Obama hasn't learned the lesson of capital gains tax cuts

WASHINGTON — Hillary Clinton talked about job creation this week, raising an issue that has been one of President Obama’s biggest economic shortcomings.

What she said is not only a sure-fire solution that would produce a stronger, job-creating full-employment economy. It is also one that would be severely harmed by the proposals Obama laid out this week in his State of the Union agenda to raise capital gains tax rates on risk-taking investors.

While Clinton didn’t directly criticize Obama’s economic policies, she pointed to part of our economy that has long been the largest source of new jobs: entrepreneurial start-up ventures that become job-creating, income-producing behemoths.

But sadly, she added, this pivotal sector of the economy has slowed down to the point where it is undermining new job production across the country.

In a speech to Canadian business and civic leaders, paid for by the Canadian Imperial Bank of Commerce, she said the so-called economic recovery hasn’t helped anywhere near enough small- to medium-size businesses, or boosted entrepreneurs — the people who create most of the jobs in our country.

She specifically pointed to “the slow rate of small- and medium-sized business formation,” suggesting the slowdown is the chief reason why we still suffer from weak job growth and stagnant middle-class incomes.

“Our economy, historically, and job creation, has been driven by small- and medium-sized businesses,” she said. “And we’re just not seeing that start up again.”

Since stepping down from her checkered performance as Obama’s secretary of State, Clinton has been devoting herself to the speaking circuit, raking in millions of dollars by charging $300,000 a pop for her thoughts about what’s wrong in our country. And she is testing the waters for a likely run for the presidency.

Yet, incredibly, she hasn’t had anything of substance to say about the Obama economy, at least until now.

It’s not as if she thinks this isn’t an issue people care much about. The polls tell her it is. So do the Wall Street, banking and big-business audiences she appears before.

But she didn’t want to be seen as a critic of Obama’s policies that both she and her husband, Bill Clinton, who is her chief political adviser, believe have hurt the economy and their party, too.

Her remarks Wednesday at a business conference in Winnipeg, Manitoba, were her first tentative steps into the politically sensitive terrain about what contributes to a job-building economy.

You have to search hard to find terms like “business start-ups,” “risk capital investment” and “entrepreneurship” in any of Obama’s speeches. These aren’t in his vocabulary, and not something most Democrats want to hear.

But Clinton’s speech had all the earmarks of her husband’s advice about a subject he knows well: capital gains tax rates, which he once embraced as the key to a stronger, job-creating economy.

Bill Clinton entered the White House in 1993 on an agenda to raise taxes on upper-income Americans, raising the top rate to nearly 40 percent.

But it didn’t bring in the significantly higher revenue that he and his advisers expected as the economy began coming out of a short and shallow recession, growing at modest rates throughout his first term.

Then in his second term, the Republican-run Congress sent him a deficit-cutting bill in 1997 that he signed. One of its key provisions slashed the capital gains tax rate from 28 percent to 20 percent.

The lower rate dramatically unlocked billions of dollars in capital investment that tripled in 1998 and then doubled again in 1999 — pouring into high-tech start-ups, swelling job creation and cutting the unemployment rate to 4 percent.

“Incentives are what matter,” said economic analyst Brian S. Wesbury in a 2003 analysis of the Clinton tax cuts. The capital gains cuts “meant that the after-tax return from a $100 capital gain” resulted in “an 11 percent increase.”

Obama sees the capital gains tax on stock dividends as a giveaway to upper-income investors, with little return to the economy, robbing needed tax revenue from the U.S. Treasury.

The issue came up during a 2008 presidential debate, when Obama said he opposed the then-lower 15 percent capital gains tax rate that Congress passed in 2003 under the Bush administration. The government, he said, could not afford to give tax breaks to the wealthy at a time of rising budget deficits and would lose revenue in the deal.

But then-ABC News anchor Charlie Gibson, who was moderating the debate, reminded Obama that capital gains tax cuts always brought in more revenue as investors took full advantage of the lower rate and to sell stocks, plowing the earnings into new start-ups that yielded a higher return on their investment.

That, of course, is what happened under the GOP tax cuts Clinton signed. But Obama remains ignorant of the double return the government gets on cutting capital gains rates: more start-up businesses, higher employment numbers and a lot more money flowing into the Treasury, which lowers the deficit.

Obama said this week that he wants Congress to raise the capital gains tax back up to 28 percent for couples with joint incomes exceeding $500,000 — an act that would worsen the economic problems Hillary talked about in Canada.

Fortunately, the new Republican Congress isn’t going to send Obama the capital gains tax hike he wants — or his other tax increases, either.

But Clinton isn’t saying much more beyond the concerns she expressed about the lack of new business formation — at least not yet.

The tax cuts needed to escalate the number of start-up firms await the GOP’s 2016 presidential nominee, who will remind voters of a former Democratic candidate who ran on cutting taxes in 1960 to get “America moving again.”

When the lefties in John F. Kennedy’s party criticized his across-the-board income tax cuts, saying they would benefit only the rich, he correctly replied, “A rising tide lifts all boats.”