President Obama is poised to allow the Bush tax cuts to expire at the end of this year and see the capital gains tax on long term investments spike from 15 to 20 percent. Meanwhile the BBC is reporting that Russia has decided to drop their 20 percent tax on capital gains from long term investments. Accompanied with a 13 percent flat tax, the former Soviet Union has prepped itself for a better long term business climate than that of the United States.
In order to pay for the slew of new entitlement programs, President Obama believes that more taxes will be able to cover more programs. Unfortunately history sides against him. In each instance when the capital gains tax dropped, revenue from the tax increased. In the 1980s when the tax increased, revenue from the tax dropped. It will be interesting to see the change between the US and Russian economies over the course of the next few years. Beginning in 2011 increased capital gains taxes take effect throughout the US and the abandonment of the tax will permeate Russia. President Medvedev has been quoted saying that he is looking to “modernize” the Russian economy. Meanwhile President Obama is relishing any chance to shoot the American economy back to the time of Jimmy Carter.