Contrary to the assertions of capital gains tax cut proponents, capital gains tax cuts have never led to improved economic performance. Tax laws that have increased the capital gains tax, however, typically have been followed by increased growth. The record of capital gains tax cuts when it comes to jobs is equally dismal. In fact, the unemployment rate rose sharply after both the 1978 and 1981 capital gains tax cuts. Conversely, the jobless rate fell notably after the 1976 and 1986 capital gains tax hikes were enacted.
History belies the claims that low capital gains taxes stimulate the economy.
The long-term economic case against capital gains tax loopholes is even stronger. In essence, capital gains tax cut proponents seem to believe that free markets don't work, that the government needs to step in with subsidies designed to override the signals the market sends about the level and allocation of capital. But this idea that the government should be making investment decisions for business is terrible economics. The truth is that paying people and corporations to make investments that otherwise make no business sense undermines economic growth. Capital gains tax breaks and other supply-side loopholes of the first half of the 1980s inspired construction of tens of thousands of unneeded office buildings and led to myriad other dramatic and wasteful misallocations of American capital and effort.