Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Please Support CounterPunch’s Annual Fund Drive
We don’t run corporate ads. We don’t shake our readers down for money every month or every quarter like some other sites out there. We only ask you once a year, but when we ask we mean it. So, please, help as much as you can. We provide our site for free to all, but the bandwidth we pay to do so doesn’t come cheap. All contributions are tax-deductible.
FacebookTwitterGoogle+RedditEmail

The Ideal Capital Gains Tax Reform

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 helped pass a bill that tightens the rules for reporting capital gains.

More articles by:
October 17, 2018
Patrick Cockburn
When Saudi Arabia’s Credibility is Damaged, So is America’s
John Steppling
Before the Law
Frank Stricker
Wages Rising? 
James McEnteer
Larry Summers Trips Out
Muhammad Othman
What You Can Do About the Saudi Atrocities in Yemen
Binoy Kampmark
Agents of Chaos: Trump, the Federal Reserve and Andrew Jackson
David N. Smith
George Orwell’s Message in a Bottle
Karen J. Greenberg
Justice Derailed: From Gitmo to Kavanaugh
John Feffer
Why is the Radical Right Still Winning?
Dan Corjescu
Green Tsunami in Bavaria?
Rohullah Naderi
Why Afghan Girls Are Out of School?
George Ochenski
You Have to Give Respect to Get Any, Mr. Trump
Cesar Chelala
Is China Winning the War for Africa?
Mel Gurtov
Getting Away with Murder
W. T. Whitney
Colombian Lawyer Diego Martinez Needs Solidarity Now
Dean Baker
Nothing to Brag About: Scott Walker’s Economic Record in Wisconsin:
October 16, 2018
Gregory Elich
Diplomatic Deadlock: Can U.S.-North Korea Diplomacy Survive Maximum Pressure?
Rob Seimetz
Talking About Death While In Decadence
Kent Paterson
Fifty Years of Mexican October
Robert Fantina
Trump, Iran and Sanctions
Greg Macdougall
Indigenous Suicide in Canada
Kenneth Surin
On Reading the Diaries of Tony Benn, Britain’s Greatest Labour Politician
Andrew Bacevich
Unsolicited Advice for an Undeclared Presidential Candidate: a Letter to Elizabeth Warren
Thomas Knapp
Facebook Meddles in the 2018 Midterm Elections
Muhammad Othman
Khashoggi and Demetracopoulos
Gerry Brown
Lies, Damn Lies & Statistics: How the US Weaponizes Them to Accuse  China of Debt Trap Diplomacy
Christian Ingo Lenz Dunker – Peter Lehman
The Brazilian Presidential Elections and “The Rules of The Game”
Robert Fisk
What a Forgotten Shipwreck in the Irish Sea Can Tell Us About Brexit
Martin Billheimer
Here Cochise Everywhere
David Swanson
Humanitarian Bombs
Dean Baker
The Federal Reserve is Not a Church
October 15, 2018
Rob Urie
Climate Crisis is Upon Us
Conn Hallinan
Syria’s Chessboard
Patrick Cockburn
The Saudi Atrocities in Yemen are a Worse Story Than the Disappearance of Jamal Khashoggi
Sheldon Richman
Trump’s Middle East Delusions Persist
Justin T. McPhee
Uberrima Fides? Witness K, East Timor and the Economy of Espionage
Tom Gill
Spain’s Left Turn?
Jeff Cohen
Few Democrats Offer Alternatives to War-Weary Voters
Dean Baker
Corporate Debt Scares
Gary Leupp
The Khashoggi Affair and and the Anti-Iran Axis
Russell Mokhiber
Sarah Chayes Calls on West Virginians to Write In No More Manchins
Clark T. Scott
Acclimated Behaviorisms
Kary Love
Evolution of Religion
Colin Todhunter
From GM Potatoes to Glyphosate: Regulatory Delinquency and Toxic Agriculture
Binoy Kampmark
Evacuating Nauru: Médecins Sans Frontières and Australia’s Refugee Dilemma
FacebookTwitterGoogle+RedditEmail