Do you think eliminating capital gain tax and changing the rate to that of ordinary income would disincentivize ‘Alice’ from investing in the stock market? And if so, on a macroeconomic level would this harm the economy?
I haven’t (yet) proposed how we should change the tax system on capital gains — there are a number of moving pieces to be considered. But, you asked specifically about changing the rate to that of ordinary income.
The stock market has historically provided larger returns than the bond market. Since Black Monday in 1987, stocks have returned a bit more than 10% a year and bonds a bit more than 8%. Over the long term (since the great depression), stocks have done even better compared to bonds. See https://www.forbes.com/advisor/investing/stock-and-bond-returns/. Of course, in recent years, the stock market has way outperformed the bond market, which has had historically low returns, driving prices in the stock market higher as investors sought yield.
Even if we had taxed capital gains at the same rate as we’ve taxed ordinary income, stocks would have continued to outperform bonds after tax, so I doubt that investors would change their behavior very much if at all.
One other point: 95% of the benefit of the lower rates on capital gains and dividends goes to people in the top 20% of household income; looking in more detail, 75% of the benefit goes to people in the top 1% of household income. So, changing the capital gains tax rate will affect very few other than our highest-earning households.
Do you think eliminating capital gain tax and changing the rate to that of ordinary income would disincentivize ‘Alice’ from investing in the stock market? And if so, on a macroeconomic level would this harm the economy?
I haven’t (yet) proposed how we should change the tax system on capital gains — there are a number of moving pieces to be considered. But, you asked specifically about changing the rate to that of ordinary income.
The stock market has historically provided larger returns than the bond market. Since Black Monday in 1987, stocks have returned a bit more than 10% a year and bonds a bit more than 8%. Over the long term (since the great depression), stocks have done even better compared to bonds. See https://www.forbes.com/advisor/investing/stock-and-bond-returns/. Of course, in recent years, the stock market has way outperformed the bond market, which has had historically low returns, driving prices in the stock market higher as investors sought yield.
Even if we had taxed capital gains at the same rate as we’ve taxed ordinary income, stocks would have continued to outperform bonds after tax, so I doubt that investors would change their behavior very much if at all.
One other point: 95% of the benefit of the lower rates on capital gains and dividends goes to people in the top 20% of household income; looking in more detail, 75% of the benefit goes to people in the top 1% of household income. So, changing the capital gains tax rate will affect very few other than our highest-earning households.
A fantastic description of the mechanics of our tax system .
Thanks!
I agree!!! We are already a country of oligarchs and many sit in congress. Interested in term limits as much needed.
We also have many people in Congress who receive a lot of funds from our oligarchs.
My point exactly congress is owned by the wealthy so term limits and controlling their ability to gain wealth