# What Would A 0% Capital Gains Tax Do To The US Economy (short and long term) **URL:** \ **Category:** Great Debates\ **Created:** [August 12, 2010, 3:06pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042 "2010-08-12T15:06:23Z")\ **Posts on this page:** 8\ **Page:** 4
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [August 13, 2010, 7:19pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042/61 "2010-08-13T19:19:09Z")
> [@IdahoMauleMan](#): > > Who is giving them what money, exactly? Please explain. It’s a little something we like to call irony. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [August 13, 2010, 7:21pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042/62 "2010-08-13T19:21:16Z")
> [@Little\_Nemo](#): > > > [@IdahoMauleMan](#): > > > > Who is giving them what money, exactly? Please explain. > > It’s a little something we like to call irony. You’ll have to bear with me. I know I’m not as sharp as most people on the SDMB. I still don’t see the irony. But if it’s obvious to everyone else, don’t bother to reply. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [August 13, 2010, 7:28pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042/63 "2010-08-13T19:28:27Z")
> [@Damuri\_Ajashi](#): > > > [@IdahoMauleMan](#): > > > > 1. Keeping long-term cg taxes at 15% permanently (and getting investors to believe that) and not playing politics with ‘special cases’ like PE firms. > > I presume you are talking about the “carried interest” provisions taht are workign their way through congress right now? Do you even understand what the issue is? > > If you manage my money for me and i tell you, “hey Ida, I will pay you 2% of assets undermanagement and 20% of any gains” is the 2% compensation? Is the 20% compensation? If so then why the hell should you be able to pay capital gains on it jsut because your income derives from income that is capital gains in my hands? > > Oh wait, there is a technical rule (that was intended for use by oil wildcatters) that says that you should actually be treated as my partner and therefore you get flow through treatment of the income you derive from teh fund. > > Well there is also a technical rule that says that gifts are nto taxable and get my gift to my waittress at the end of every meal always gets taxed as ordinary income. > > BTW, if certainty is really all you need then why the heck do you care if there is a permanent special rule for hedge funds and private equity funds? > > Its not playing politics, its about tax equity. Right. Then what will the next rule change be? Suppose they change it for carried interest (and I hope I understand it, since a portion of my personal wealth depends upon it) and we agree that it was for ‘tax equity’… whatever that is supposed to mean. It generally means making sure people feel good about soaking somebody or other, and not whether the overall pie gets bigger due to incentives for capital formation and job creation. But let’s leave that aside for now. Suppose it does change. Are we done, then? Is that the last change? Or are there more coming? Is there another one coming for the ‘special investments’ that the UAW or Teacher’s Unions make? Or maybe a special tax or bill of attainder like that proposed for AIG bonuses? Or maybe we pass a law saying that BP can’t pay a dividend to its shareholder’s - something that was also mooted. That’s the point of Sam Stone’s post. And my follow on point. Your argument about ‘tax equity’ and what is fair, and what isn’t, is a never-ending mug’s game. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [August 13, 2010, 8:43pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042/64 "2010-08-13T20:43:25Z")
> [@IdahoMauleMan](#): > > > [@Little\_Nemo](#): > > > > It’s a little something we like to call irony. > > You’ll have to bear with me. I know I’m not as sharp as most people on the SDMB. > > I still don’t see the irony. But if it’s obvious to everyone else, don’t bother to reply. The wealthy have advantages. They have a disproportionate voice in politics and the media. They, like any other special interest would in the same position, use this to their benefit. The tax system is already designed to favor the wealthy. They pay a significantly lower effective tax rate than the non-wealthy. Then they use their media power to put out the message that the tax system is unfair to them. Which is true but only in the sense it’s unfair in their favor. The message they put out is that it’s unfair against them - which is not true. The media also puts out the message that anyone attempting to adjust the tax system in a more equitable way - one in which everyone pays a genuinely equal share - is trying to “punish the rich” or practice “class warfare” or is advocating “socialism”. And that everyone else besides them is a special interest. A lot of people swallow this line. They believe what they hear on the radio or TV without checking into the actual facts. So they decide that the tax system needs to be “fixed” in order to be “fair” - in other words to give more advantages to people who already have a lot of advantages. MOIDALIZE and I were mocking this by satirically suggesting that it would not be enough to reduce taxes on the wealthy to nothing and that they should also be given additional benefits at the expense of the people paying taxes. It’s irony because neither of us actually think that would be a good idea. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [August 13, 2010, 8:56pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042/65 "2010-08-13T20:56:48Z")
> [@Little\_Nemo](#): > > The reason for it is that people who live on investment income tend to have more influence on the government. Cite? Or are you referring to the companies that manage those funds? ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [August 14, 2010, 3:00pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042/66 "2010-08-14T15:00:45Z")
> [@Quartz](#): > > > [@Little\_Nemo](#): > > > > The reason for it is that people who live on investment income tend to have more influence on the government. > > Cite? > > Or are you referring to the companies that manage those funds? Seriously? ---
**Author:** ![Snag](https://avatars.discourse-cdn.com/v4/letter/s/94ad74/32.png) [@Snag](https://boards.straightdope.com/u/Snag)\ **Post date:** [August 14, 2010, 9:48pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042/67 "2010-08-14T21:48:58Z")
> [@emacknight](#): > > I saw a video of Newt Gingrich proposing this last night on The Daily Show and it got me thinking. > > Currently short term capital gains (in the US) are taxes like income, with a lower rate for long term holdings. > > Help me work through this thought experiment: Let’s say Newt gets his way, and starting in Jan 2011 the government sets the capital gains tax to zero. What’s next in the short term, and how does that play out 5/10 years from now? > > And if the tax rate is zero, what happens to capital loses? Would/could they still be used to offset gains? Payroll taxes would eventually go up about the same amount as capital gains taxes to off set the loss in revenue. Personally, I think a better solution is to flip the current rates and cut payroll taxes about in half and double capital gains taxes. If you free up about 15% of 100 million peoples taxable income to spend or save or pay down debt every week, the economy would likely recover quickly with a bang and this huge flow of money would go a long way towards offsetting the negative effects of increasing capital gains. Plus, wouldn’t this partly make capital more valuable? If it becomes important to hold on to it longer rather than flipping it (obviously not true in all cases but this is often a strategy) and to get the most use out of it as one can? To only sell when one really has to? ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [August 14, 2010, 10:10pm UTC](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042/68 "2010-08-14T22:10:49Z")
> [@Snag](#): > > > [@emacknight](#): > > > > I saw a video of Newt Gingrich proposing this last night on The Daily Show and it got me thinking. > > > > Currently short term capital gains (in the US) are taxes like income, with a lower rate for long term holdings. > > > > Help me work through this thought experiment: Let’s say Newt gets his way, and starting in Jan 2011 the government sets the capital gains tax to zero. What’s next in the short term, and how does that play out 5/10 years from now? > > > > And if the tax rate is zero, what happens to capital loses? Would/could they still be used to offset gains? > > Payroll taxes would eventually go up about the same amount as capital gains taxes to off set the loss in revenue. > > Personally, I think a better solution is to flip the current rates and cut payroll taxes about in half and double capital gains taxes. If you free up about 15% of 100 million peoples taxable income to spend or save or pay down debt every week, the economy would likely recover quickly with a bang and this huge flow of money would go a long way towards offsetting the negative effects of increasing capital gains. > > Plus, wouldn’t this partly make capital more valuable? If it becomes important to hold on to it longer rather than flipping it (obviously not true in all cases but this is often a strategy) and to get the most use out of it as one can? To only sell when one really has to? Making capital available is important when there is a shortage of capital. There is not. The rich are sitting on nearly 2 trillion dollars that has not been invested. Giving them more wont change a thing, just make them richer. They have plenty of money to invest, they just don’t think investing now is smart. [Previous page](https://boards.straightdope.com/t/what-would-a-0-capital-gains-tax-do-to-the-us-economy-short-and-long-term/550042.md?page=3)