Wednesday, September 14, 2011

Capitol Gains Tax, Rational?

  I recently read an interesting article published on September 11th and written by Stephen Mufson and Jia Lynn Yang in the business section of The Washington Post. Titled "Capital Gains Tax Rates Benefit Wealthy Feed Growing Gap Between Rich and Poor", the article is a discussion of current and former capital gains tax rates compared to wage taxes and how and why they work in our economy.

  The beginning of the article discusses the different viewpoints of the benefits of capital gains tax rates. "The rates on capital gains...should be a key point over negotiations over how to shrink the budget deficit, some lawmakers say". Republicans, looking to keep the rate low, are interested in protecting the "preferential treatment of money earned through investment over money earned through labor". While democrat Chris Van Hollen of the congressional super-committee, argues that "there is no strong economic rationale for the huge gap that exists now between the rate for wages and the rate for capital gains".

  Proponents of the low capital gains tax believe that it will encourage business and build capital.  Alan Greenspan's view on the subject is that the effect of the tax "as best I can judge, is to impede entrepreneurial activity and capital formation".  Republicans agree that the appropriate tax rate is zero and believe the capital gains tax to be a tax on job creation. On the other hand, the article goes on to say how tax experts contest the idea that lower rates are beneficial saying "lower capital gains taxes are a mixed bag", and "it is not clear that an absence of risk-taking is what's ailing the economy".

  Though the issue of the capital gains tax leans towards the Republican ideology, it tends to be a bipartisan issue. House Speaker Nancy Pelosi believes that "raising taxes on capital gains and dividends could discourage individuals and businesses from saving and investing". It is agreed that the tax could hinder job creation and innovation.

  Lastly, the article goes into detail about how the tax issue is mostly political, being controlled by political contributors and lobbyists. The author says that in spite of the economic arguments "the steady cutting of the capital gains tax rate reflects the political power of the rich, who are more likely to contribute to politicians and benefit from the work of lobbyists".

   I think this is an important read because it is a bipartisan issue that effects everyone. Typical voters don't pay attention to this issue because it doesn't have a direct impact. Think of it this way, "The 400 richest tax payers in 2008 counted 60 percent of their income in the form of capital gains and 8 percent from salary and wages. The rest of the country reported 5 percent in capital gains and 72 percent in salary". Are the current tax rates fair and advantageous?

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