Why not lower income taxes and increase capital gains taxes?
August 21, 2012 9:08 AM Subscribe
Has there been any serious discussion or analysis of "swapping" capital gains tax rates (by raising them) and income tax rates (by lowering them)?
posted by AgentRocket to Law & Government (12 answers total) 2 users marked this as a favorite
In all of the tax policy rhetoric - the Buffett Rule, Mitt Romney's 13% average tax rate paid, Bush Tax Cuts, etc. - there is an unavoidable distinction between how the richest people are treated and how the lower and middle class are treated. A big part of the issue, it seems, is that Capital Gains are taxed at only 15%, and once you become supremely rich that's where a lot of your money comes from.
As I understand it, people argue that the lower capital gains tax is appropriate because (a) the investment is made with money that has already been taxed once and (b) it encourages people to invest by letting them keep more of the gain. So, as long as the income tax remains high (a subjective "high," I realize), the capital gains tax should remain low.
But it always seemed backwards to me that we should give up a bigger portion of the money we made with our own hands (something most everybody does) than the money that we made afterwards from buying stocks or investments (something that a privileged minority does). And given that most people don't even invest fully in their 401(k)s, IRAs, etc., the "encourage investing" logic doesn't really hold. And with a higher threshold tax - the income tax - taking a bite out of earnings, that leaves a smaller pool of discretionary money to invest or spend right off the bat.
Wouldn't an easy way to alleviate the "rich paying their fair share" and the middle class income problems be to just raise the capital gains tax to 25 or 35% and then lower the income tax rate to offset it? Everyone would take home more of the money that results from their actual labor (as opposed to their money working for them), people would have more money to either invest or to spend up front, and there would theoretically be less ammunition for a "war on the rich" taxation argument because the capital gains tax would affect everyone the same.
Has there been any serious discussion or analysis of this concept? Am I missing some key component other than "it would disproportionately affect the rich so it won't ever happen"?