Wednesday, January 18, 2012

Capital Loss

In my previous post, I noted that I wanted to address the capital gains tax and how it could increase US tax revenues. Seems Paul Krugman beat me to the punch yesterday:

So nothing in our history or experience says that unearned income has to be taxed this lightly. It’s not a time-honored principle; it’s a Bush-era innovation, pushed through the Senate, by the way, using reconciliation.
His main point is that capital gains taxes have been higher in the past and that the 15% capital gains tax is a recent innovation. Not only is it a recent innovation, it disproportionately benefits high income individuals.

For the top 400 individual income tax returns in the US, capital gains have averaged over 50% of adjusted gross income from 1992-2006. Changing the US tax code isn't as simple as increasing taxes on wages and salaries. When a top earner makes 60% of their income through capital gains (which is taxed at a lower rate than wages and salaries), the rest of America is at a disadvantage.

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