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07.28 A RENEGADE TRAWLER, HUNTED FOR 10,000 MILES BY VIGILANTES

07.28 Gaius Publius: One Way to Ease the Worldwide Water Crisis — End Privatization

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07.28 Hillary Clinton’s Plan To Combat Climate Change With Half-A-Billion Solar Panels

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07.27 ETS would be more cost-effective than higher renewables target, analyst says

07.27 Alaskan villages imperiled by global warming need resources to relocate

07.26 A Millennial Named Bush

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07.28 History and the Iran Debate: Sides and Arguments Line Up

07.28 Is the Democratic Party Abandoning Jefferson and Jackson?

07.28 The Guardian view on Donald Trump’s early lead in the race for the Republican nomination

07.27 Socialism, American-Style [Bernie Sanders wants more efficient or profitable public programs to make the U.S. competitive again]

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07.26 Is this how the Establishment takes down Outsiders like Bernie Sanders? [4:20 video]

07.26 Between the World and Me: 10,000 Years From Tomorrow [We must treat all people as family, and kick ourselves everytime we don't]

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07.28 Huckabee defends claim that Iran deal will 'march Israelis to oven door'

07.28 Goals Diverge and Perils Remain as U.S. and Turkey Take on ISIS

07.28 What’s behind Beijing’s drive to control the South China Sea? [long read]

07.27 In An Effort To Save The African Elephant, Obama Proposes Ban On Almost All U.S. Ivory Sales

07.27 Is the Ugly German Back? Flames of Hate Haunt a Nation

07.27 Who’d be young and Greek? Searching for a future after the debt crisis

07.27 Turkey agrees plan for 'Isis-free zone' along Syrian border

07.26 The Insecure World of Freelancing

07.26 Zimbabwean authorities hunt Spaniard accused of killing Cecil the lion [immoral]

07.26 Turkey sends in jets as Syria’s agony spills over every border

07.26 Solar is bringing a new world to women in Zimbabwe

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  Print view: The Ideal Capital Gains Tax Reform

TAX FAIRNESS:

The Ideal Capital Gains Tax Reform

by Gerald E. Scorse
The tax code—which now makes no distinction between true investments in companies and personal investments in portfolios—should recognize and reward the difference.

Warren Buffett recently enraged the Right by chastising Congress for “coddling” millionaires and billionaires. In a widely quoted op-ed, he urged lawmakers to “raise rates immediately on taxable income in excess of $1 million,” including capital gains. Buffett is right, but not entirely. The ideal reform would make some capital gains tax-free.

President George W. Bush cut the levy on long-term gains to 15 percent. By comparison, the federal income tax alone is 25 percent on the wages of middle-class workers. Including payroll taxes and Medicare, income from work is commonly taxed at more than twice the rate as income from wealth.

Advocates of tax breaks on capital gains claim that investments in the stock market grow jobs and grow the economy. For all but a trace amount of the billions of shares that change hands every day, that’s patently not true. Almost none of the money that flows through Wall Street goes to companies or grows jobs; it simply grows portfolios.

Except for the exceptions.

Small companies with big dreams use initial public offerings (IPOs) to help make those dreams take root and flourish. Later on, companies sometimes issue secondary offerings that raise capital for further expansion.

Investing in offerings like these really does spur the economy. The money goes not into portfolios but to companies that put it to use and create jobs. The tax code—which now makes no distinction between true investments in companies and personal investments in portfolios—should recognize and reward the difference. Capital gains from true investments should become tax-free; capital gains from aftermarket investments should be taxed at the same rate as ordinary income.

Buffett’s call for higher taxes on ultrahigh incomes said nothing about taxing wealth income at the same rate as work income. For that we turn to the recent recommendations of two bi-partisan panels, and to a Republican icon.

Ronald Reagan’s Tax Reform Act of 1986 levied equal taxes on capital gains, dividends, and ordinary income such as wages. In exchange, Reagan won another round of marginal rate cuts and a reduction in tax brackets. His speech at the signing ceremony called the bill “a sweeping victory for fairness” and “the best job-creation program ever to come out of the Congress.”

Reagan’s tradeoff—lower marginal rates in return for equal taxes on all income—is strikingly similar to the one proposed by both of the blue-ribbon, deficit-reduction bodies that weighed in late last year. The chairmen's report of President Obama’s fiscal commission (Simpson/Bowles) and a plan from the Bipartisan Policy Center (Rivlin/Domenici) both called for lower marginal rates. Likewise, both came down in favor of equal taxes on all income.

In 2011, for the second straight year, a special bi-partisan panel has been charged with putting America’s fiscal house in order. The new Congressional “super committee” has an extra incentive: the deal that raised the national debt ceiling mandates across-the-board spending cuts unless ways are found to lower the 10-year deficit by at least $1.5 trillion.

The committee can borrow from Simpson/Bowles and Rivlin/Domenici. It can embrace Ronald Reagan. If it does, one provision that might re-emerge is the return of basic tax fairness: the same rates on capital gains, dividends and wages.

And while tax breaks routinely deserve to be taken away, there’s one exception that deserves to be put in place. Capital gains from investments in job-creating IPOs and secondary offerings should be made tax-free.


Gerald E. Scorse, who writes from New York City, helped pass a bill that tightens the rules for reporting capital gains. Mr. Scorse's stories are republished in the Baltimore Chronicle with permission of the author.



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This story was published on September 13, 2011.

 


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