Monday, November 21, 2011

Eliminating Capital Gains Tax - Bad for America, Great for the 1%

One of the common threads that Republicans keep hammering on is the need to "reduce taxes" to improve the economy. One of their efforts is the "flat tax" where everyone pays the same tax rate, and among other things, reduce or eliminate the capital gains tax.

HORSLEY: Perry's plan would also cut corporate tax rates to 20 percent, and eliminate the tax on dividends and capital gains. By doing away with those investment taxes, Perry would give a big windfall to the wealthiest Americans.

Just what sort of windfall are we talking about? This article tells us: The top 0.1% of the nation earn half of the capital gains.
The top 0.1%-- about 315,000 individuals out of 315 million-- are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400.

Capital gains are currently taxed at 15%, down from the 28% it was under Reagan - and he had raised it to that level. Various conservatives try to make the case that this low tax rate is beneficial for the economy:
So what does this mean for this debate? It means that when you tax millionaires, you reduce the biggest wells of disposable income we have. This means cars will not be bought, houses will not be built, planes will go unproduced, and charities will suffer. It means fewer jobs in our economy as the engines of purchasing power get burdened by higher taxes. We need to promote wealth and high incomes by making it easier to achieve that lofty goal rather than making it something at which to sneer.

Which is a somewhat different argument from their previous one, where the wealthy would be investing in other businesses. Now the argument is that they'll "buy stuff with the money." That this has apparently not happened with previous reductions, in either case, is an indicator that they want "the wealthy to be wealthier," and that the wealthy don't want to pay for the society they live in.

There is a huge difference between the small investor who may be making a few thousand dollars in capital gains from sale of stocks and the very wealthy who are making millions turning over stocks and hedge fund investments. The original purpose of capital gains was to encourage long-term investing. You bought your stocks, you held onto them. The current policy encourages rapid turnover, and investment in risky investments promising high return and quick turnarounds. It does not increase "value" or economic growth and investment. At a time when the nation faces deficits and decaying infrastructure, it's time to change that, and make the very wealthy start paying their share.

 
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