Obama, Clinton favor capital gains tax hike

It's the capital gains tax. Money paid on profits from selling an asset like stocks or a house. Under the Bush administration, the rate was lowered to 15 percent. During the debate, ABC's Charlie Gibson challenged the two Democrats to explain why they want to raise it.

Gibson asked Barack Obama why he would raise the capital gains tax when the last time it was raised revenue to the government went down, and when President Bush lowered the tax, the government took in more money.

"Well, Charlie, what I've said is I would look at raising the capital gains tax for purposes of fairness," said Obama.

Obama said it's not fair that billionaire Warren Buffet pays 15 percent while the people who work for him pay more. Buffet himself has said it's not fair.

"Those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries," said Obama.

"I wouldn't raise it above the 20 percent if I raised it at all," said Clinton.

However, 20 percent would still be a raise from the current 15 percent, and that kind of talk isn't very well received in San Francisco's financial district.

"It's like throwing ice water on the little camp fire that we have going and the domino effect of the decline in housing is hurting every segment of the economy," says Kathleen Clifford, a Marin County realtor.

Economist Jim Wilcox is a professor at U.C. Berkeley who believes lowering the tax rate has generated more money for the government because people took advantage of the lower rates and cashed in their profits.

"That does make revenues go up for that year, but that's a very short-lived temporary one-time effect," says Wilcox.

Long-term, a higher rate would bring in more money says Raj Chetty, an economist whose expertise is government's role on the economy.

"But on the other hand, we worry that raising the capital gains tax would reduce investment, possibly slow down job creation hiring by firms, and as a result, be bad for the economy. So that's the trade off there," says Chetty.

ABC7's political analyst Bruce Cain believes the trade off for Clinton and Obama will likely come in a compromise.

"For people above a certain income level, they might consider a targeted capital gains increase, but not an across the board one," says Prof. Cain.

Obama hinted at a targeted hike during the debate. John McCain's position on capital gains is to leave it alone right were it is at 15 percent.

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