Quote:
Originally Posted by TexTushHog
Eliminate preferential treatment of capital gains and dividends over $5 or $10k per person.
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Those are certainly popular items on the left's wish list, but it's important to understand why they could do a lot more harm than good.
Big increases in capital gains tax rates never raise anywhere near the revenue predicted by static analysis, and often don't raise significant additional revenue at all. This somehow seems mysterious to a lot of liberals, but experienced investors understand the issue quite well. There is a very clear negative correlation between aggregate realizations and the top tax rate on capital gains.
Another problem with high capital gains tax rates is that they produce an impediment to the flow of capital. The economy suffers when capital does not flow freely into sectors, industries, and companies deemed the highest and best use by investors and entrepreneurs. Further damaging the economy with another wave of bad economic policy is not exactly something we can afford right now.
Raising the tax rate on qualified dividends (now 15%) to 35% (or 39.6% in the future, as planned) would also produce negative unintended consequences. Since most of them are obviously not interested in paying income taxes at a 39.6% rate, high net worth individuals would simply divest themselves of large amounts of issues that pay high dividends, putting downward pressure on their prices. Many retirees and other individuals of rather modest means depend, at least in part, on income from dividend-paying stocks. Although most of them (especially if retired) may not be in high income tax brackets, their portfolios would be devalued by selling pressure on high-dividend stocks. I don't think most of us want to see the non-affluent lose net worth, even if just by a few percentage points, as a result of bad tax policy.
When politicians fire bullets at the wealthy, they often hit a lot of people who aren't so well off.
