Like so many other tax issues, capital gains taxes often get caught up in the rich-poor debate. As Congress begins the battle over a new budget, it seems clear that a cap gains cut of some sort will be included. President Clinton has even made favorable, albeit faint, noises about lowering cap gains taxes. That is, you need money to build factories and offices. Anything that the government does to boost the cost of capital slows economic growth.
Capital represents the tools that the average person has to work with.
Data from Aldona and Gary Robbins of the Institute for Policy Innovation shows that this is true. A study by Yolanda Henderson, an economist with the Federal Reserve Bank of Boston, looked at the hike in capital gains taxes that took place in the 1986 tax reform. That may, in part, explain why so many companies got into trouble during the late 1980s and early 1990s, and why job growth was so slow. Capital formation was also slower. Again, those who benefit most from lowering cap gains levies are not the rich, but the poor and the middle class.