The Effect of Capital Gains Tax on Investment – Appendix
In comments to my previous post, Robert requested the unsmoothed data from Graph 3. Here it is. GPDI is plotted against the Capital Gains Tax Rate.
Since the Capital Gains Tax Rate (X-axis) is quantized, the result is columns of data. Compared to the smoothed version, there is little change in either the slope or intercept of the best fit straight line. R^2 is, of course, much lower.
1) less than 10% of the level of change in investment is explained by the capital gains tax.
2) Raising the capital gains tax rate increases investment.
Not much of a story here.
The story – I mean “received wisdom” – is that taxes stifle growth.
Clearly, that is not the case. Refer to the original post.
Either way, capital gains taxes should be abolished. They’re not the cause of economic collapse but they certainly don’t help matters.
Where is the proof that they hurt matters?
Suggested at the recent hearing but found to be to complex (for some reason) would be to move to a 5 year holding period for long term gains. Since the goal is productive investment it makes sense to consider doing this. Recall at one time long term was 6 months. One could even think about 10 years all be it both would reduce volumes of useless trading.
But very little of it is productive investment. Capital gains result for the most part from buying and selling in secondary markets. This does nothing for the companies whose stocks are being traded.
“Either way, capital gains taxes should be abolished. They’re not the cause of economic collapse but they certainly don’t help matters.” SGO
I guess that depends on what matters you are trying to help. Collecting taxes on income is intended to help the budget matter. Capital gains income!! That qualifier is often left out of the discussion of gains on held assets. It is income. The gains didn’t happen in a vacuum. Assets grow in value within a stable socio-economic environment. That stability is maintained by the government. It has a cost, as do the many important stabilizing functions that the government carries out.
In spite of what the propagandists (Grover Norquist&Co.) may have you believe there is a reason that millions of unrelated people band together into a socio-political entity. We call it a state. There are expenses that all states incur. Taxes pay down much of that expense. Taxes are not for the purpose of micro-managing the economy of the state. Taxes are the citizens’ contribution to defraying the cost of living in a free, safe and stable environment. Paying taxes is a patriotic necessity. People like Norquist are simply gaming the system and earning a great deal of income by doping so. He, and others of his ilk, are paid handsomely for maintaining the charade of small government and little taxation. There are three hundred million people living in the USA. How too big is the government for a country of that size?
i don’t know if norquist’s mom was scared by a tax collector when she was pregnant with him, or if he is just cynical.
but i will offer up for what i hope is the education of liberals (and i am one)… “government” appears to most poorish people as a heavy hand of regulations they don’t understand and taxes they don’t like, enforced by people who are arrogant and sometimes stupid.
norquist trades on that. if we (liberals) could find a way to run on “humanizing” necessary government functions and making the tax code at least look fair.. not a flat tax, but a simple progressive tax… we might take away some of the support norquist gets from ordinary people.