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Tag: capital gains tax
Larry Kudlow

Kudlow Floats Capital Gains ‘Tax Holiday’ For Rich As ‘Stimulus’

Donald Trump's top economic adviser said the administration is considering pushing for a "capital gains holiday" in a new round of coronavirus aid.

"There may be a capital gains holiday," Larry Kudlow, director of the U.S. National Economic Council, told Fox Business on Monday.

Cuts to capital gains disproportionately affect extremely wealthy individuals. In 2018, 69 percent of all reported capital gains went to the one percent of households with incomes above $750,000. Capital gains are already taxed at a much lower rate than regular income.

From the July 13 edition of Fox Business' Varney & Co.:

STUART VARNEY, Fox Business: Can you be specific and tell us what we're likely to see?
LARRY KUDLOW: Well, I don't know that I can be totally specific. We're looking at a lot of things, it's pre-decisional. Formal talks haven't really begun.
But look, certain things the president has said — for example, he wants a payroll tax holiday, that would give about a 6.5% increase to after-tax wages for people either going back to work or have been working all the time.
We'd like to see some unemployment reforms. We like return to work type bonuses of a modest nature. We don't want to give people disincentives not to work.
There may be extensions to PPP, that's to be decided. There may be some targeted, directed assistance from direct-mailed checks to individuals and families — that hasn't been decided yet.
There may be a capital gains holiday, there are a number of items that we've talked about publicly and the president has mentioned. So at the moment. that's kind of the grab bag.




Published with permission of The American Independent Foundation

Clinton’s Capital Gains Tax Plan To Urge Focus On Long-Term Growth

Clinton’s Capital Gains Tax Plan To Urge Focus On Long-Term Growth

WASHINGTON (Reuters) – Presidential contender Hillary Clinton’s proposed plan to overhaul capital gains taxes aims to foster long-term growth by taxing some short-term investments at higher rates, an aide for her campaign said on Monday.

Although details of the plan have yet to be finalized, it would create a sliding rate scale based on the length of an investment, an aide with the Democratic candidate’s campaign said.

Under her proposal, first reported by The Wall Street Journal, the maximum capital gains tax rate on investments held at least a year, currently 23.8 percent, would rise to at least the 28 percent proposed by President Barack Obama, the aide said.

The campaign has not ruled out raising it as high as the regular income tax rate, which can be as high as 39.6 percent for top earners, the Journal reported.

Details of the plan will be outlined in a speech later this week, the WSJ said.

Investments held for less than a year would still be taxed at regular income tax rates as they are now, the WSJ said. The proposal will also include other rate changes, with the lowest rates given for investments held the longest, it reported.

Clinton’s proposal comes as part of her plan to fight an excessive focus on quick profits in capital markets, including capital gains, which are the profits made on selling capital assets such as shares or real estate.

In a speech last week in New York, the Democratic front-runner blasted Wall Street and took aim at financial institutions, vowing tougher oversight in her first major economic speech of the 2016 election campaign.

Clinton’s plan to revamp such rates appears to be a shift from her position in 2008, when she last sought the party’s nomination and vowed not to raise capital gains tax rates above 20 percent, if at all.

In 1997, her husband, President Bill Clinton, lowered the maximum taxation rate on capital gains from 28 percent to 20 percent. In 2003, it fell to 15 percent under President George W. Bush.

In 2012, the top capital gains taxation rate rose to 20 percent for the highest earners. In the 1970s, the maximum taxation rate for long-term capital gains reached nearly 40 percent.

Although Clinton, who along with her husband have deep ties to Wall Street, is the party’s leading presidential candidate, she still faces some pressure from liberal Democrats, such as fellow candidate U.S. Senator Bernie Sanders of Vermont, who want tougher regulations on the financial industry.

(This version of the story corrects paragraph three to remove erroneous statement that tax rate for “shortest-held” investments would be at least 28 percent)

(Additional reporting by Amanda Becker; Writing by Susan Heavey; Editing by Bernadette Baum)

Photo: Hillary Clinton speaks during the Arkansas Democrats’ Jefferson-Jackson Dinner 2015 in Little Rock, Arkansas July 18, 2015. (REUTERS/Jacob Slaton)

If Inequality Worries Republicans, Why Do They Keep Making It Worse?

If Inequality Worries Republicans, Why Do They Keep Making It Worse?

You can tell things have gotten very bad when the issue of economic inequality — a serious national problem mostly ignored for more than three decades — is suddenly in political vogue. And you can be sure things have gotten very, very bad when Republicans — who usually insist that inequality is natural, inevitable, even beneficial — suddenly claim they’re worried about it, too.

As the 2016 contenders officially declare their intentions, all of them seem aware that voters want to restore a vestige of fairness to the American economy. Regardless of personal ideology or political reliance on plutocratic billionaires, every presidential candidate must, at the very least, display concern for working families, single mothers, indebted students, and everyone struggling to achieve or maintain a decent living.

Yet how concerned are they, really? In the video that announced her candidacy, Hillary Clinton spoke briefly but bluntly: “Americans have fought their way back from tough economic times, but the deck is still stacked in favor of those at the top. Everyday Americans need a champion, and I want to be that champion.” The only Democrat in the race so far, Clinton realizes that a populist agenda will be required to excite her party base — and to answer those who regard her as too wealthy and too well connected to empathize with the downtrodden.

That unflattering portrait omits many relevant facts about Clinton’s life, from her own modest origins to her many years of advocacy for the disadvantaged, especially women and children. She spoke out publicly about economic fairness long before doing so became politically fashionable, both as a United States senator and during her last presidential campaign. Now the skeptics can listen and decide for themselves.

But voters should also listen closely to the Republicans who mock Clinton’s populism and assert that they are the true spokesmen for the working class. What do they propose to address inequality? And how “authentic” is their concern?

At least two of the Republican candidates, Senator Rand Paul (R-KY) and Senator Ted Cruz (R-TX), want to institute a so-called flat tax — which would severely exacerbate inequality by reducing tax levies on the wealthy and increasing the burden on everyone else. Such plans would cost the Treasury an annual amount estimated between $700 billion and $1 trillion. Yet Paul and Cruz insist that they will simultaneously slash taxes, increase defense spending, and balance the budget — and so does Senator Marco Rubio (R-FL), who proposes his own regressive tax breaks for the rich.

Those promises are mathematically impossible — unless, perhaps, the federal government permanently ended all discretionary spending on student aid, unemployment insurance, health care, veterans benefits, environmental protection, food safety, and dozens of other programs necessary to working- and middle-class families. Somehow they never mention that part.

While decrying economic inequality, Republicans tend not to emphasize their other proposed giveaways that would benefit wealthy donors, such as Paul’s plan to end capital gains taxes, or Rubio’s plan to end not only all taxes on capital gains but on interest and inherited estates, too — leaving only wage earners to be taxed. Schemes like this delight the Koch brothers precisely because they would heighten inequality to an even more astronomical level.

Although Republicans often mention the “right to rise,” as Jeb Bush would put it, they’re hostile to any measure that would actually elevate the incomes of those at the bottom — for example, increasing the minimum wage. Indeed, they tend to be opposed to the very idea of a legislated wage floor because, as Rubio once said, “I don’t think a minimum-wage law works.”

The Florida senator’s economic knowledge is as weak as his budgetary arithmetic. The most recent studies show that in states without a minimum- wage law, inequality is considerably worse than in states with a minimum wage that is at least a dollar above the federal minimum.

But don’t worry, Rubio says he knows a better way to reduce inequality than either higher wages or fairer taxes. Instead, for people languishing in low-wage jobs, government should “incentivize the creation of innovations in education that are accessible.”

So he offers something for everyone: The wealthy get still more big tax cuts; and the not-so-wealthy get a few phrases of incomprehensible, pseudo-wonkish jargon.

How can you think that Republicans don’t care?

Photo: Gage Skidmore/Flickr

Where Does $2 Trillion In Subsidies For The Wealthiest Hide In Plain Sight? Capital Gains Tax Breaks

Where Does $2 Trillion In Subsidies For The Wealthiest Hide In Plain Sight? Capital Gains Tax Breaks

Research shows that government subsidies for the 1 percent are creating greater inequality. A new white paper by Roosevelt Institute Chief Economist Joseph Stiglitz offers solutions.

“What’s the effective rate I’ve been paying? It’s probably closer to the 15 percent rate than anything.” Mitt Romney made national news with that statement during the 2012 presidential election, since it meant he paid a lower effective tax rate than many middle-class Americans. The simple reason for his low tax bill?  The tax code’s special treatment of investment income.

In a recent report published by the Center for American Progress, I examine how government subsidies for investment income are making economic inequality worse. The merits of subsidizing investment income are particularly questionable in light of new research published by renowned French economist Thomas Piketty in Capital in the Twenty-First Century. Piketty finds that economic inequality has increased dramatically in recent decades, and will get even worse as the rate of return on capital from investments largely owned by the wealthy exceeds the overall growth rate of the economy.

Nobel-winning economist Joseph Stiglitz, Chief Economist at the Roosevelt Institute, takes a hard look at subsidies for investment income in a new white paper on tax reform. Stiglitz advocates taxing capital gains and dividends at the same rates as ordinary income. Under current law, the federal government will deliver an estimated $1.34 trillion in subsidies to investors over the next 10 years in the form of reduced tax rates for capital gains and dividends—68 percent of that money will go to the top 1 percent. Stiglitz argues that there is “no justification for taxing those who work hard to earn a living at a higher rate than those who derive their income from speculation.”

Stiglitz would also eliminate an expensive, but little-known, provision called “step-up in basis,” which subsidizes inherited wealth. By taking a step-up in basis, heirs selling inherited assets only have to pay taxes on the capital gain that took place since they received the asset – gains that accrued during the previous owner’s lifetime are never subject to income taxes. This tax break will cost about $644 billion over 10 years, with 21 percent of that subsidy going to the top 1 percent. For the wealthiest families, the benefits are staggering: 55 percent of the wealth in estates worth over $100 million is in the form of unrealized capital gains, meaning that these families will never pay income taxes on the majority of their earnings since the heirs will benefit from step-up in basis.

Defenders of tax breaks for investment income argue that these subsidies encourage savings and grow the economy, but over the past 60 years there has been no obvious relationship between economic growth and the top capital gains tax rate. Our economic problems are rooted in a lack of aggregate demand, but tax subsidies for investment income reduce demand even further for two reasons. First, they encourage investors to hold on to their wealth and consume less. Second, these subsidies increase economic inequality by primarily benefiting the rich, who tend to consume a much smaller share of their income than poor or middle-class individuals.

The assumption underlying subsidies for investment income is that wealthy investors are “job creators,” but Stiglitz points out that “much of the income of the top arises from rent seeking (wealth appropriation) – and thus impedes growth and efficiency.” Stiglitz is using the term “rent seeking” in a broad sense to mean income from ownership, monopolies, or special treatment from the government. Rent seeking does not grow the economy; it only redistributes wealth from within the economy to rent seekers. For example, landowners get their income from rents paid by tenants. Stiglitz points out that land is an ideal target for taxation, since taxes cannot possibly reduce the supply of land. Yet the United States is taking the opposite approach by allowing landowners to fully benefit from step-up in basis and reduced tax rates for capital gains.

Tax breaks for investment income are massive in scope, but often overlooked in discussions about the proper size and role of the federal government. These subsidies are part of what Suzanne Mettler calls the “submerged state,” government programs that deliver benefits indirectly, with recipients often not even recognizing that they are benefitting from public assistance.

But government programs administered through the tax code are still government programs. It makes no meaningful difference to the government or to beneficiaries whether a subsidy is delivered in the form of a check from the government, or as a reduction in taxes the beneficiary would otherwise owe (which often takes the form of a higher tax refund check from the government). The nonpartisan Joint Committee on Taxation explains that tax breaks “are similar to direct spending programs that function as entitlements to those who meet the established statutory criteria.”

The reaction Mitt Romney’s comments may be the best example of just how invisible government subsidies for investment income are for most Americans. Watching Romney deliver the full statement and explain that most of his income comes from investments, it was clear that he did not think he was making news. And he was right – Romney’s statement that day should not have been news. We already knew that he made most of his money from earlier investments, and the tax rate at the time on capital gains and dividends was 15 percent. The only reason Romney’s statement made headlines was that most Americans were either unaware of preferential tax rates for investment income, or did not realize the staggering benefits this subsidy delivers to extremely wealthy individuals.

It is no coincidence that government subsidies for investment income are delivered through the submerged state. These programs are not popular when the American people can clearly see their impact, and they add to the sense that the economic game is rigged for those at the top.

Harry Stein is the Associate Director for Fiscal Policy at the Center for American Progress. Follow him on Twitter @HarrySteinDC.

Cross-posted from the Roosevelt Institute’s Next New Deal blog.

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo: Gage Skidmore via Flickr

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