-bottom levels.

Obama would take America in the opposite direction and, in so doing, put our global competitiveness at risk.