For them, a significant capital gains tax differential can make a big difference. Return to beginning Raise Tax Receipts Critics of lower capital gains taxes argue that such cuts will reduce federal revenues and thus add to the budget deficit, absorb national saving, and raise interest rates and capital costs. Both economic analysis and experience effectively refute this view. There is actually little difference between congressional estimates of the revenue impact of capital gains tax cuts and those of the U.S. Treasury. There is no revenue accounting for lower capital costs and increased economic activity.
Experience indicates that lower capital gains taxes have a positive impact on federal revenues.
The most impressive evidence involves the period from 1978 to 1985. Research by experts at the prestigious National Bureau of Economic Research indicates that the maximizing capital gains tax rate, i.e., the rate that would bring in the most Treasury revenue, is somewhere between 9 and 21 percent. Our international competitors recognize the contribution a capital gains tax differential can make to new risk capital, entrepreneurship, and new job creation. The United States taxes capital gains more harshly than almost any other industrial nation. Germany, Japan, and South Korea exempt or tax only lightly capital gains on portfolio stock.