So as a retired person with very little income, some of which comes from capital gains and dividends, I was keenly interested in this subject. So I did some digging into the topic of Capital Gains and Dividend tax increases. Increase in Taxes on Capital Gains and Dividends to 28 Percent The President has proposed an increase the top tax rate on capital gains and qualified dividends to 28 percent for jointly filing couples with $500,000 or more in income. (We assume that the threshold for single filers would be $444,444, the same relative ratio to joint filers as for the start of the current 20 percent top capital gains tax rate.) Raising the tax rate on capital gains and qualified dividends differential would raise the cost of creating and using capital assets, reduce productivity, and reduce jobs and wages. It would gradually reduce GDP and labor income compared to current law. Long term, the reduced GDP and personal incomes due to the tax increase would result in lower total federal tax receipts. In addition, the rate hike would slow the pace at which people trade assets and realize capital gains, at least for several years, which would actually reduce revenue in the short term as well. Thus, the proposal would lose revenue in the short run and the long run. None of the expected revenue from the tax hike would materialize. We first model the economic effects of the tax, and then discuss the realizations effect in the following section. Economic Effects of the Capital Gains and Dividend Tax Rate Increase Currently, the top capital gains and dividend rate is 20 percent for taxpayers with income above $450,000 for joint filers and $400,000 for single filers. It was raised from 15 percent in the 2012 budget deal (effective in 2013). However, under the Affordable Care Act, the investment income is newly subject to the Medicare Hospital Insurance Tax at a rate of 3.8 percent, producing a combined rate of 23.8 percent. We believe the President’s proposed 28 percent rate is a combination of an increase in the ordinary top capital gains and dividend tax rate from 20 percent to 24.2 percent, with the 3.8 percent surtax lifting the total to 28 percent. We have used our TAG model to estimate the economic and revenue effects that increase. A combined top tax rate of 28 percent on capital gains and qualifying dividends for couples with income over $500,000 would: • Reduce GDP by 0.8 percent. (Maybe, maybe not; see businessweek/articles/2012-10-03/low-capital-gains-taxes-may-not-help-the-economy) • Lower the stock of business capital assets by 2.29 percent. • Reduce wage rates by 0.69 percent and private sector hours worked by 0.14 percent, about equivalent to a loss of 134,600 full time jobs. This could cost a family earning $50,000 about $345 in income. • Estimated by conventional method, appear to raise about $19.9 billion a year in 2015 dollars if no change in realized gains and dividends were triggered, and ignoring economic effects. Estimated on a dynamic basis, reduce revenue by about $11.8 billion a year after the slower growth due to the tax reduces GDP, jobs, and wages. The above long quote comes from the website: taxfoundation.org/blog/president-obama-s-capital-gains-tax-proposals-bad-economy-and-budget Many of these projected negatives are based on the following article and logic: iret.org/pub/CapitalGains-1.pdf. I would encourage you to read it, but the quote at the end of the article is very relevant: The model consists of thirteen behavioral equations with thirteen unknowns, fourteen parameters, and four exogenous tax variables. My guess there is no factual basis that substantiates the model nor has the deployment of the model been verified against real world experience. Simply put: ‘Bullshit’ Here are a few other articles on the subject dollarsandsense.org/archives/2011/0611reuss.html factcheck.org/2008/04/impact-of-capital-gains-tax-on-the-middle-class/ taxpolicycenter.org/briefing-book/key-elements/capital-gains/lower-rate.cfm At the end of the day, the evidence that supports the negative consequences of an increase capital gains tax or the positive consequences of decrease in capital gains tax is very poor and since I don’t even come close to $500,000 of income, the consequences to me are inconsequential. My only recommendation is know your facts before you believe the political BS.
Posted on: Thu, 22 Jan 2015 02:36:17 +0000
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