NCPA - National Center for Policy Analysis

AN ALL-OUT TAX ASSAULT ON CAPITAL GAINS

July 3, 2007

It seems the recent Senate bill to raise taxes on publicly traded private-equity partnerships was only the precursor of legislation to hike taxes on all investment partnerships, says Phil Kerpen, policy director for Americans for Prosperity.

Most troubling is that legislators are turning from limited tax schemes to broader rate hikes, says Kerpen.  The ramifications of this are dire for the U.S. economy, federal revenues and ordinary investors:

  • Raising the capital-gains tax to 35 percent or even 40 percent or more would dramatically reduce the after-tax return on stock investments, which would be a great impediment to stock markets.
  • It would significantly raise the cost of capital, drying up investment in many innovative, entrepreneurial companies.
  • It also would hit the U.S. Treasury hard, contrary to the conclusions of the static-revenue scorekeepers.

Capital income is already subject to the 35 percent corporate tax rate before being distributed to investors as capital gains or dividends, making even the current 15 percent cap-gains rate an unfair double tax, says Kerpen.  Former Federal Reserve chairman Alan Greenspan repeatedly advised Congress that the correct capital-gains tax rate is zero.

Beyond fairness, history is an excellent guide, says Kerpen.  Every capital-gains tax hike in the past thirty years has led to lower federal revenues, while every cap-gains tax cut has led to higher revenues.

Source: Phil Kerpen, "An All-Out Tax Assault on Capital Gains," National Review, July 2, 2007.

 

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