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written by Norm:

Economics Inside the Beltway

Your comments about this column are welcome ~ e-mail Norm at

No one asked me, but I think the politicians are a bunch of chickens. I mean they are more interested in pandering to the voters than being guided by historical facts. Being “politically correct” is the mantra of the day on Capitol Hill.
For example, all the facts say that the capital gains tax is regressive. That is, when you penalize people for selling stock by taxing the profits at a high rate, people think twice about selling. When the government increases the tax on capital gains, people have less incentive to sell. So what, you say? Well, when the tax on stock sales goes down, that feeds the economy by keeping more money in people’s pockets that they will reinvest in corporations or spend on goods and services. That means jobs and a more robust economy.

Ah, but only rich people have stocks. Wrong. About 52% of families in the U.S. have some stocks. It may be in stocks or bonds or in a mutual fund or trusted to their employer or union that invests in the market with money they have put into a retirement fund.

At the moment Wall Street has a bad rap and deservedly so, but last March the market was around 12,000 and going up. Money managers and traders were heroes. The higher the Dow, the better, we said. But by raising capital gains tax when stocks are sold, the politicians are not panelizing the brokers or hedge fund managers. They are panelizing you and me.

So why do it? Why not lower the tax when stock is sold? Well, I think the politicians believe that raising the capital gains tax will increase tax on the “rich” people. And that is currently a popular (read, “politically correct”) position. And politicians love to cater to the “will of the people”. How about catering to the facts?

During his campaign, Mr. Obama said he wants to raise capital gains tax from 15% to 28% to “restore fairness to the tax code”.

According to the Institute for Research on the Economics of Taxation, Mr. Obama's tax hike would knock off $2.5 trillion in capital formation over five years, or nearly 2% of gross domestic product.

A study by former Treasury Department economist Gary Robbins has found that from 1946-1998, about 90% of the returns to capital investment accrued to workers in the form of higher wages, because when workers have more tools like computers, forklifts and robotic equipment, they produce more.

Here’s another example of politicians catering to the voters rather than doing the right thing. How about increasing the taxes on the “rich”. That sounds really “politically correct”. According to our elected officials people who earn over $250,000 a year are the rich among us.

About time those people driving a Lexus or a BMW pay their way. Well, those high rollers already pay 85% of the taxes. What happens when the wealthy keep more of their income? They usually invest it in things that create jobs and income for others. OK, they also, if things go well, make more money for themselves. Isn’t that The American Way? If they keep less of their earned income by paying more tax, the government gets the money and spends it their way.

But it is politically incorrect to lower taxes on the “rich”. Even though the facts say that increasing the tax on capital gains and penalizing the “rich” is bad for the economy and the middle class working families across the nation.

Now, I admit that you can find counter arguments on the above but simple logic says that the more money people keep, the more they will invest in companies and expansion and the more middle America will have to spend on things they need. That moves the markets and creates jobs and more income. It even creates more in tax revenue and more in charity donations.

So maybe the politicians need to attend a two-hour class on Economics 101. If they did they might learn how the economy works in the real world. Then they could make laws and rules that make the economy really better.

Don’t bet on it, but I’m writing my congresswoman anyway.

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