NCPA - National Center for Policy Analysis

COMMONSENSE TAX POLICIES

February 29, 2008

If we want to obtain long-term economic stability and spur economic growth and job creation, we need to cut the corporate capital-gains tax, says Rep. Scott Garrett, (R-N.J.).

Consider other countries:

  • Some, like Belgium, Hong Kong, Malaysia, New Zealand and Singapore don't tax corporate capital gains.
  • Others such as Japan and the United Kingdom have exemptions when capital gains are reinvested; even France and Germany passed a 95 percent exclusion.
  • Only the United States, Sweden and the Netherlands still tax corporate income at the corporate level and then again at the individual level when shareholders receive dividends.

Further:

  • The whopping 35 percent U.S. tax rate creates a "lock-in" effect of investment capital, meaning that corporate taxpayers are less likely to sell appreciated assets because the high-burden tax makes it far from beneficial.
  • The potential economic value of the assets is never reached, forcing corporate management to borrow on its appreciated assets, creating a higher debt burden for the company and less flexibility overall.
  • The company's employees bear the burden of this unfortunate alternative and the economy as a whole suffers.
  • Some estimates put the total amount of locked-in assets at more than $3 trillion; if that figure holds, and if it were all sold and taxed at the individual capital-gains rate of 15 percent, the government would net $450 billion.

Some analyses indicate that full repeal of corporate capital gains would create annual efficiency gains of $20 billion.  But even cutting the rate to the individual rate would yield a great benefit to the economy -- and is perhaps more politically palatable at this time, explains Garrett.

Source: Scott Garrett, "Commonsense tax policies," Washington Times, February 28, 2008.

 

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