I curious to know how eliminating Capital Gains taxes would hurt or help the economy?
Would it not help repatriate all of the Billions overseas?
All the billions held overseas has to do with corporate taxes (and corporate transfer taxes): capital gains taxes aren’t as relevant.
The empirical evidence that a decline in capital gains taxes will supercharge the economy is basically nonexistent. I trust there’s evidence for milder effects, though generally speaking pundits tend to assert this sort of stuff without evidence. I suppose I could do a lit search on this later, maybe.
Repatriating funds is mostly an issue of how dividends are taxed, and also how subsidiaries are taxed in general. A company is normally taxed on their worldwide income, but if there is a subsidiary that doesn’t operate in the US, then it is only taxed in the country it operates in. The US company pays tax only when it receives income as a result of its ownership of the foreign company, which is usually paid as dividends.
The bigger question of how capital gains affects the country’s economy is a hard one to judge. The goal is to reward investors who spend money and create jobs through their stock and other capital investments. However, the evidence is weak (at best) that lower gains rates do much to make investments more productive for the economy as a whole.
If you ask me, we should keep IRC Sec’s 1244 and 1202 (or some similar version of them) and stop favoring capital gains overall. 1202 excludes capital gain income, but only on small business stock held 5 years - these are business starters who held for a long period of time, not just speculators. And Sec 1244 is a better write off for losses on similar companies. Again, rewarding new ventures and not just speculation. Plus, both of them are limited in scope - you’re not sheltering billions through either provision.
Well to be revenue neutral it would require either cuts in spending or raising some other taxes. Capital gains are earned by the wealthy in a much higher percentage than wages/salaries or interest, this would shift the tax burden towards the poorer portion of the public.
As it is many capital gains are never taxed. When property is inherited, the heirs get a tax basis based on the value in the estate. So stock, etc. held for long term can have large capital gains never taxed.
What about removing all (or most) corporate taxes and then taxing capital gains by including it as income (and thus the graduated tax scale)?
The contrary view, of course, says treat all income the same. If it ends up in your pocket, it’s income, tax it.
the question is whether a greater capital gains return would be spent wisely to improve the economy by a rich person or a poor person. Statistics is the art of torturing numbers to make them say what you want them to say.
A poor person with a higher wage will tend to spend most of their money immediately, thus boosting the immediate economy. If they don’t blow it on frivolities like food and rent, they spend it on that new big flatscreen TV. All this economic activity helps the economy. Walmart sells more TVs, hires more part time workers, the average Joe can have 3 part time jobs instead of 2 and makes more money, has a better quality of life.
Meanwhile, the guy with the mustache from Monopoly ™ puts his capital gains savings into a hedge fund, which could use it to invest in a new factory for Detroit. After all, money is money. However, they could just as easily invest in a company in India or Swaziland.
So I’m going to argue that reducing capital gains may help the world economy, but taxing capital gains and reducing everyone’s taxes overall, probably ahs a better local effect.
In theory, taxing capital gains as income will make investment less attractive and lead to a liquidity crisis for some types of business that depend on selling equity to fund themselves.
Hopefully Measure for Measure will be back to explain why that is (or isn’t) so.
I would tax capital gains as income, but I would index the basis of the grains for inflation. If I had, say, IBM stock that I bought 50 years ago at $10 and it is now worth $100, there would be only small capital gains since the dollar may have inflated by a factor of nearly 10 in the meantime.
CGT is only payable when the gain is realised. (In the UK at least) so at a time of low interest rates, many people will use their fixed assets as security rather than realising them. I have no statistics but I suspect that most CGT is paid as part of a post mortem estate settlement.
Corporation tax is a different matter. Ireland has done very well out of reducing CT down to 12.5% (The lowest rate in Western Europe). American companies are apparently paying the best part of 40%.
The same is true of capital gains taxes in the US, but assuming your guess is true Americans are much more active investors. Plus, most securities are owned by other businesses rather than individual investors.
In theory, we do have a much higher corporate tax rate. In practice there are so many loopholes that even highly profitable companies may wind up paying almost nothing.
I don’t know about the UK, but as I said upthread, in the US, capital gains are not taxed in an estate (unless the estate sells the property). The heirs get the property and their cost basis is the value of the assets in the estate so they never pay taxes on those gains either, just the new ones after their purchase. There is an estate tax for a small fraction (0.2%) of all estates, but that is based on the value of the assets and does not depend on the cost basis at all.
In the UK, for a private individual, capital gains have to be paid on an estate unless inherited by a spouse (avoidance schemes notwithstanding) No CGT is payable on an individual’s main residence, but other property and assets are liable and paid on a sliding scale according to the actual gain since purchase
I should add that the Inheritance Tax threshold is £325,000 so broadly speaking, only estates worth more than that are liable to pay the tax. If you are married or in a civil partnership, your estate can be worth up to £650,000 before Inheritance Tax is payable.
This sounds a lot, but the average value of a house in the UK is fast approaching £200,000 and in London, it’s already over £½ million. so many ordinary people, even those with few assets apart from their homes, are having to pay.
Given this:
why should this
mean those “ordinary people” have to pay?
Well, I have a second house in the Lake District. Don’t all ordinary people? 
I believe bob++ was talking about estate taxes there.
That’s the theory, but I don’t think the argument holds much water, especially for publicly traded companies. The risk/return profile from the stock market is not duplicated by other asset classes, and you don’t need a favorable tax rate to make it an attractive investment.
It’s perhaps an incentive to invest in privately held companies, especially smaller ones and startups where you don’t have a public equity market. But even then… I have never met a single person who said “I put my money there just because of the tax rates.”
Let’s also not forget that a large percentage of the market is held in retirement funds and accounts, whether we’re talking corporate and government pension reserves or individual 401k/IRAs. Generally, these earnings are not taxed as capital gains, but as ordinary income. You don’t see anyone saying “There’s no stock in my IRA! It’s not worth it without the lower capital gain rate!”
I don’t have enough knowledge to debate one way or another (which is largely why I asked the question 
) but isn’t Warren Buffet basically arguing to raise CGT when he compares his overall tax rate to his secretary’s? I assume that Buffet wouldn’t be in favor of a policy that would create a liquidity crisis.
This makes sense. There’s really no reason not to tax Capital Gains as income.
You assume buffet has everyone’s best interest in mind rather than his own.
Buffet was arguing that he should personally be taxed more.