Commentaries

Posted: Apr 22, 2008 | Author: Pamela Villarreal

Taking a Swipe at the Capital Gains Tax

As evidenced by the recent Democratic debates, the presidential candidates are focusing their attention on the capital gains tax.  Sen. Barack Obama has indicated that he would consider raising the tax to its 1996 level of 28 percent.  Sen. Hillary Clinton says she is open to raising the cap gains tax as well, but not above 20 percent.  But have politicians not learned anything from taxing productive behavior?  One can credit Obama for admitting that raising capital gains taxes generates fewer revenues to the treasury; indeed, an NCPA study by Steve Moore shows how capital gains revenues have increased as the tax rate has declined.

The debate is less about raising revenue and more about promoting fairness in the tax code.  But what is fair?  Raising a tax rate that has been traditionally  associated with the rich even though it affects many more?  Before promoting tax hikes in the name of fairness, consider who pays the capital gains tax:

• According to IRS data, in 2005, households with incomes below $50,000 accounted for nearly half of tax returns reporting capital gains.
• Seventy-nine percent of tax returns with reported capital gains during that year were for households earning less than $100,000.

So where are the rich in this picture?

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