Saturday, December 29, 2012
Chris Edwards (Cato Institute), Advantages of Low Capital Gains Tax Rates:
The top federal capital gains tax rate is scheduled to increase from 15% to 23.8% 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 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.
Related op-ed: Six Reasons To Keep Capital Gains Tax Rates Low