NCPA - National Center for Policy Analysis

Cut Capital Gains Taxes

November 26, 2002

The period from 1990 to 1992 resembles what we're seeing now, observers say: an up and down pattern of payroll gains and losses that have netted the economy only 5,000 jobs since January. One thing that would bring more jobs is capital gains tax relief.

  • When capital gains taxes are lowered there is a gain in job growth, usually with a one or two year lag.
  • This is because lower capital gains taxes are the best incentive for entrepreneurs to go out and start a business.
  • Since 1980, small and midsize businesses have accounted for all of America's job growth.

Nevertheless, some call for relief of income taxes on dividends on the theory that it will repair investor confidence hurt by corporate scandals. The more paid out in dividends, the theory goes, the more faith shareholders will have in both management and the balance sheet.

However, critics argue that while it may make individual investors feel better, it won't do much for institutional investors, who really determine how stocks perform. Most institutions have little interest in dividends -- rather, they're looking for strong sales and earnings.

Dividend tax relief -- while probably overdue -- can wait until the economy and the stock market are up and running again. That, experts say, will happen as the result of a capital gains tax cut.

Source: Editorial, "Jobs, Not Dividends," Investor's Business Daily, November 26, 2002


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