The Rooney family’s rush to complete a new ownership deal for the Pittsburgh Steelers before the new presidential administration and enhanced Democrat congressional majority can raise the capital gains tax rate sends a clear message that such a tax hike is neither fair nor good economic policy.
Dan Rooney and son Art II are changing their minority ownership stakes by buying a majority position from Dan’s brothers. Those brothers must sell most or all of their equity positions because of their NFL-prohibited interests in gambling and horse racing and their need to cover future inheritance taxes.
Dan and Art Rooney will buy a portion of the Steelers they do not own for approximately $800 million. And here’s where capital gains tax rates become so important.
At the current rate of 15 percent, Dan’s brothers will pay the federal government $120 million on their gain. But if the deal is not closed this year and the tax rate is increased by the Democrats to 28 percent, as suggested by Barack Obama during his campaign, then the tax will be $224 million.
That’s a whopping $104 million tax increase for the divesting Rooney brothers.
Naturally, if any of us were in the Rooney family’s position, we’d also rush to pay our capital gains taxes at the lower rate. But when I first heard Art Rooney Jr. say this month that "we’re all hanging our hats that we get it done before the change in the administration," I was struck by the irony.
Dan Rooney, of course, is a very vocal supporter of the new administration. He announced his support for Sen. Obama in April. Then, in October, he presented Obama with a Steelers jersey at a huge Mellon Arena rally. Rooney supports Obama despite his intention to raise capital gains tax rates.
In an April exchange with Obama, ABC’s Charles Gibson correctly explained that "in each instance when the (capital gains) tax rate has been dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?"
Responded Obama: "Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness."
It is unclear to whom Obama intended to be "fair." But, clearly, he was saying that "fairness" trumped actual tax collections and economic growth.
The reason that government tax receipts from the capital gains tax always fall when the tax rate is raised is that, like the Rooney family, people who take on the investment risk of owning stocks and businesses often delay or rush a sale transaction to minimize their tax payment.
This is both legal and ethical.
Also, when capital gains rates are high, people invest less in stocks and less in new businesses and they do not cash in on gains. They avoid the tax by holding long-term, unrealized gains.
Again, this is rational, legal and ethical.
Economic growth is slower because there is less new investment and less new job creation in society than there would be with lower taxes on capital investment. This is how real people make economic decisions, no matter who they are or what their party affiliation.
But higher capital gains rates are also unfair.
Sixty percent of Americans now own stocks or shares in a business. That means that 60 percent of us are investors in the U.S. economy. It also means that 60 percent of us have been crushed over the past few months by the crash in equity prices.
Many people whose investments have been crushed are retirees. Raising the capital gains tax rate above the current 15 percent will not only further slow our economy and decrease tax revenues, it will further penalize tens of millions of retirees, entrepreneurs and risk-taking investors whose portfolios have been eviscerated.
Dan Rooney should persuade the president-elect to take another look at his plans to raise capital gains tax rates. President-elect Obama should act to stabilize the economy, increase real tax revenues and treat investors fairly by announcing that he will maintain the capital gains tax rate at the 15 percent level.
Taking this simple, economically rational action would demonstrate that Barack Obama really does intend to lead all Americans from an intelligent center. Anything less will feed widespread fears that Obama intends to lead America from the ideological left.
Glen Meakem was the founder, chairman and CEO of FreeMarkets Inc. in Pittsburgh. He currently is managing director of Meakem Becker Venture Capital.