If Obama wants Reagan’s capital gains tax rate, he should take Reagan’s income tax rates

President Obama, of all people, seems to have embraced a new approach: What would Reagan do—about tax rates?

The White House has sent conservatives what it apparently thinks is a very clever message: You say the economy boomed under President Ronald Reagan’s tax reforms. Well, Reagan’s top capital gains tax rate was 28 percent, so let’s go back to that.

Of course, Obama has already increased the long-term capital gains tax rate on high-income earners from 15 percent under President George W. Bush to 23.8 percent. Which includes a 3.8 percent tax on net investment income. Long-term capital gains are currently defined as investments held for at least a year (those held less than a year are usually taxed at regular income tax rates).

Now Obama wants to push that rate up to 28 percent—the same rate established in the Tax Reform Act (TRA) of 1986, which was signed by Reagan.

But if Obama wants to channel what Reagan would do, don’t stop with capital gains. That change was part of a larger tax reform law that dramatically spurred economic growth. If Obama wants to embrace Reagan tax rates, he needs to include Reagan’s individual income tax rates.

TRA consolidated the personal income tax to two rates: 15 percent and 28 percent. The top rate had been 50 percent.

Even though there was bipartisan support for TRA and its income tax reforms, moderates and liberals have been trying to increase those rates ever since. Successfully, I might add.

President George H.W. Bush—Mr. Read My Lips, No New Taxes—agreed to a new 31 percent bracket for the top marginal income tax rate, and it cost him the support of conservatives and his reelection bid.

Liberal Bill Clinton added two more income tax rates in 1993—36 percent and 39.6 percent—when Democrats stilled controlled Congress. So the number of rates had jumped from two under Reagan to five, with three of them higher than Reagan’s top rate of 28 percent.

George W. Bush increased the number of rates to six, but slightly reduced most levels, and lowered the top rate to 35 percent.

But Obama is on a death march for higher taxes. Thanks to him there are now seven individual income tax rates, with a 39.6 percent rate for the highest income earners.

Raising the capital gains tax rate is just about the most anti-economic growth step a government can take. It’s a very bad idea. But if Obama is determined to try, and continues to claim that’s what Reagan would do, then Republicans should remind the president that isn’t all Reagan did: He lowered and simplified the income tax.

If Obama wants the Reagan growth rates, he needs the Reagan income tax rates.

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