Obama suggests elimination of capital gains – Congress doubles tax to 35%

President Obama on Tuesday suggested a bold move – a complete elimination of the capital gains tax on small business investment for one year. Congress promptly suggested more than doubling the tax from 15 percent to 35 percent effectively classifying these gains as ordinary income.

First, I’m pretty convinced that eliminating capital gain taxes on small business investment for only one year will not do much. You would think that if you invested in a small business – and we’re not quite certain what small businesses would qualify – you’re pretty much guaranteed to loose money in the first year or two.

Maybe Congress totally freaked out when they heard Obama’s suggestion on Tuesday and literally ran the opposite direction at full speed on Wednesday to double the current rate. From the Wall Street Journal…

Responding with rare dispatch, the House voted yesterday to change the capital gains rate for venture capitalists who invest in technology start-ups. But rather than eliminating the tax, the House more than doubled it, moving the tax rate to 35% from 15% by reclassifying such gains as ordinary income.

Private equity fund managers and managers of real-estate and oil-and-gas partnerships would also get socked with this 133% tax-rate increase. Now there’s a way to encourage economic growth and new jobs.

… the House majority rushed the bill to the floor without a hearing or even a committee vote. Then they buried it in a package advertised as an extension of tax cuts for research and development.

Great. Slick move guys! Since you know you can’t go to the people and suggest huge tax increases, just slide it in somewhere else where nobody will notice it. Heck, most of them don’t read the crap legislation they feed to us anyway.