"Tax increases appear to have a very large, sustained and highly significant negative impact on the economy. ~ Christina Romer, just prior to leaving the Obama Administration -
U.C. Berkley Professor and President Obamas former Chair of his Council of Economic Advisers (CEA), Christina Romer, published a paper in 2010, concluding that a tax increase of 1 percent of GDP, about $160 billion today, reduces output over the next three years by nearly 3 percent, or $480 billion at current GDP figures. And according to the Bureau of Economic Analysis, per capita personal income is currently running at around $37,500. Thus, Barack Obamas plan to raise taxes on the most productive American citizens would result in a loss of around 12.7 million jobs over the ensuing three-year period.
---------------------------------
The same policy will work today. However, what Barack Obama is proposing is exactly the opposite. Obamas notion of raising income taxes on some taxpayers, health care taxes on others, and capital gains rates on investors, to name a few, amounts to an artificial tax hike, which most economists agree will result in a reduction of GDP. Thus, Obamas tax hikes are not in the best interests of the country. But he doesnt appear to care about our common welfare.
Obamas policies are admittedly not about economic growth, but rather about furthering his self contrived, yet erroneous, notion of fairness. Yet the truth is that the very concept of taxing capital gains is in itself unfair. The method in which capital gains are calculated in the United States is antiquated, illogical, and actually hinders our ability to reach a full recovery. In order to understand the dilemma, one must put himself in an investors place.
-----------------------------
In India, capital gains are computed differently than in the U.S. Under Indias tax law an investor is allowed to increase the cost of the original investment by the annual inflation index, before computing a gain or loss.
---------------------------------
The following countries are even more progressive, they dont tax capital gains at all: Belize, Barbados, Bulgaria, Cayman Islands, Ecuador, Egypt, Hong Kong, Islamic Republic of Iran, Isle of Man, Jamaica, Kenya, Malaysia, Netherlands, Singapore, Sri Lanka, Switzerland, and Turkey. Other countries, like Canada and South Africa do levy a capital gains tax, but only on 50% of the gain. A few nations even allow their citizens to defer capital gains taxes entirely by allowing them to rollover their gains into a new investment within certain time frames.
One has to wonder why anyone in their right mind would be encouraged to invest in the United States. Considering that inflation doesnt stop when an investment is sold, while the money is sitting around waiting for the tax to be paid, it continues to lose value. And once the tax is paid, the remainder continues to diminish in value until it is ultimately reinvested. In light of the colossal decline in the value of the U.S. dollar over the past 100 years, the question we should be asking ourselves is not what rate to levy on capital gains, but rather why the tax even exists?
------------------------
If the federal government refuses to implement policies which encourage GDP growth, then how does it expect the economy to grow? When our wealth is being slowly eroded by inflation, and then were taxed on the deteriorating value of our currency, it pretty much makes investing in the U.S. futile. If the federal government wants to encourage investment in the U.S., which is what it should do, in order to stimulate GDP growth and create jobs, then our elected officials should stop talking about raising tax rates on both ordinary income and capital gains, and start discussing ways to lower the tax burden and make our system fairer and comparable to more just investment havens.
-------------------------
When a saver is earning less than 1.0% at a domestic bank, while inflation is running at more twice that rate, why is the federal government entitled to any part of what amounts to a decline in purchasing power? What you earn on a bank account these days isnt interest income; its more like a taxable capital loss. What about dividends? Dividends are already taxed once at the corporate level, are not deductible by corporations for tax purposes, and then are taxed again after distribution to the investor (double taxation)? Taxing interest and dividends isnt fair either, and the practice should therefore be repealed.
