Mr. Capital Gains

New York Times columnist Thomas Friedman recently lamented about the job prospects for our upcoming college graduates.

“We owe our young people something better — and the solution is not that complicated, although it is amazing how little it is discussed in the Washington policy debates. We need three things: start-ups, start-ups and more start-ups…”

And what is Friedman’s solution for generating more venture, risk taking and entrepreneurship?

“Nevertheless, I’d also cut the capital gains tax for any profit-making venture start-up from 15 percent to 1 percent. I want our best minds to be able to make a killing from starting new companies rather than going to Wall Street and making a killing by betting against existing companies.”

Friedman clearly has paid attention to what history has taught us when it comes to the stimulating effects of capital gains tax cuts. Let’s hope our Washington leaders aren’t asleep during this lesson.

Tax filing day has passed and for those earning more than $200,000 and households earning more than $250,000 it will likely be the end of lower taxes. My thoughts on this in a Reuters news story:

Even though most people would be unaffected if the upper-income tax breaks expire, “most people believe in the American dream,” and that could worry Democrats eyeing the elections, said Mark Bloomfield, president of the American Council for Capital Formation that favors keeping all the tax breaks.

What will this mean for those aspiring to achieve success and wealth, and perhaps more importantly, to the entrepreneurial spirit and the Horatio Alger story that has been so instrumental to the U.S. economy?

You can read more of thoughts on the Tax Bill of 2010 in my message to investors here.

In his Weekend Profile column on Senator John Thune, Wall Street Journal columnist John Fund writes: “Mark Bloomfield, the head of the American Council for Capital Formation, wants to revive an idea that he helped enact into law back in 1978, when the country was sliding into recession and governed by a Democratic president and Congress. Against all odds, Mr. Bloomfield and his allies assembled a bipartisan coalition that cut capital gains taxes. Does he think a similar approach could be tried today?”

The Tax Bill of 2010 approaches, but changes are already underway. Noteworthy to date is a radical departure in U.S. tax policy – a resurrection of the distinction between earned and unearned income(this is not correct, we currently have had a distinction between taxes on wage income and capital gain and dividends) , a new 3.8% Medicare tax on unearned income is now officially on the books. These new taxes would apply to income from interest, dividends, capital gains, royalties, annuities and rents. See my reaction to this new frontier in taxation in news articles from the Associated Press, Bloomberg News and IBD.