A 69% Capital Gains Tax Hike . . . And a Buried Tort Bomb

Discussion in 'Economics' started by Tom B, Nov 12, 2009.

  1. Tom B

    Tom B

    A 69% Capital Gains Tax Hike . . .
    Pelosi's 5.4% income surtax would hit capital gains and dividends.

    Our job is to read bad legislation so you don't have to, and on that score we may demand combat pay for plowing our way through the House health-care bill that passed on Saturday. This thing has economic booby traps everywhere, such as favors for the tort bar (see below) and the largest capital gains tax increase in at least a half-century.

    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 the rising stock market through this period played a role, so did the "unlocking" effect from a lower rate that reduces the friction of taxes on decisions to buy or sell and thus report a capital gain. Both the economy and the Treasury also benefitted when Bill Clinton agreed to reduce the rate to 20% from 28% as part of his budget deal with Newt Gingrich in 1997.

    Candidate Obama acknowledged this reality in April of 2007, when he backed away from his original proposal to nearly double the capital gains rate to 28%, and instead suggested 20%. He also promised to eliminate the tax entirely for small business. "I'm mindful that we've got to keep our capital gains tax to a point where we can actually get more revenue," he said at the time.

    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.

    . . . And a Buried Tort Bomb
    A stealth provision that would undermine state damage caps.

    In his September address to Congress, President Obama made a nod to bipartisanship by acknowledging that excessive litigation "may be" contributing to rising health costs, and he proposed state "demonstration projects" to test medical tort reform. This wasn't much of a concession, but it apparently was still too much for House Democrats, who are using their bill to subvert reform that is already on the books in many states.

    Buried in Speaker Nancy Pelosi's 1,990-page bill is a provision that provides "incentive payments" to each state that develops an "alternative medical liability law" that encourages "fair resolution" of disputes and "maintains access to affordable liability insurance." Sounds encouraging. Read on, however, and you come to this nugget: The state only qualifies if its new law "does not limit attorneys' fees or impose caps on damages."

    Holy Bill Lerach.

    Huge contingency fees and damage awards are the mother's milk of frivolous lawsuits. That's why 30 states have adopted caps on awards as the core of their reform, with huge success. Texas imposed malpractice caps in 2003, and the state has been rewarded with fewer lawsuits, a 50% drop in malpractice premiums, and a flood of new doctors. The House bill is intended to discourage other states from doing the same.

    The Pelosi bill also provides these incentives only if states adopt watered-down alternatives to existing malpractice caps. Those alternatives include certificate-of-merit rules, which in theory require lawyers to get medical proof before suing but in practice mean that lawyers recruit and finance "expert" witnesses.

    States could also provide "early offer" rules, which are supposed to encourage fair settlement of legitimate claims. But as organizations like the Manhattan Institute have noted, those offers only work if combined with restrictions on lawyer fees and damage awards that reduce the incentive to go for the jackpot judgment.

    The Senate bill avoids tort reform entirely, notwithstanding Mr. Obama's showy pledge before a national TV audience.

    Never mind that reducing medical lawsuits is a rare reform provision that really would reduce health-care costs. The Congressional Budget Office estimates the savings at $54 billion over a decade. Consulting firm Tillinghast Towers-Perrin has suggested the direct cost of medical tort litigation is more like $30 billion annually. PriceWaterhouseCoopers estimates that last year $240 billion in health expenditures were the result of doctors ordering unnecessary procedures to protect against the risk of lawsuits.

    The hidden Pelosi tort bomb is one more example of the stealth radicalism that defines ObamaCare. If it passes in anything like its current form, we are going to be cleaning up the mess for decades to come.


  2. Pelosi's a CUNT! Somebody please drive a wooden stake through her tax-mad, spendthrift, power-hungry heart... :mad: :mad:
  3. What heart?

    Pelosi's Health Plan: 5yrs Prison, $250K Fine, $15K Premium, 2.5% Tax
    Washington, Nov 6 -

    Today, Ranking Member of the House Ways and Means Committee Dave Camp
    (R-MI) released a letter from the non-partisan Joint Committee on
    Taxation (JCT) confirming that the failure to comply with the
    individual mandate to buy health insurance contained in the Pelosi
    health care bill (H.R. 3962, as amended) could land people in jail....
  4. I have a friend and fellow trader who formerly owned a couple of apartment buildings...

    At one time, he was jailed for "failure to landscape" his properties... at another time, he was jailed for "watering the landscaping" he was force to install... NO SHIT!!!
  5. Is that a 3 strikes and your out state? Next offense and he gets life? Is that why he no longer owns the apartments?

    Freakin Nazi and her Pelosi.