If you earn $80K/year and your tax benefit is $30 the you will not change your behavior one bit.
If there is no serious chance of it changing your behavior than you are not the marginal potential investor at that point.
But someone will be.
What is the overall benefit to the economy of reducing the capital gains tax below its already low rate of 15%? What are the negatives?
Books could be written about it, even if getting in to high levels of detail would be more speculation than anything else. But in general terms the upside of lower taxes on investment is more, and less distorted, investment.
The potential downside is less government revenue. If that puts pressure on government spending then maybe its not a downside. If it caused taxes to increase in other areas (either right away, or later on to service higher debt levels) then it is a real downside.
OTOH lower capital gains rates can increase federal revenue. Capital is more mobile than people (and thus investment can go to other countries to avoid high rates, or be moved here if we have very low rates), and also people can avoid realizing gains, but they need ordinary income to maintain their lifestyle.
The higher the starting rate, the greater the net benefit of a cut (at least to a point, cutting rates from .5% to 0% is likely to have more benefit than cutting them from 1% to .5% as it lets you ignore having to deal with capital gains tax paperwork and payments completely.)
So cutting the rate from 15% will not have as big as effect as the same cut from a higher rate. But it still may have a short term result of more recognition of capital gains (and thus more revenue), probably followed by a mid to middling long term result of less revenue (some gains where brought forward in to the short term and thus aren't taken in the mid term, and also the gains that are taken get paid at a lower rate), followed by a long or at least very long term result of higher revenue (as the greater amount of investment and lower distortion of it, grows the whole economy.
But the problem with considering the long term effects of tax changes, is that tax rates and laws don't stay stable for the very long term or even the long term, they move around all the time. |
