Removal of Capital Gains & Dividend Tax Cuts From Budget At Odds With Pelosi Campaign Promises

House speaker spoke of the importance of lower tax rates one week before the election

WASHINGTON – Just one week before Election Day soon to be House Speaker Nancy Pelosi went on CNBC’s Kudlow and Co. television show seeking to calm down investors nervous Democrats would raise the 15 percent capital gains and dividend tax rates. Pelosi assured viewers raising the capital gains and dividend taxes were not a priority for new incoming leadership. Moreover, she spoke of the importance of the tax cuts in growing markets.

Yet the budget being proposed by the House Budget Committee today turns these comments on their head. By selecting certain tax cuts to be renewed the Democratic leadership has now made a statement of their policy priorities and that includes raising the capital gains and dividend tax cuts and higher marginal income tax rates on small businesses.

Consider this exchange between Larry Kudlow and Speaker Pelosi:

KUDLOW: Will some of the investor tax cuts on dividends and capital gains, for example, would that qualify as a last resort or will that qualify as a first resort, in your thinking?

PELOSI: In my thinking, an earlier resort would be to look at the tax cuts at the high end… Some of the tax cuts at high end I think have to be revisited long before you would revisit the dividend and the capital gains, because we want cap--we want growth in the markets, and you don't want to deter that.

Kudlow and Co. Transcript, October 24, 2006.

So Pelosi first admitted she had no intention of increasing the capital gains and dividend tax rates. But what’s more is the fact that she claimed raising the tax rates would damage markets.

There is basis for this point made by Speaker Pelosi. When Japan announced last November the government will not renew the capital gains and dividend tax rates, the Nikkei stock market lost 7 percent of value. Similarly, when it was rumored China was seeking to tax capital gains their stock market fell 8 percent and set off a worldwide stock market meltdown. After the government announced the rumor was not true the market recovered. You can bet the U.S. stock market is about to take a hit based on these facts.