Unless the increase in the rate led those high-income taxpayers to reduce their realization of capital gains, since these are the people who can afford to defer their income. That’s why the capital-gains rate is lower, after all; the thinking is that revenue is maximized at a lower rate because this form of income is more easily put off.
Some country does this. I found it for a similar thread, but I’m not seeing it. IIRC it wasn’t a strict index. Somebody objected that it would be too complicated. I disagree, but there are people out there who pay to have their 1040EZs filled, so maybe I’m wrong.
Not really. They are an acknowledgement of marginal utility.
Until recently, the justification for long term capital gains rates has NEVER been “Give capital a break so that they won’t take their ball and go home” Which is what the argument seems to be these days. We have gotten to the point where we now think that we should tax the income that is earned from the sweat of your brow at a higher rate than income earned on investments by the wealthy and the leisure class (we have so many things like 401Ks and IRAs in place that provide tax benefits for the middle class that the capital gains rate is almost inapplicable to them). I don’t know how the fuck we got here but here we are.
Historically the argument for capital gains preferences has been:
Relief from highly progressive tax rates: Back in the day, tax rates were HIGHLY progressive and if you sold IBM stock after holding it for 30 years, you might be subject to a 90% tax rate because the income came in one year instead of over 30 years. The capital gains rate was seen as a form of rough justice to alleviate this inequity. These days our rates are pretty flat.
Relief from double taxation: Back in the day, corporate income taxes accounted for a much larger portion of our revenue base and capital gains rates were seen as a form of relief from that double taxation. Corporations frequently don’t pay any corporate level taxes at all while still paying out dividends and providing capital gains.
People realize long term gains because they need the money, wish to lock in gains, wish to limit losses by selling declining investments, or to rebalance. I’m not sure how much a change in the tax will affect this. It won’t affect volatility very much, I’d think.
In terms of marginal utility I’d suspect tax rates these days are regressive. Though I haven’t looked at the curves.
Yep. The primary purpose of progressive tax rates is to reduce income inequality. That’s government social engineering, by definition.
I thought it was to counter the regressive nature of excise taxes.
Wouldn’t surprise me. Of course, we have so many different flavors of taxes that there are a lot of ways to add them up.