NCPA - National Center for Policy Analysis

Capital Gains Taxes Should Go Down, Not Up

January 21, 2015

The president wants to raise the top tax rate on capital gains and dividends to 28 percent. What's wrong with the proposal? It will hurt investment and hurt the economy, says Diana Furchtgott-Roth, director of Economics21 at the Manhattan Institute.

What happens when the capital gains tax is raised? The capital gains tax is a tax on the sale of an investment. With high rates, people will retain assets rather than sell them, limiting government revenue. Moreover, firms will limit their investments in order to limit their tax liability, and small firms will struggle to get financing.

The president should be lowering, not increasing, the capital gains tax, says Furchtgott-Roth, as such a move would boost the economy as well as federal revenues. She notes that rate reductions in 1997 as well as 2003 resulted in more asset sales -- and higher tax revenues.

Source: Diana Furchtgott-Roth, "Raising Taxes on Capital Hurts the Middle Class," Economics21, January 20, 2015.

 

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