Congress May Balk At Higher Taxes On Investments Under President Reagan, capital gains were taxed at a higher rate than earned income. Since then, the situation has reversed, and unearned income, the province of the very rich, is taxed at a significantly lower rate than most workers' wages. Polls show the public supports changing this. Will Congress?
NPR logo

Congress May Balk At Higher Taxes On Investments

  • Download
  • <iframe src="https://www.npr.org/player/embed/140662488/140679647" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Congress May Balk At Higher Taxes On Investments

Congress May Balk At Higher Taxes On Investments

  • Download
  • <iframe src="https://www.npr.org/player/embed/140662488/140679647" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

MELISSA BLOCK, Host:

Not since the era of the stock market crash of 1929 have taxes been as low as they are now on capital gains, the profits made from investments. The same 15 percent tax rate applies to stock dividends, that's the lowest it's ever been. Congress reduced those tax rates eight years ago in the name of boosting the economy. Those tax breaks have proven a windfall mainly for the nation's wealthiest, and some now are saying it's time they paid a fairer share. NPR's David Welna has more.

DAVID WELNA: Last December, President Obama signed into law a two-year extension of what was originally supposed to be only a temporary 15 percent tax rate for capital gains and dividends. But the president made clear at the time he would have rather let that tax break expire for top income earners. Speaking at the White House earlier this week, Mr. Obama lamented what he called unfairness in the nation's tax laws.

P: It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million.

WELNA: Mr. Obama added that anyone making more than $1 million a year should be taxed at least as much as average American families are. He called this the Buffett rule, after billionaire investor Warren Buffett. Last year, in an interview on CNN, Buffett acknowledged paying a lower proportion of his income in taxes than does his secretary.

WARREN BUFFETT: I have a lower tax rate, counting payroll taxes, than anybody in my office, and I don't have a tax shelter. I just follow - just go take the form and fill out the numbers. And I think that's very wrong.

WELNA: Buffett is among the one-tenth of one percent of Americans who collectively receive nearly half the tax savings from the capital gains and dividends rate. It wasn't always that way. During Ronald Reagan's presidency, the tax on capital gains was 28 percent. It dropped down to 20 percent during the Clinton administration, and a decade ago, under the presidency of George W. Bush, Republicans in Congress started pushing to lower that rate to 15 percent.

Here's former Senate Minority Leader Trent Lott a few days before the 9/11 attacks.

TRENT LOTT: It may be necessary for us to act on capital gains rate cut because it will clearly cause a growth in the economy. It always does.

WELNA: Congressional Democrats pushed back. Senate Budget Committee Chairman Kent Conrad warned at the time that such a cut in the capital gains rate would disproportionately benefit the most affluent Americans.

BLOCK: This is not the time where that's the medicine that helps the illness that this economy faces. I mean, if we're serious - I mean...

(SOUNDBITE OF LAUGHTER)

CONRAD: ...you know, capital gains reduction will give you a short-term boost in income, cost you income in the long-term.

WELNA: Two years later, a GOP-controlled Congress approved those tax cuts. Arizona Republican Senator John McCain was one of only a few Republicans who voted against the cuts because he now says of their $350 billion price tag...

BLOCK: They weren't good economic times. Now, we're in tough economic times. Now, we don't want to raise taxes on anybody when we're in tough economic times.

WELNA: Yet recent polls show wide public support for raising taxes on the wealthy, and ads like this one, sponsored by MoveOn.org, are hitting the airwaves this week.

(SOUNDBITE OF POLITICAL AD)

UNIDENTIFIED MAN: Most Americans want Congress to raise taxes on the wealthy, but the GOP refuses to do it. Why?

BLOCK: Raise taxes on millionaires and billionaires so all Americans pay their fair share.

WELNA: Some lawmakers are heeding such calls. Michigan Democratic Senator Carl Levin is pushing for raising the tax rates for capital gains and dividends to their levels in the Reagan era.

BLOCK: President Reagan is not well-known for having high tax rates. And restoring those rates will not have a chilling effect but will introduce a greater measure of fairness in the tax code.

WELNA: Republicans seem headed in the other direction. Pennsylvania Senator Pat Toomey, who's a member of the deficit reduction supercommittee, sees nothing wrong with the current rates.

BLOCK: My own personal preference would be lower still and certainly not higher rates on capital because it will only choke off economic growth.

WELNA: That notion that low taxes on capital gains spur the economy was disputed at a hearing last week at the Senate Finance Committee by Syracuse University tax expert Leonard Burman.

LEONARD BURMAN: I looked at the relationship between capital gains and gross domestic product over 40 or 50 years, both current and with lags, there's zero correlation. If there is a relationship between capital gains tax rate and the economy, it's really subtle. It doesn't just jump out of the data.

WELNA: Still, the point may be moot. With a sharply divided Congress, there seems little prospect Warren Buffett will be paying higher taxes anytime soon. David Welna, NPR News, the Capitol.

Copyright © 2011 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.