Politicians should not try to target groups for the tax cut. The tax cut must be broad-based to truly boost incentives for investment and entrepreneurship. Capital gains tax rates should be cut in half. This would drop the top rate from 28 percent to 14 percent. Because capital gains taxes are not indexed for inflation, the real capital gains tax rate is much higher than the stated rate of 28 percent.
Some investors have to pay taxes on real capital losses.
Many taxpayers simply hold on to their investments not for economic reasons, but because they would owe taxes on imaginary gains due to inflation. Holding periods should not be imposed. According to Keating, the notion of an inherent short-term outlook in the marketplace does not hold up under the most cursory review of history and the fact that markets are more oriented toward the long term than, for example, government is. Clinton has offered capital gains tax relief aimed toward homeowners. Although this cut will do little to boost investment and the economy, the proposal indicates recognition on the president's part that the tax is punitive.