Re: Obama XXIII: The Muslin Anti-Christ Wages War on the forces of Christianity!
let's all agree that something should be done on capital gains...there are a few posts outlining how...would the change, even if to a better methodology, cause a change in investment strategies that could hurt the economy? how would investors react on their next invested dollar if they knew gains could be taxed at 2x what they were previously? not a reason to avoid the change, just a question about reaction to it.
Historically, when capital gains rates are high, investors sell less often; when rates are low, investors sell more often. Reductions in capital gains tax rates empirically have in the past been associated with increases in revenue collected from the capital gains tax; I have sources in my files, generally IRS data.
At one time there were three holding periods for capital gains (now there are two). Hold for less than a year, ordinary income tax rates (current law as well). Hold for more than a year, it had been a 28% rate, it was lowered to 20% and again to 15% (increasing to 20% by default in 2013 if no action is taken). Earlier, hold for more than five years, it had been a 15% rate when the one- to five-year rate was 28%; the five-year holding period was eliminated when rates were lowered.
The concept behind lower capital gains rates is two-fold: (1) to encourage longer-term investment horizon rather than have the market constantly churning with short-term speculation, and (2) as an offset to the lack of inflation-adjustment. My parents bought their house in the early 1960's, for example. On paper it is worth maybe 4 times as much, on an inflation-adjusted basis it has hardly increased in value at all. Rather than introduce true inflation-indexing (probably because it would be too complicated??), a lower rate was generally accepted by all parties as a reasonable compromise.
Ironically, one of the biggest protectors of differential treatment have been the Democrats (see, Schumer, D-NY). Some cynical people might posit a connection between the observation that Wall St. political donations skew heavily Democratic and this differential treatment; other cynics might note that the financial services industry has a self-regulatory agency (FINRA) while most other industries are directly regulated by the Federal government.
PS I've tried to ignore some unkind personal comments; to be clear, I am equally mistrustful of career politicians from either party. Please do not think that I am one who believes "the enemy of my enemy is my friend." I am more likely to believe "neither my enemy nor my enemy's enemy are likely to be trustworthy, that's why I have actual friends."
