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If you really want to understand capital gains taxation and the argument for lower tax rates, read the entire document (it's not that long). Here is a start;
“The top federal capital gains tax rate is scheduled to increase from 15 percent to 23.8 percent next year. Some policymakers think that a reduced rate for capital gains is an unjustified tax preference. However, capital gains are different than ordinary income and have been subject to special low rates since 1922. Nearly every country has reduced tax rates on individual long-term capital gains, with some countries imposing no tax at all. This bulletin describes why policymakers should keep capital gains taxes low, and it presents data on capital gains tax rates for the 34 nations in the Organization for Economic Cooperation and Development (OECD).
If the U.S. capital gains tax rate rises next year as scheduled, it will be much higher than the average OECD rate. Policymakers should reconsider capital gains tax policy. Capital gains taxes raise less than five percent of federal revenues, yet they do substantial damage. Higher rates will harm investment, entrepreneurship, and growth, and will raise little, if any, added federal revenue.”
I have read all of those arguments before and still don't buy them. The reason being is that they are not supported by actual data on economic growth and revenues when adjusted for the business cycle, inflation, and population growth.
Basically investors are going to go where they can make a good return and capital gains taxes and dividend taxes play a very small role in that.
In fact, one economic paper IIRC said the only effect of reducing the dividend tax was that corporations had an incentive to make cash payouts of dividends instead of re-investing. With lower capital gains taxes I suspect the main thing you will be incentivizing is more stock buybacks.
Back in 2002 (ish) about 10 economists wrote, signed, and published a letter in the WSJ stating that if the Bush tax cuts were not accompanied by a spending reduction we would soon have crippling debt and a hampered economy. Even Bush's economic adviser told him that spending cuts should be part of his tax cut plan. Instead of listening to the economists (many of whom held Nobel prizes) Americans listened to politicians and politicians bought votes. Dun, Dun, dun
With all that said, I would prefer the rates not to rise above a maximum rate of 20%, but that's just me.
I have read all of those arguments before and still don't buy them. The reason being is that they are not supported by actual data on economic growth and revenues when adjusted for the business cycle, inflation, and population growth.
Basically investors are going to go where they can make a good return and capital gains taxes and dividend taxes play a very small role in that.
In fact, one economic paper IIRC said the only effect of reducing the dividend tax was that corporations had an incentive to make cash payouts of dividends instead of re-investing. With lower capital gains taxes I suspect the main thing you will be incentivizing is more stock buybacks.
You are very wrong about this.
Increasing the dividend tax rate would cause an incentive for a one time cash payout, not an environment of increased activity.
But you are right, investors are going to do what they can to get a good return, they will simply incorporate in another country, take their gains overseas and remove even more tax revenue from the US government (why do you think Ireland and Bermuda hold so many corporate entities?)
Additionally (with the exception of the dot-com boom/bust which played havoc on typical market cycles), after ever period of lowering capital gains taxes, the net revenue from the capital gains tax to the federal government has actually increased. Real revenue dollars have always shown an inverse relationship with the capital gains tax rate. You want to raise more tax dollars from capital gains? Lower the rate.
I have read all of those arguments before and still don't buy them. The reason being is that they are not supported by actual data on economic growth and revenues when adjusted for the business cycle, inflation, and population growth.
Basically investors are going to go where they can make a good return and capital gains taxes and dividend taxes play a very small role in that.
In fact, one economic paper IIRC said the only effect of reducing the dividend tax was that corporations had an incentive to make cash payouts of dividends instead of re-investing. With lower capital gains taxes I suspect the main thing you will be incentivizing is more stock buybacks.
That's not remotely true, any smart investor is going to look at the after tax return of an investment.
That's not remotely true, any smart investor is going to look at the after tax return of an investment.
If 8% increase in tax rate is going to stop you from investing, than you probably don't have enough money to invest or have a serious aversion to investing.
People who are good at investing are not going to struggle at an 8% increase in tax rate, it's only the chumps who probably shouldn't be investing.
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