Republicans, Stop Caving and Repeal ObamaCare Taxes Now

COMMENTARY Health Care Reform

Republicans, Stop Caving and Repeal ObamaCare Taxes Now

Sep 13th, 2017 3 min read
COMMENTARY BY
Stephen Moore

Distinguished Visiting Fellow

Stephen Moore is the Distinguished Visiting Fellow for Project for Economic Growth at The Heritage Foundation.

Key Takeaways

Republicans just released their ObamaCare repeal and replace bill, but the plan doesn't replace one of the worst features of the law: the higher investment taxes.

Republicans should insist on the total rollback of these tax hikes. Here's why: every time we cut the capital gains tax, we have raised revenue for the government.

This isn’t growth or tax fairness — it’s pure greed and envy.

Republicans just released their ObamaCare repeal and replace bill, but the plan doesn't replace one of the worst features of the law: the higher investment taxes. The GOP has apparently buckled under to the relentless “tax cuts for the rich” attacks by Democrats. The new GOP bill would preserve the higher payroll taxes and investment taxes on the wealthy, or those who earn more than $250,000 in income. If the GOP caves in to the class warfare barrage, they will create far fewer jobs and grow the economy much more slowly. That’s bad policy and bad politics.

Many economists, especially on the left, seem to be confused about why the economy grew so anemicly during the Obama years. We had a $2 trillion growth deficit by 2016 ‎solely because the economy trudged forward at such a weaker pace than Barack Obama’s own economists predicted.

The tax hikes signed into law under Obama contributed to the years of slow growth. ObamaCare raised the capital gains tax, the dividend tax, and payroll taxes on “the rich,” to pay for the Medicaid free-for-all, with more than 70 million Americans on the federal aid program today.

Republicans should insist on the total rollback of these tax hikes. Here is why: every time we have cut the capital gains tax, we have raised revenue for the government. This was true in the 1980s, and after ‎Bill Clinton and George W. Bush cut the capital gains rate. Under Clinton, the capital gains collections doubled, with lower rates.

For skeptics, here are the numbers. After Clinton cut the capital gains tax down to 20 percent, capital gains revenues surged from $54 billion in 1996 to $99 billion in 1999. Lower rates, more revenues.

Dan Clifton, an analyst at the investment advisory firm Strategas, finds that the 2003 Bush capital gains tax cut from 20 percent to 15 percent “increased tax revenues by billions of dollars in the first three years.” He notes, “The tax cut indisputably paid for itself.”

So how is rolling back the ObamaCare capital gains hike a tax cut for the rich, when history shows the government will get more revenue, as investors sell more of their assets, reinvest the funds in the new Googles and Facebooks, and pay more to the federal treasury?

One of the explanations for the weak recovery was the slump in business investment that lasted for nearly all of Obama’s eight years in office. The rate of business capital spending fell two-thirds below its normal pace. As even the Congressional Budget Office has recently acknowledged, lower investment hurt job and wage growth.

By the way, the higher ObamaCare taxes, when coupled with other Obama taxes on the rich, were among the most punitive policies on investment in modern times. The investment tax rate skyrocketed from 15 percent to 23.8 percent, a near 60 percent increase in the tax. ‎What a shock that investment fell.

The people whose livelihoods were hurt most by this weren’t the investors themselves. They were the millions of working-class Americans who didn’t get jobs, and the millions more who didn’t get a pay raise because businesses weren’t started or expanded. They are the victims of the invisible fist of ObamaCare.

There is one more point about the Obama tax hikes that were supposed to soak the rich and “spread the wealth around,” as the former president once put it. The tax hikes instead had the opposite effect. Obama’s economic policies widened the gap between the rich and the poor. The rich did well under Obama’s policies, it was the working class that got creamed. ‎This was because the economy just wouldn’t grow as it usually does.

Obama admitted famously during a debate when he first started running for president that he wanted to raise investment taxes even if it would hurt the economy and even if it raised less revenues because that was the “fair” thing to do.

This isn’t growth or tax fairness — it’s pure greed and envy. If Republicans in Congress ‎bow to these pressures, the victims won’t be the rich, but rather the working class Americans who voted for Trump because they want more, and better paying, jobs.

This piece originally appeared in The Hill on 7/13/17

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