There’s no evidence that a low capital gains tax rate boosts the stock market, investment, or the economy [New]
There is no sound evidence that cutting capital gains taxes to levels far below ordinary income tax rates contributes to economic growth at all — let alone enough to outweigh the significant economic cost of doing so.
- - Federal Reserve economists concluded in 2005 that the 2003 capital gains and dividend tax cut had little effect on the stock market: European and U.S. stocks performed similarly both after the announcement of the tax cut and after the tax cut itself, as this chart shows. As the Wall Street Journal stated, the study “concludes that the tax cut … was a dud when it came to boosting the stock market.”
- - “[T]here is no evidence that links aggregate economic performance to capital gains tax rates,” according to University of Michigan tax economist Joel Slemrod.
- - There is no statistically significant correlation between the top capital gains rate and economic growth (see chart).
- - As Len Burman, Syracuse University tax professor and former director of the Urban-Brookings Tax Policy Center (TPC), has explained of this chart, “Many other things have changed at the same time as [capital] gains rates and many other factors affect economic growth. But the graph should dispel the silver bullet theory of capital gains taxes. Cutting capital gains taxes will not turbocharge the economy and raising them would not usher in a depression.”
- - There is also no statistically significant correlation between the capital gains rate and the amount of real business investment.
Check out the other 9 things you need to know too.
What Do You Think?
2 Responses to 'There’s no evidence that a low capital gains tax rate boosts the stock market, investment, or the economy'
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David [New]
Wednesday, 4 Jul, 2012 at 11:40 am
This is a handy list. We could also use a resource for the moral case against taxing labor at higher rates than ‘investment’. If we can’t convey that the facts won’t get us very far.
Emocrat [New]
Thursday, 5 Jul, 2012 at 11:57 am
Good post! This topic is a great one to engage “conservatives” and Neo-Liberals on, since supporting CG tax cuts is a rather uneconomic policy.
The lower the CG tax, the easier it is to “take profits” by selling one’s speculative positions. If anything, that discourages long-term investment and encourages financial speculation. Lo and behold, far too much “economic activity” is nothing more than financial gambling. Buying and selling. That’s it.
It produces nothing. It puts no one to work, provides no income for the lower classes and does nothing to stimulate aggregate demand. This is why there is no correlation showing an economic benefit to lower CG tax rates. CGs are simply economic rents.
There is nothing inherently wrong with speculation. Markets need a certain amount of it, as it helps with price discovery. But we’re at the point now where that is where most of the money is and it’s not adding any value to the broader economy. That, in turn, destabilizes both the economy and society.
I tend to think that’s where the moral argument lies. Sound economic policies would make for a healthier society more broadly. It’s tragically funny that our “pragmatic” overlords in DC can’t seem to figure that out. Perhaps pragmatism does not mean what they think it means.