Libertarian Think Tank

Will Bunch at philly.com has this to say to ABC debate moderators Charlie Gibson and George Stephanopoulos.

With your performance tonight — your focus on issues that were at best trivial wastes of valuable airtime and at worst restatements of right-wing falsehoods, punctuated by inane “issue” questions that in no way resembled the real world concerns of American voters – you disgraced my profession of journalism, and, by association, me and a lot of hard-working colleagues…

Sounds good. I’m always happy to read a good criticism of the mainstream media. The same entrenchment that allows for William Kristol to secure a job at the New York Times after proving consistently wrong for the last ten years, also allows George Stephanopoulos to continue existing and Chuck Gibson to continue sagging. But then I read part of Will Bunch’s beef:

 …me and a lot of hard-working colleagues who do still try to ferret out the truth, rather than worry about who can give us the best deal on our capital gains taxes….And Charlie…could you be any more out of touch with your viewers? Most people aren’t millionaires like you, and if Pennsylvanians are losing sleep over economic matters, it is not over whether the capital gains tax will go back up again.

Is it common for journalists to misunderstand the impact of capital gains taxes on our economy? I doubt that I see more yield from my capital investments than the average Pennsylvanian, but I’m nonetheless concerned with how they will be levied in the future. Here is why:

For a while until the Bush tax cuts of 2001 capital gains taxes rivaled the highest levels of income taxes. So if I invested in an American business that turned a profit, I would likely have to pay around 40% of my returns to the federal government. The same goes if invested in gold, petroleum, grain, or classic automobiles. The problem is that, while that sounds like a windfall for the government, it has a chilling effect on investment. When the market is up, the chilling effect is negligible- prices still go up and investors still realize returns, so everything continues swimmingly.

The problem is that value sometimes depreciates, especially when market bubbles burst. When that happens and the markets start to look bear-ish, investors flee like they were breaking from the penitentiary. Worse, the first investors to leave are the foreigners who tend to have more liquid investments and readier access to other markets. This leaves American investors holding the bag, often with capital investments that are worth less than what the investors originally paid.

But why should non-millionaire Pennsylvanians like Will Bunch care about all that? First, if non-millionaires are not investing in capital assets, they should be. The federal government adds your income to your capital gains together to determine which tax rate to apply. Those who are in the lowest tax brackets are taxed on their capital gains lower than they have been in years, thanks (again) to the Bush tax cuts.

Second, and perhaps more important, where does Will Bunch think jobs come from? About half the jobs in the United States come from publicly-traded companies. That means that over half the jobs come from companies that are equipped to buy and sell their capital assets as casually as their officers flirt with their secretaries. If they lose investors -and they *will* lose investors if the Democrats raise the capital gains tax as they have sworn in blood to do- they will only be able to expand the job supply by leveraging existing profits. This reduces shareholder dividends, which also drives away investors.

For some real-world examples, consider the fallout after the bubble burst of 2000. Then, foreign investment dwindled to almost-nothing. Only the Bush tax cuts brought them back (sorry if you don’t like Bush, but there’s really no question that it worked). The reciprocal to that, of course, is that the threat of a Democrat President could drive it all away again between the months of November and January. This time, the American investors may be more savvy, aware of the foreign flight, and may follow suit. That could knock the the bottom out of the entire market. So, sorry Will Bunch, but capital investment is a pertinent question if one cares about the economy.  If Will Bunch thinks that capital gains taxes are unrelated to overall economic conditions…or if he thinks that Pennsylvanians don’t care about them, he is mistaken and they should.

Sure, Gibson and Stephanopoulos probably stunk last night, but I wouldn’t trust another journalist to tell me why.

This entry was posted on Friday, April 18th, 2008 at 2:33 am and is filed under Conservatism -It's Not Just for the Right Wing, Democrats, Election 2008, Freshly Fresh News, Liberty! It's not just for John Stewart Mill, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.