I didn't watch the democratic debate when it first aired, but after all the hublah about bias, I thought it might be interesting to check it out on youtube.

While the questions were pretty bad, my ears perked after hearing Obama's response on the capital gains tax:


Obama did not refute that cutting the capital gains tax led to increased revenues, but instead argued that the inequality of tax rates justified the increase.

Andrew Sullivan, a sorta conservative leaning independents take:

Andrew Sullivan

Questions for Debate

1. Do you favor an increase in the capital gains tax? Why?

2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?

1. Do you favor an increase in the capital gains tax? Why?

Don't care, no stock ownership here. Never made any money on the market when I was piddling with it. Just another form of gambling if you ask me.

2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?

At one time the top tax rate was in the 70 percent range. Then we got trickling down Reaganomics. There's where the argument comes from that cutting taxes results in big tax revenue gains. Tax cuts are also supposed to generate jobs (somewhere).

You explain it to me. I don't get it. Here I thought it was the transformation from the rust belt to silicone valley. But what do I know? Gee, I was just a working class hero who discovered computers (circa 1979) when most folks had no idea what I did for a living (tech writing, systems programming).

At the current rates, the super rich take credit for funding this country. Or maybe it's those making over $200k a year. Whatever, let them fund more of the national debt. Maybe shouldering 50 percent is not enough. I really don't care.

Seems that a lot of these people were hot for Iraq too. Oh well, the bills have arrived. The little people are struggling with gas at four bucks a gallon. They're losing jobs left and right, working for peanuts and having no hope that the good times will be back again.

All those jobs that Americans didn't want? Well, now they do. Some income is better than squat.

What else? Oh, I suppose I should be worried about rich Americans because I might lose my job. Except I don't work for rich Americans.

The bottom line then becomes how many votes did Obama lose?

Let me guess -- none.

It's just one of many ironies that have developed since 1980. That was 28 years ago. My word, how time flies.

1. Do you favor an increase in the capital gains tax? Why?

Well, yes. In today's crappy economy, income should be income. It should at least be taxed at the same rate as income.

2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?

It's not about taxing them more, it's about taxing them the same. The income tax rate for the average middle class citizen is 25% - if you're making less than $77k and more than $31k. These are individuals who are not likely to be buying stock because they don't have the extra income lying around to dabble. They may have 401k investments, but those are long, long, long term investments.

Now, these hedge fund managers are raking in millions of dollars at a tax rate of 15% if they've held the position for over a year. A person who did not buy and sell stock for a living would pay 35% tax on that income.

For people who do not hold their positions for more than a year, they pay regular income tax rates and not capital gains tax rates anyway, so that makes no difference.

The reason capital gains revenue goes up when the rate goes down is because more people sell their stock sooner. With a higher capital gains tax, they hold their positions longer in order to offset the impact of the tax.

1. Do you favor an increase in the capital gains tax? Why?

No. The CBO has a nice write up of capital gains. It isn't just stock, it is the value of real estate, collectables, homes or businesses that gain (or lose) value with time. The fact that homes are excluded from most capital gains taxes shields many people from the real impact that capital gains taxes have.

Raising capital gains taxes makes assets less liquid. Not from a market standpoint, but from a seller standpoint. If you need to factor in a large capital gain into the decision to sell, that automatically means that assets will sell less quickly.

Changes in capital gain tax rates and their effect on tax revenue are hard to keep tabs on. People will (in general) hold off on selling assets when tax rates are high.

Now, capital gains tax rates are lower than income tax rates. Is this "fair"? Well, capital creates jobs so taxing capital at a higher rate limits growth.

From the CBO:



2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?

Taxation policies should not be used as a means of redistributing income. Fairness is not a factor (or should not be) in the formulation of tax policy. The government needs a certain level of tax revenue but it must also protect the economy and help it grow. Confiscatory tax rates lead to the flight of capital. And we all know that there are plenty of places in the world where our money might flee to.

I think that is the exact answer. And not only is Obama's answer completely deluded, but it's counter to sound fiscal policy. Revenues have risen with reductions in capital gains taxes. And vice versa. That is an established fact. So, I'm not clear where Obama thought he was going with this, but taxing corporations in "fairness" is absurd. If there's a fiscal reason, fine - we can disagree. But Obama does not have a good reason other than to pander for "progressive" voters.

This is bad, but compared with Hillary and John "100 years in Iraq" McCain, Obama has a long way to go to get as bad as the other two. But he does remind us that basically, all politicians suck - and Obama is no exception. Even with this, he just happens to suck the least right now.

This is a tough one- I am not for a capital gains tax at all up to a certain point- capital gains is how the middle class truly can keep up with inflation and "get ahead" and realize the "American dream"- I can "flip" houses or sell an established small business and start up another with the capital etc- that part of the Amlord/DR debate is absolutely valid- and even helps our esteemed Author Musician in certain situations.

However- some of the "big boys" are not paying taxes at all, playing accounting games, for instance- our native corporations doled out 50k dollar tax free paychecks to all it's members a few years ago- because it was a "loss" for the company or some such- though clearly, the company made billions that year.

I am more for closing tax loopholes for the rich, and counting thier increase in personal wealth vs neccesarily trying to narrowly define "income tax" like it is now-

like I have pointed out- I have nothing against Bill Gates- but do you seriuosly think that Bill Gates pays even 1% of his actual increase in net worth per year? I bet it is not even close to 1%, a percentage of a percentage point.

The problem is not with the tax rate, or if we need capital gains, we just need those that have thier personal net worth increase by 20% or whatever each year to be properly taxed, without accounting slieght of hands each time.

Just the amount these guys settle for when they get audited- pennies on the dollars to settle instead of fight it out with the goverment- it should be outlawed- no settlements for the goverment allowed that does not collect 95% OF tax owed- no more settlements for 2-3 cents on the dollar.

Also- audits should be yearly with anyone having a net worth of over 10 million dollars- no more auto-auditing of the middle class while the mega-rich don't have to face the tax man at all personally. They should be forced to sit through every single IRS audit, every day, and not allowed to do anything else on those days, or automatically forfiet thier claims.

Warren buffet doesn't show up for his audit? Then by default, the IRS gets all it is claimed it is owed, and that happens every time.

The problem is NOT the rate, it is the loopholes for the rich, it is just that easy.

It was a poor answer on Obama's part. He should have addressed the validity of the question. The idea that cutting capital gains taxes increases revenues is, actually, not an actual established fact. What we see immediately following a capital gains tax cut is what we might expect - an immediate upturn in selloffs. Which is to be expected - people planning to sell will wait the few months until the tax cut goes into effect. Also, when the current cut expires we will probably see a flurry of activity right before it ends. However, these fluctuations are bumps in the business cycles, which tend to go up and down every few years. For example, when the rate was cut to 20% in 1997, revenues were already on a rise that began a few years before. And that rise continued after the cut, until 2000. Between 2000 and 2003, capital gains tax receipts dropped quite precipitously. In 2003, there was another capital gains tax cut, this time to 15%. The revenue did start to rise after this, but we cannot establish the cut as the cause of the turn since, as we saw, the earlier cut was made in the middle of an up trend. There's no established cycle of revenue upswings attaching themselves in a sustained way following capital gains tax cuts.

And let's not forget the volatility in the market when suddenly large groups of people are encouraged to sell...

In any case, while cutting capital gains taxes does have a short term effect on receipts, if you look at receipts over the long term, it is obvious that they rise and fall based on many factors. The rise in receipts through the 90s with the sudden drop in 2000 also echoes the time-line of the dot-com boom and the following market recession. It was a biased question because it presents supply-side theories as established facts, when they are not.

1. Do you favor an increase in the capital gains tax? Why?

Yes. Income is income and should be taxed as such.

2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?

As I said, there are better reasons for progressive taxation than the answer Obama gave. We hardly need to get into the details of an idea that goes all the way back to Adam Smith, and that is supported by the vast majority of economists today. No, what we need to do is get back to the general idea that those folks who advocate flat, absent, or regressive tax schemes are on the fringe of public opinion. Because they are.

QH- a point of order- supply side economics and Reagonomics are not the same, in any way, shape or form. Logopage did an excellent job of showing the fallacy of correlation-causation that you basically touched upon.

Based on those other debates, it is fairly well understood and agreed upon, I believe, that there is SOME relationship between a low tax burden and actual increases in revenue- but it is not sustainable, nor, if you cut to far, then the revenues decrease- basically- a fine line needs to be found.

QH- there is a direct correlation-causatin between TOO heavy a tax load and the stifling of enterprise- you simply can't afford to expand your business- and a small business owner trying to expand finds out how exponential this can get, quick.

With me as the owner/skilled labor of my business, by myself, it can be quite profitable, and I can compete with established dealers in my field quite easily- I charge 30-50% lower shop rates by hour than they do- but when I try to have over 4 employees, that number shrinks to about 10%, and when I go to 10 employees, it goes away.

I have to pay more for "right" to employ a person than I do on thier actual salary! After 5 employees, I need to "match" the 25 bucks an hour I pay them with an additional 25 dollars an hour to pay for all the "taxes"- workers comp, OSHA, all kinds of stuff that creates red tape and slows the growth of my business.

A good argument for why this is good, why this is bad, is self evident- a business needs regulation to ensure that they are a "good citizen" - safety regs and chemical dumping etc etc- part of the cost of doing business.

But then, after about 100 employees, it tips BACK the other way- it is cheaper and cheaper to add employees.

So, though the question is a bit loaded- one could call it biased i suppose- but it is still a valid one.

If I were Obama's speech writer- I would go to the heart of the problem, and oblique to the loaded question- I would reflect back on the persona making the question- "do you really think that Bil Gates pays 39% of his ACTUAL income in taxes each year- the bracket he is in- or do you think he pays a very small percentage of his actual income?"

I would NOT question the fairness in the same manner- I would go to the heart of the problem again- we need to "level the playing field" and make the IRS beholden to get every owed dollar out of the uber-rich, and decrease the deductions they are allowed to take, and re-define thier income itself- so it isn't really a "capital gains" tax at that point- just a redefinition of what personal income is.

Ronald Reagan did this to only the poor- by taxing waiters and waitreses on thier tips and gratuities- a very bad thing, but it gives a good road map of doing this to the uber-rich in this country.

Take the net of all they own in one year, and the increase the next year, and tax on that per year, and it can only go up, never down, in five year steps, unless there is a more than 50% reduction in personal wealth and earnings- and tax thier liquidity as well, if they realized lots of liquidity due to a big sell off at a 'loss".

Capital gains taxes should be 0 for anyone with a net worth under 5 million dollars.

This helps everyone- the first time home seller realizing thier first big equity pay off, allowing them to re-invest or spend this money as they see fit- a very good thing for overall revenues.

This also prevents the "regressive" nature of the tax that QH and Amlord are on different sides of the debate on. A capital gains tax on a grandma and grandpa's old home that has appreciate 80 thousand percent since they bought it in the 60s and is now paid off is regressive. That much also needs to be recognized.

The short answer is no.

In terms of the ole revenues versus growth debate, I will relink an NBER study from superstar economist, Greg Mankiw:

Mankiw

While a cut in capital gains tax isn't fully self-financing, the true revenue cost is cut in half by extra growth.

Thats quite a bit of growth.

Of course, any debate about raising taxes deals with what the extra taxes finance. I personally don't think the government has a good track record on that question.

There is other relevant economic reasoning, most of which AmLord has pointed out about liquidity, but I think the argument against raising the capital gains tax is defended well enough on a non-economic basis (also raised by AmLord). We want to reward people whom prepare for their futures, and avoid taxing excessively their savings. In our current tax code, we recognize and protect housing (to a certain extent) from capital gains for this reason. Sometimes, people just want to protect their savings against inflation, which is best done through capital assets, like stocks. It's foolish to increase the capital gains tax, which benefits us all, just to zing a couple of zillioniares because they benefit disproportionately.

Effectively, income is not income. We should actively encourage vechiles that promote savings, as we do with houses already (to a certain extent).

This is the meat of the topic. Assuming tax cuts did increase revenues, would we raise taxes, on everyone, just to create a level of "fairness?"

In my opinion, Obama gave an uncharacteristically terrible answer. If increasing the capital gains tax seriously led to less revenues, I wouldn't want to increase my capital gains tax on assets just to make things "fair," even if some rich guy was making millions off it. We both benefit, creating a scenario where no one benefits for the purposes of fairness is ridiculous.

1. Do you favor an increase in the capital gains tax? Why?
No.

2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?
No, not only is it not a just undertaking of our government, but it is a violation of the 14th Amendment, "equal treatment." Nor, to be clear, is it a just undertaking of any government.

I just thought I'd point out that the Capital Gains Tax has been reduced during periods of large economic expansion, and generally increased during periods of economic stagnation or recession. To imply causality is a stretch...

Let's make that potentially could help me in certain situations, CR. My apathy about capital gains tax is partly because I take the standard deduction and have all along, except for one year with special circumstances. Lydia takes the mortgage deduction because she has been freelancing much longer than I have and also makes the payment, sometimes by the skin of both our teeth.

I forget how much profit you can make on a house sale that is tax-exempt for a few years, and if you roll it into another house the gain isn't taxed. Having been a homeowner/mortgage holder only once in my life, it hasn't been a concern.

But I will say this: People racking in millions or billions of smackers each year must be awefully dim to not realize that they are getting more than enough. If I were in that situation, I'd not be worried about taxes. That's what accountants are for, so I'd fret over the honesty of my accountant. Thinking Willie Nelson here.

Anyway, I don't think very many voters thought anything about Obama's remark. Capital gains tax isn't on the radar for most people.

But let's say that reducing the capital gains tax would indeed create jobs. I'd only be for it if there was some way of ensuring that those new jobs go to US citizens. I'm doubtful that it can be done. What I'd like to see are some definitive studies that would justify a capital gains tax reduction, like an ROI study. That strikes me as being a fair requirement before we make the rich richer.

Depending on the small business AM- for instance- I can't hire an illegal to do the job I need done in my business- I need a highly skilled, and even fairly well known, employee- because I am in the field of mechanics in my business, and trust has alot to do with my business. They trust my mechanic is the "best".

But, a lawn care business might do much better with illegals.

I do think they are seperate issues- to be fair- I have always advocated jail time, long jail sentences, for employers that routinely hire illegal aliens. I mean, I occasionally hire unskilled labor on a temp basis for spring cleaning or painting or whatever- I use redi-labor. They state in thier contract that all have been checked and documented as legal for employment. If redi-labor is not holding up thier end of the bargain, I am all for lawsuits and jail time for those folks.

The ability to move that capital into something other than another house is important AM- for instance- I want to "downsize" my house while I "upsize" my business, or even downsize the house to something better for me- and I realize a huge profit that can be all written on to the new house- it is not good for middle class America to have to face large penalties when they do this. My parents have sold thier house for 750k dollars, having bought it unfinished in '77 for 90k dollars, and only owed 120k on the mortgage (refinanced to build a retirement home in hawaii about 10 years ago) - so they are seriously looking at 500k dollars in profit, that could be taxed under capital gains.

they are both on fixed incomes and retired- this seems to me to be the best retirement for an aging couple, and not to mention the fact, good for everyone, because they are financially secure.

Well, good for your folks, CR. Personally I would not mind paying taxes on half a million in housing sale profit. Even if the tax went up to say 36 percent, that leaves $320,000 in the clear. No matter how you cut it, that's pretty darn good for doing nothing else but living in the right house in the right place during the right time.

One of my fantasies has to do with a rich Japanese doctor driving by this place and going, "I'll give you five million dollahs!" Or maybe some celebrity.

So would I care about capital gains tax with that kind of windfall? Nope. It'd be free money because I really didn't do a thing to earn it.

I can see the problem with using the crib to fund business ideas. Still, that's not enough to get me on the side of cutting out the cap gains tax. I see that as a known cost of doing business.

I am on the side of encouraging small business, like free advice from SCORE, business incubators, SBA and the such. I'm just not convinced that cutting the capital gains tax is anything but making the rich richer. That's because it doesn't mean squat to me, and if I get a windfall big enough to be taxed, oh well . . .

So I'm back on the thing that most people don't care and probably don't know what a capital gain is in the first place. Not part of their cosmology. Therefore, it's not a big campaign issue this election season.

Wouldn't that be easy to tinker with though AM? You can limit the capital gains break by net worth, single sale per 5 years, all that stuff- as far as my folks getting that much money even with capital gains, not true- everyone takes a piece of that pie- don't forget commissions, closing costs etc etc. You would be suprised at how much it costs to sell your house!

I have always been for TARGETED tax cuts- for instance- why is a doctor that makes, oh, 350k a year lumped in with Bill gates?

Lack of accountability for uber-rich america when it comes to shady deals, tax fraud etc is the problem here as well- and I think the capital gains tax is the wrong tool to fix this.

Having NO capital gains tax for anyone with a liquidity of under 1 million dollars or assets totaling less than 10 million is a very, very good idea in helping the middle class go up that economic ladder.

No. Because I have a 401K and I own Mutual funds and have a 529 (for kids college) to help pay the big college bills I have coming. So like half the country the Obama “solution” will not hurt the rich – but most of us.



Fairness? Come on – this is about sucking the upper and middle classes dry and it will work perfectly. Any one who says Obama is for the middle class has not looked carefully at his liberal Democrat plans for us. This particular tax will take money out of our pockets.

Fairness has squat to do with this.

THIS is why we don't want Mr. Obama as President.

"On December 31, 2010, the low tax rates on capital gains and dividends enacted in 2003 will increase to the higher level that applied prior to that year. Many economists agree that the expiration of these tax cuts will discourage investment and slow economic growth. The United States already has one of the world’s highest capital gains tax rates.

This paper examines the economic effects of allowing the tax rates on long-term capital gains and dividend income to increase in 2011. Because the economy would suffer from these tax increases, Congress should act now to make permanent the existing tax rates for capital gains and dividends.

Our analysis indicates that higher tax rates on these forms of income would do serious economic harm.[1] For example:

The slower economy causes employment to shrink by 270,000 job in 2011 and 413,000 in 2018. Similar job losses continue for the next seven years of our model’s forecast horizon of 2008 through 2018.
Economic output as measured by gross domestic product (GDP) after inflation would fall by $44 billion in 2011 and $50 billion in 2012 from the levels that the economy would attain without this policy change.
These economic effects would be vividly evident in take-home pay. Personal income after taxes would decline by $113 billion after inflation in 2011 and $133 billion after inflation in 2012 when compared, again, to levels that would likely prevail without tax rates going back up."

http://www.heritage.org/research/Taxes/wm1891.cfm



OMG I agree with CR!

Isn't that 401(K) of yours tax-deferred?

The issue of fairness is a legitimate one. To me, it's hard to argue with the "income is income" argument. And for those of you worrying about the negative effects of raising the capital gains tax on federal revenues or the economy, remember that capital gains revenues really aren't that big a hunk of the federal pie, maybe around 10% of what is collected as income taxes.

Plus, I don't think that raising the CG tax will really "hurt" the average guy too much. Stocks owned in IRAs won't be affected (yet, anyway). And if you own stock for the purposes of investing your excess cash, well, count your blessings, as you are probably pretty high up on the economic food chain. And if you are one of the targets of the idea, living off of investments yet getting taxed at a lower rate than a middle-class earner, well, what is your personal justification for paying at that lower rate? (Note: when I say "personal justification," I'm not looking for "It's good for tax revenues" as an answer. I want to know why one person should pay tax at a lower rate based on the way their money was acquired.)

1. Do you favor an increase in the capital gains tax? Why?

Yes, I think it is something that exacerbates the natural inequality of wealth that happens with a capitalist based system. I think that a dollar earned by labor should always be taxed at an equal or lower rate than money made by money or capital.

Since I believe our economic system is gamed seven ways to Sunday by those who already have, I am in favor of wrapping all revenues into one tax system and calling all income, income would be preferable to what we have now. I would rather have a higher capital gains rate than an income tax.

2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?

Not for the sole purpose of fairness. But for the long term health and stability of the American economy and society I think it is a good move. Also clearly there is a valid debate about the impact of capital gains tax reduction. There is clearly a reaction that would be expected if there are changes in the tax policy. For example, if Bush's proposal to eliminate the taxes on dividends was approved by Congress, then the value of stocks would rise as a result. This could be misinterpreted as a boost to the national economy and not an adjustment to the higher value of holding tax-free assets instead of assets generating taxable revenues.



Well Cruising Ram, the two different text books that I am teaching United States history out of this year must have it wrong then.

Link

link

link

1. Do you favor an increase in the capital gains tax? Why?

Yes - income is income. I think the idea that all capital is somehow more important than incomes because it "creates wealth" is nonsense - unless it is specifically employed in the creation of jobs that would not otherwise created* then it only creates wealth for the owner of the capital.

*i.e. by people who invest in the start up of a business or in the planned expansion of an existing one. Just buying & selling stocks from the stock markets in the way most savings plans do doesn't make a colossal difference to a business (buying them and keeping them for a long time does, but few individuals or institutions do that consistently or for the very long term, nor in our current capitalist odel would it make much sense for them to do so).

2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?

Hmm. There seem to be two different - indeed, diametrically opposed - definitions of "fairness" here. One - the idea that seems to have motivated Sen. Obama's comments (however well or poorly expressed) - is that it is not fair that person A with an income of $50,000 p.a. who gets it all as paid salary pays one level of tax, while person B on the same income who makes it all in capital gains pay a lower level.

The other is that taxation itself is - in an of itself - unfair, that the only acceptable movement in taxation rates is down, and the only reasonable distribution of taxation is the same rate applied to everyone (regardless of the enhanced ability to legally avoid tax that usually goes hand-in-hand with high income, and the fact - which AuthorMusician alluded to - that the rich can afford to pay more in taxes than the poor without significantly affecting their standard of living).

The former position makes a geat deal more sense to me than the latter; and even Obama accepts the "same rate applied to everyone" argument to some extent, because he know that the people who make their living from capital gains pay a lot less of their income in tax than people who work for a wage (employed or self-employed).

Oh, and by the way, Obama's comments, taken on their own, say nothing about income redistribution. For that to be the case he would have had to say, in the next breath, that the tax increases on capital gains would pay for increased welfare spending, tax breaks and cuts for the poor, or some other such measures that re-distribute the income taken by the increased taxes to the poor. The way I read it, he really was talking about the fairness of the taxation system.

America is in fiscal defecit domestically (I'm not talking about the trade deficit here - that's a whole other topic). The quickest way to solve that is not ONLY to cut government spending, as the right tends to argue for, OR to ONLY raise taxes, as the left often argues. The quickest way to solve the problem is to cut spending AND increase taxes. And NOBODY is going to be especially enthusastic about that, except maybe government economists.

1) Increasing the cap gains tax will cause a short term flurry of sales of appreciated cap gains property before the new rates take effect, and then our growth will slow as people will not invest in deals that are no longer profitable at the new higher tax rates. The cap gains tax should be revoked altogether because then long term business decisions will be made solely on the business ramifications of the deal, not on tax incentives/disincentives. The nations with the lowest cap gains rates are experiencing the biggest growth. http://www.internationaltaxreview.com/?Pag...728&TYPE=20

2) No. I do favor whatever social pressure we can exert on businesses to lower executive comp for the morale of all, but the lawmakers should stay out of it. I think it is bad business to be laying off many workers while your CEO gets a package worth 80 million per year. Redistibution of income for "fairness" is, well, Marxist. "From each according to this ability, to each according to his need." We all know this, of course, whether we choose to admit it or not.

The goal of our govt should be to make the entire pie bigger. Frankly, if our govt would secure an independent, home grown energy program, protect some key industrial businesses, and give us a very pro-business tax and regulatory environment, our pie would grow quickly and our economy would rebound for the long haul. Ireland is a great example, as the link above attests.

Only until you actually need the money.



And the negative and ripple effects as I have outlined are more substantial and hurt everyone. Certainly Dems never saw a TAX they didn’t love and want to increase. The increase would affect pensions and literally anything and anyplace retirees have money invested.

So who are you worried about for “fairness”? The bottom 20% of the income scale will get little benefit but then they pay no taxes either .

Anything that “hurts” the economy, companies, or their investments “hurts” the average guy.

1. Do you favor an increase in the capital gains tax? Why?

Big surprise here - no. Raising the capital gains tax is incredibly short sighted. It may increase temporary revenues but it will have long term consequences that are distant and far reaching. Not only does it put more money in the hands of the federal government, it hinders investment - the very investment that creates jobs and accelerates growth (people seem to forget that the rich, love them or hate them create jobs and wealth in this country). Cutting the tax, however, will allow more money for investment which will create more jobs. How could increasing the tax possible make sense?

2. Is taxing richer citizens more for the sole purpose of fairness a just undertaking of our government, even if it reduced tax revenues?

Fairness is a funny thing. Everyone likes to be for fairness, except when it applies to their own person. You do not want things to be fair. Is it fair that you got that last cupcake over Mary Anne? Is it fair that you got that promotion over Joe Schmo? Is it fair that we live in the US as opposed to a third world nation? In reality, 'fairness' is an irrelevant concept in politics and economics. Nothing is fair and everything is fair. Trying to apply such concepts in a practical manner will only end in unfairness. Why should an arbitrary third party decide what is fair? Is that fair? The free market, unhindered by arbitrary power is fair - it is amoral.

First of all, I don't think that raising the capital gains tax to match the income tax would have much of a negative effect on the economy. I'm not talking about raising the CG tax rates for businesses - and I don't think Obama was, either - I'm talking about the CG tax rates that show up on the good ol' 1040 form - occasionally, very occasionally, for most of us. But if you are way up in management, it shows up a lot, often because a portion of their compensation is in the form of stocks and stock options, specifically to take advanage of the lower rates. They could just as easily get paid in cash.

And how would you tax those who are already sitting on large piles of cash, and make their income (and grow their furtunes) by investing in stocks (or art, or anything else that is relevant)? Do you really think that they are going to do something different if their tax rates go up a bit?

I am of the camp that believes the increased revenues due to lower CG rates are simply short-term reactions to the lower rates (increased selling when the rates go down), and that CG revenues are cyclical, no matter what the tax rate. (QH and/or logophage, I believe, had some terrific posts on the subject in a different thread.)

I am also of the camp that believes a bigger pie is not always the best thing for the country, when it comes at the cost of increased disparities in wealth between the rich and the poor. And that is the fairness issue. You want to let the haves pay a lower tax rate than the have-nots because you believe that the haves will spur the economy to the benefit of the have-nots. It's a classic Reaganomics argument. But I haven't seen those rules benefit anybody but the haves. I see the stock market increase while jobs go overseas. I see CEOs making insane amounts of money while their companies slash jobs because they are failing to make a profit. I see deregulation in the markets blowing up in the S&L and subprime mortgage debacles, to the disadvantage of, primarily, the little guys. Basically, I don't see much of anything "trickling down" past the upper middle class. The lower capital gains rate is just another advantage that the rich have legislated for themselves, and they didn't do it to make America better.

It effects all investments that have sales that generate capital gains – pensions, 401ks etc. To say it would not effect at least half the population is rubbish.

Macroeconomic Effects. Economist Allen Sinai maintains that a capital gains tax reduction would lower the cost of capital, boost investment, and stimulate economic growth. He estimates that a capital gains tax reduction could:
• increase real gross domestic product (GDP) by an average of $51 billion annually;
• create 500,000 new jobs by the year 2000; and
• increase real business spending by an average of nearly $18 billion annually.
The effects of increased investment and economic growth would reverberate throughout the entire economy in the form of higher wages and rising living standards. In addition, the United States taxes capital gains more harshly than its major international competitors. Reducing the capital gains tax rate could increase U.S. global competitiveness.

Tax Revenue. The historical evidence suggest that capital gains tax reductions tend to increase tax revenue. When capital gains tax rates were lowered in 1978 and again in 1981, revenue climbed steadily. Conversely, when the tax rate was increased in 1987, revenue began declining despite forecasters predictions it would increase. For instance, capital gains tax revenue in 1985 equaled $36.4 billion after adjusting for inflation, yet $36.2 billion was collected in 1994 under a higher tax rate. In other words, tax revenue in 1994 was slightly less than it was in 1985 even though the economy was larger, the tax rate was higher, and the stock market was stronger in 1994.
Who Would Benefit? A recent NASDAQ Stock Market survey suggests that the notion that all investors are affluent gentlemen coupon-clippers is no longer true. The survey found that:
• stock ownership doubled over the past seven years to 43 percent of the adult population;
• 47 percent of all investors are women;
• 55 percent are under the age of 50; and
• 50 percent are not college graduates.
The survey results suggest that a capital gains tax reduction would directly benefit many Americans across the income spectrum. More importantly, a tax cut would benefit all Americans by promoting economic growth, thus boosting workers' wages and living standards.

Tax Fairness. The treatment of capital gains is generally unfair and strongly discourages saving and investment -- two activities crucial to economic growth.
• Taxpayers must pay capital gains on illusory, inflation-generated gains. In years of high inflation, this means people may pay capital gains taxes on capital losses.

• The effective capital gains tax rate often exceeds the statutory maximum due to various phase-out provisions in the tax code.
• Saving is subject to three, and sometimes four, levels of taxation.
Reducing the capital gains tax rate would mitigate the problem of taxing inflationary gains and would help reduce the bias against saving and investment which prevails under the current tax code.

http://www.house.gov/jec/fiscal/tx-grwth/capgain/capgain.htm


You lost me. Certainly an expanding economy can make the “rich richer” but it always increases income and opportunity for all income groups and by definition those who make more pay more in our graduated tax system so what do you mean by “fairness issue” Are you saying we should level all incomes – a la Socialism? LOL.