Lowering the capital gains rate would have a tremendous economic impact for our nation. It would increase savings and act as an engine of economic growth. All income groups would be net gainers from the type of capital gains tax cut proposed and included as part of Congress' Balanced Budget Act, which passed on November 17, 1995, but was regrettably vetoed by Bill Clinton. Congress' proposal would have reduced the capital gains tax for individuals by 50 percent and also would reduce the corporate rate from 31 percent to 28 percent. It also targets the unfair practice of taxing corporations and individuals on gains due to inflation by taxing people only on the real, not inflated, capital gain.
Research on the effects of a tax cut on capital gains reveals it would increase the value of real estate and other assets (benefiting all holders of assets), stimulate savings (lowering the cost of capital and stimulating investment), and encourage entrepreneurship (leading to economic growth). Additionally, a study published by the National Center for Policy Analysis estimated that adoption of President Bush's capital gains cut proposal in 1990 would have produced $185 billion more in federal tax revenue over the decade.
Tax studies purporting to show that most capital gains taxes are paid by higher-income individuals reflect a fundamental error. Middle-class families typically spend much of their life saving income, either by investing in securities or by building small businesses. But when they liquidate their investment, middle-class families get stuck with paying the full capital gains tax. The wealthy can afford to pay for tax advice in order to avoid paying capital gains taxes by simply arranging their widespread investment portfolios to include enough tax losses to offset whatever capital gains they profit from in a given year. Middle-class families cannot pursue these tax-driven investment strategies. Therefore, reducing the capital gains tax would benefit all Americans, most especially those considered middle-class. Please know that I will continue to push for a genuine cut in the capital gains tax rate.
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