McCain Now Wants Permanent Cap Gains Cut

By Arnab Datta

Oct 31, 2008 4:35pm

ABC News’ Teddy Davis, Arnab Datta, and Rigel Anderson Report:

John McCain altered his tax plan Friday, saying for the first time that he would like to slash capital gains taxes in half on a permanent basis — not just for the next two years. 

"Look," McCain told CNBC’s Larry Kudlow, "I’m at 7.5 percent, I’d like to keep it permanently at 7.5 percent."

Watch it here.

Originally, McCain wanted to maintain the current 15 percent tax rate on long-term capital gains.

Seventeen days ago, as part of his "Pension and Family Security Plan," he proposed reducing the capital gains tax rate to 7.5 percent for the next two years.

McCain is now calling for permanently reducing the capital gains rate to 7.5 percent, according to McCain spokesman Brian Rogers.

The Arizona senator told CNBC that he wants to lower capital gains taxes and keep them low to encourage investment in difficult economic times.

An expert with the non-partisan Tax Policy Center says that "the bulk" of the tax benefits under McCain’s proposal would flow to the wealthy.

"Two-thirds of the tax savings from cutting the capital gains rate in half would go to taxpayers with incomes above $1 million," said Roberton Williams of the non-partisan Tax Policy Center. "Ninety percent of the benefits would flow to Americans who make more than $200,000 per year."

The Obama campaign reacted to the change in McCain’s tax plan by comparing it to the "fiscal games" of President Bush.

"John McCain’s tax shift is just the latest proof that his economic plan represents four more years of George Bush’s policies," Obama spokesman Hari Sevugan told ABC News. "George Bush played fiscal games to pretend that tax cuts were temporary, and then turned around to make them more expensive and permanent at the first opportunity."

"John McCain isn’t even waiting for the election," he continued. "He is making his tax breaks more expensive with larger giveaways to the wealthy just weeks after first announcing the plan."

Asked on CNBC why he does not discuss investors more often on the campaign trail, McCain said that a lot of the people who come to his rallies are "frankly . . . people that are having trouble staying in their homes, keeping their jobs, etc."

McCain is hoping that the investor class, which he says includes the "Joe the Plumbers" of the world, will support him on Tuesday once they compare his plan to that of his Democratic rival.

"I hope we’ve connected with the investor class," said McCain. "But I also have to tell you, Larry, the people who want to invest are the Joe the Plumbers of this world who want to own their small business, they want to employ people, and they want to invest in their futures and in the stock market …"

Barack Obama has called for raising the capital gains rate from 15 to 20 percent on individuals making $200,000 and couples making $250,000.

He also has called for eliminating capital gains taxes on start-ups and small businesses.

The non-partisan Tax Policy Center has not analyzed the revenue effect of either McCain’s temporary or permanent cut in the capital gains rate. When McCain unveiled his temporary capital gains tax cut earlier this month, his campaign estimated that it would cost $10 billion.

The current 15 percent capital gains tax rate is paid by single individuals with taxable income of more than $32,550 per year or couples with taxable income of more than $65,100 per year. Individuals and couples below those thresholds pay no tax on their capital gains.

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