Raise the capital gains tax

August 7, 2007

Long-term capital gains is taxed at 15%, while income is taxed progressively from 10% to 35%. This means a rich person who derives most of their income from investments will pay a lower tax rate than a coal miner who earns a salary. This is ridiculous. Former Fed governor Alan Blinder agrees that low capital gains is silly. All income, regardless of its source, should be taxed equally. John Edwards proposes raising the capital gains tax rate to 28%. He wants to lower taxes on low income groups, but raises top rates to 38% because he would repeal Bush’s tax cuts. If you increase the capital gains tax, then all tax rates should be lowered so total tax revenue is the same. In addition, the double taxation on corporate dividends should be fixed. The total tax hit on the rich will go up, but the taxes will no longer be distorted by weird tax laws.

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5 Responses to “Raise the capital gains tax”

  1. jon Says:

    you know the real solution to all of this is the fair tax:
    http://en.wikipedia.org/wiki/FairTax

  2. Lee Davis Says:

    A lot more reasonable if you index gains for inflation: e.g. if you bought something for $100 in 1970 and sold it today for $150, you had an economic loss due to inflation. Thus, in this scenarion the only fair tax is $0.

    And if you want to address fairness, the exception that allows hedge fund managers to pay cap gains on their income seems even more egregious.

  3. projectshave Says:

    The tax code is a mess. You can overhaul it or patch it up. The former is better, but the latter is more politically viable. Also, there is no “exception” that allows hedge fund managers to avoid taxes. Like every other rich dude with an army of tax lawyers, they found a legal way to structure their business to avoid paying some taxes. This is one example of how low capital gains tax distorts the economy.

  4. Lee Davis Says:

    7/13 OpEd in NYT said “Paul Krugman Op-Ed column holds that managers of private equity funds and hedge funds should have their fees taxed as regular income instead of capital gains; says this is simple issue of fairness; chastises some Democrats who are reconsidering proposal to close this tax loophole”

    His description sounding like an exception/loophole to me.

  5. projectshave Says:

    Krugman calls it a “tax loophole”, but this quote doesn’t explain *why* it’s allegedly a loophole. Hedge fund managers invest your money, then keep 20% of the profits for themselves. Is that a capital gains or income? For you it’s clearly capital gains; current tax law allows managers to also pay 15%, not 35% income tax, because it’s “carried interest”.

    I agree they should pay income tax, but that’s because I don’t like the different tax treatment for capital and labor. FYI: lots of financial institutions have used this tax ploy for years. It’s unfair to single out hedge funds because they’re unpopular. Raise taxes on all carried interest.

    Anyway, the spineless Democrats have lost interest in doing anything about it. The issue is pretty much dead.


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