President Obama: What Is A "Capital Gains Tax" On A Small Business?

As I was driving on Tuesday I listened to President Obama detail his next round of policy initiatives that were targeted at stimulating job growth.   I was quite stunned when I heard from his mouth the words "Capital Gains Tax Cuts".

My first response was "Hey - isn't this a Republican talking point?  They incessantly talk about cutting capital gains taxes".   I figured that these must be desperate times for Obama to start agreeing with the GOP on this fundamental issue.

Then I noticed that he had qualified his statement.  He said "Capital Gains Tax Cuts.....on Small Businesses".   At the time the irony of this did not hit me until I kept running this notion through my mind.

Typically capital gains are recognized in association with stock trading.  If your stock holdings significantly appreciate beyond their original purchase price the government demands that you enumerate these gains and thus pay taxes upon this increased value.

From Wikipedia

A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.

For equities, an example of a popular and liquid asset, each national or state legislation, have a large array of fiscal obligations that must be respected regarding capital gains. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market. However, these fiscal obligations may vary from jurisdiction to jurisdiction because, among other reasons, it could be assumed that taxation is already incorporated into the stock price through the different taxes companies pay to the state, or that tax free stock market operations are useful to boost economic growth.

Since most small businesses do not have a stock market listing it is rather improbable that Obama is seeking to relax gains on the stock trades associated with them.

For small businesses capital gains are most often recognized when the business is sold to another firm.  The owner or partner makes a profit off of the sale and thus this net income is recognized as such.

Thus I am puzzled as to how capital gains tax cuts on small businesses can be seen as a short term stimulus for jobs creation.  (I am working hard to be fair here)  I do agree that if a private investor injects capital into a small business that this infusion could spur job growth.   However his ability to enumerate the net change in the value of the business and thus pay the taxes upon it becomes far more problematic than what is possible with a publicly traded company that has a price which is determined by one of any stock exchanges in existence.

I am not saying that there is no benefit to this policy.  Certainly if this is one more barrier removed from an investor's decision to inject money - this is a good thing.  I only question its value in relation to immediate or even short term job creation.  

Also the nuanced choice of small businesses only undercuts the dogged opposition to capital gains taxes in general that is usually heard fro progressives.  If a targeted tax cut has a stimulative effect why wouldn't a general tax cut have the same or greater impact?