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Date:         Thu, 28 Jan 1993 09:34:21 -0400
From:         The Integral Differential <DEMON@DESIRE.WRIGHT.EDU>
Subject: Re: Cap Gains (the famous comic book hero)
Comments: To: POLITICS@OHSTVMA.ACS.OHIO-STATE.EDU

>>         Perhaps.  But capital in the hands of business does tend to stimulate
>> the economy.
>>         And in order for capital gains revenues to rise, capital gains have
 to
>> be realized: stocks and/or houses sold for example.  So all that income
 doesn'
>> simply get stashed in a portfolio, to be dusted off at retirement.
>
>But there are lots of activities that generate capital gains that don't
>generate a penny of business investment: speculating in the art market,
>for example.  That kind of activity is also stimulated by lower rates.

        Securities are the best example, though.  Housing doesn't seem to be
effected by the rates, but is a component of CG revenues.

>And, stimulus comes from getting NEW capital into the hands of business.
>Much of the activity caused by lower rates will involve trades of
>existing stock.

        But capital previously tied up in tax free bonds *is* new money.

>Also, KAT has an excellent point about the ethical message sent: a lower
>rate on capital gains tells the nation that speculation is a better way
>to make a living than work.

        There's nothing wrong with that.  Investment is work, simply a
different kind of work.

>>         The two periods I have data for (the 60s and 80s) in which declining
>> rates were followed by increased revenues would seem to indicate a livlier
>> stock market, and a livlier capital pool for business.  As a result of
>> sheltering, not a bad thing.  Remeber that in times of high taxes the money
>> goes into tax-free bonds--mostly to the government.  Which is a more
 efficient
>> way to get capital out to those who need it?
>
>The data you've shown so far don't support that conclusion.

        I can strip some text out of _The Growth Experiment_, by Linsdey, which
does show that...(but it's at home, so it will be tomorrow :)

>Also, the argument you're making here isn't really about capital gains,
>it's about high rates in general.  You aren't showing us why rates for
>capital gains should be lower than rates for ordinary income.  I am also

        I haven't proposed that.  Simply that rates should be adjusted until
revenues maximize.

>skeptical that tax sheltering provides a significant amount of
>investment capital.
>
>> >So Brett's proposal (continued lowering of the capital gains tax rate
>> >until revenues cease to rise) is really just a series of tax cuts for
>> >the upper brackets.
>>
>>         Whoa!  Where the heck did that come from?
>
>Since the lower capital gains rate provides an incentive to shelter
>earned income, the total tax bill is lower than it would have been with
>equal rates (that's the purpose of a tax shelter, after all).

        The rich aren't the only one with income to shelter, plus lower rates
have increased revenues.  It's thus not a tax cut in the sense that the
government receives more money than before.  We shouldn't be preoccupied with
the notion that the "rich" are somehow "getting away with something".  We
should be examining the results of the tax policy.

        Maybe it's just me, but I don't remember the constitution saying
anything about redistribution of income or "soaking the rich".

>My main point is that lower capital gains rates encourage unproductive
>speculation at the expense of productive investment.  It would make for

        I disagree totally.  When rates are high money is put into tax gfree
areas (mainly government funds) which can hardly be considered as productive as
private industry.  On the other hand, making capital available to business lets
the market reward successful firms.
        Did we not see 20 million jobs gained in the 80s?  How many since the
tax farce of 1990?

>much better economic planning to keep the rates on all types of income
>the same, so that investment decisions can be made without having to
>second-guess the fluctuations of the tax code.  I also feel that these
>taxes should be indexed to the same extent as taxes on other sources
>of income are indexed.
>
>Best,
>Peter

        I don't think we should tax capital gains at all.  But if we do, index
for inflation and adjust the rate independent of income tax rates.  Capital
gains taxes are a second tax, and thus shouldn't be counted as income (again).

Brett'
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