TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, January 16, 2018

Taite: A Critical Analysis Of The Capital Gains Tax Preferences

Phyllis Taite (Florida A&M), Saving the Farm or Giving Away the Farm: A Critical Analysis of the Capital Gains Tax Preferences, 53 San Diego L. Rev. 1017 (2016):

Over the years the topic of capital gain preferences has been thoroughly debated. Discussions range between whether the tax rates on capital gains should be raised, reduced, or repealed. Other discussions have centered on whether capital gains has an effect on the economy, and if so, how the research supports those assertions. It would be difficult to cover all aspects of the issues associated with capital gains taxes in one article; therefore this discussion will focus on capital gains as applied to individual income taxes.

The capital gains tax has been criticized for the questionable effect it has on the economy but one of the reasons the capital gains tax has not generated more revenue is because of tax policy. Congress has created, and continues to create, policies that encourage holding capital property for long periods of time. As such, when taxpayers hold capital property longer, revenue is delayed or denied to the federal government. This is just one of the ways the capital gains tax has been a mechanism to shift wealth to the wealthiest taxpayers.

Another example of the gross inequities is revealed in the income tax implications of the capital gains tax when property passes through an estate. When capital gains property is transferred through an estate, the inherent gain is completely eradicated. This paper offers proposals to reform tax policy and address some of the inequities to move towards a more balance approached in tax policy. The proposals in this article are specifically designed to reallocate capital gains preferences to shift certain benefits towards the middle and lower class, phase out certain preferences and eliminate preferences that only benefit the wealthiest taxpayers.

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