Does raising tax rates on capital gains raise revenue?

[Sam Spade]

You're trying to, to unfortunately use an overused expression, have your cake and eat it too. You can't argue on one hand, that it brings in little revenue so it's insignificant, and second, that it massively alters behavior so it's super-significant. Remember, the tax only affects about 100,000 households; it doesn't even affect the capital gains tax for 99% of the country. But if it did, so what? The capital gains tax rates of the Clinton era hardly represented corporate soul-crushing socialism.

Actually, something can be insignificant and significant at the same time in that manner.  We disagree there. 

The more important number to look at in terms of behavior-altering effects is the percentage of capital gains in this country that is attributable to those 100,000 households, not the percentage of households affected in total.

And the Buffett rule does not affect what I believe is the most important issue in taxation of capital gains - short-term capital gains v. long-term capital gains.

[Torie]

You're trying to, to unfortunately use an overused expression, have your cake and eat it too. You can't argue on one hand, that it brings in little revenue so it's insignificant, and second, that it massively alters behavior so it's super-significant. Remember, the tax only affects about 100,000 households; it doesn't even affect the capital gains tax for 99% of the country. But if it did, so what? The capital gains tax rates of the Clinton era hardly represented corporate soul-crushing socialism.

Sure, the economic distortions could be large, leaving the amount of revenue gained small, both at the same time, in fact one causing the other. And no, as compared to the medical subsidies time bomb, getting this wrong, will not end life as we know it - it will just slash a couple of arteries, and leave one bed ridden for a somewhat larger proportion of the year.  But you won't die from it all.

[muon2]

Regardless of the revenue question, there is still the issue of the magnitude of the change in tax rates. I find the behavior around the time of a major change in rates back to 1986 quite striking, and clearly a market distortion. Yet the small bumps from Bush I and Clinton in 1991-3 did not cause a significant distortion. If I'm reading this correctly whether one is raising or lowering rates it should be scaled in small steps to avoid the big spikes in activity that accompany rate changes of 5% or more.

[Torie]

For the time period involved, the chart almost looks like it is almost like a clearance sale. You cut the rates, and short term get a big bump in revenue, and then it goes back down.  Then you raise the rates back up again, so you can slash them again for the next clearance sale. In the end however, it doesn't seem the rate has that much to do with the amount of revenues raised, outside the clearance sale periods.

[opebo]

Torie, any problems with avoidance of the capital gains tax could be eliminated by making it apply upon any gain regardless of whether the gain is 'realized'.

Alternatively a wealth tax would be good.  I shall refrain from mentioning my own preference again.

[Redalgo]

I am not really concerned about whether a hike on taxation of capital gains increases revenue so much as whether it helps reduce socioeconomic inequality or - to frame it in a more culturally appropriate fashion - increase relative equality of opportunity. Having little knowledge of macro-economics, however, I am interested in striking a balance between the before mentioned goal, drawing insights from others on how to avoid inflicting unduly negative impacts on markets, and generating sufficient revenue for the state to fulfill the roles I envision for it. The trouble for me is settling on which school of thought to confide in since I appear to make different assumptions about human behavior than a lot of economists.

I usually do not wander into these kinds of threads, but is there any chance one of you could break this down into layman's terms a bit so that I might glean a bit of new wisdom from your perspectives? I have a lot of big picture goals in mind but less so the means for reaching them.

[muon2]

Torie, any problems with avoidance of the capital gains tax could be eliminated by making it apply upon any gain regardless of whether the gain is 'realized'.

Are you suggesting that all assets be treated as real property? Owners of real property do pay on unrealized gains in the form of property taxes based on assessment.

[Beet]

You're trying to, to unfortunately use an overused expression, have your cake and eat it too. You can't argue on one hand, that it brings in little revenue so it's insignificant, and second, that it massively alters behavior so it's super-significant. Remember, the tax only affects about 100,000 households; it doesn't even affect the capital gains tax for 99% of the country. But if it did, so what? The capital gains tax rates of the Clinton era hardly represented corporate soul-crushing socialism.

Sure, the economic distortions could be large, leaving the amount of revenue gained small, both at the same time, in fact one causing the other.

In theory yes, but apparently this estimate was made with an elasticity of 0.7. That means the ratio of the percent change in the dependent variable changes by 0.7 units for every 1 unit change in the independent variable. I'd have to look at the study itself to find out what these variables were in terms of units of measure, but that's not huge. You don't get a bajillion-dollar change in the dependent variable for a miniscule change in the independent variable at an elasticity of 0.7.

[Torie]

Torie, any problems with avoidance of the capital gains tax could be eliminated by making it apply upon any gain regardless of whether the gain is 'realized'.

Are you suggesting that all assets be treated as real property? Owners of real property do pay on unrealized gains in the form of property taxes based on assessment.

The use of the word "gain" is confusing, since you have no "gain" until you sell. By the way, "realized" means you book the gain, but don't pay tax on it, e.g. a tax deferred 1031 exchanged. "Recognized" means that you do pay a tax on it, because it is not deferred. Just some technical tax lingo for you. I think what Opebo is suggesting is that you appraise all your assets every year, and if you have appreciation, you pay tax on it. That of course is administratively infeasible. It would be a  nightmare.

[opebo]

I wasn't entirely serious in my proposal, however clearly there are problems with moderating privilege once it is granted.  I believe there are some countries which do implement a wealth tax, but I'm not sure how effective or feasible it is.

[ModerateCoward]

A better idea would be to return the estate tax to below $1 million and maximum rate over 50%.

[memphis]

A better idea would be to return the estate tax to below $1 million and maximum rate over 50%.

A better idea would be to do both. Oh noez. The socialist government run 1990s.

[Senator Sbane]

So the blue avatars agree we need to raise the estate tax and lower the exemption, eh?

I think there is something fundamentally wrong with being able to sit on your ass and make money, and then pay a lower rate than people who actually have to get their ass up in the morning and go to work. Of course if it's just people who have worked hard all their life to make the money, and then enjoying the fruits of their labor by making money off their investments...fine. But when wealth just goes from generation to generation and due to low estate taxes and capital gains taxes more of it ends up in their hands than it should. I thought we were trying to create a meritocracy here?

[Torie]

So the blue avatars agree we need to raise the estate tax and lower the exemption, eh?

I think there is something fundamentally wrong with being able to sit on your ass and make money, and then pay a lower rate than people who actually have to get their ass up in the morning and go to work. Of course if it's just people who have worked hard all their life to make the money, and then enjoying the fruits of their labor by making money off their investments...fine. But when wealth just goes from generation to generation and due to low estate taxes and capital gains taxes more of it ends up in their hands than it should. I thought we were trying to create a meritocracy here?

What do you think about the mega rich dumping their money into foundations (stripping the government of estate tax revenue) which their scions control, and from which the draw a salary?  t some point, money is about power and prestige rather than consumption.  And then their are our pension plan laws. The Left really isn't focusing on the right places really.  Maybe it is because the mega rich directly and indirectly (via foundations), provide them with a lot of financial resources. Maybe because at the end of the day, Wall Street controls both parties enough, that neither really go to where the bodies are really buried.

[Senator Sbane]

That salary would be taxed at more than 15% wouldn't it? Approve.

Also pension plans don't give out that much money. As a whole it does, but most people aren't getting a $100,000 a year, forget about a $1,000,000 a year. Don't really see how that is relevant in this discussion, but that is one place the left can focus on to take these plush benefits away from government workers leaving more to help the poor with. Also agree about Wall Street and money controlling both parties. Yay Citizens v United. I >3 this Supreme court. And as an added bonus, free anal penetration by not just the inmates, but the guards as well in jails and prisons these days. Just awesome.

[Torie]

That salary would be taxed at more than 15% wouldn't it? Approve.

Also pension plans don't give out that much money. As a whole it does, but most people aren't getting a $100,000 a year, forget about a $1,000,000 a year. Don't really see how that is relevant in this discussion, but that is one place the left can focus on to take these plush benefits away from government workers leaving more to help the poor with. Also agree about Wall Street and money controlling both parties. Yay Citizens v United. I >3 this Supreme court. And as an added bonus, free anal penetration by not just the inmates, but the guards as well in jails and prisons these days. Just awesome.

Well I sock away 55K a year into my pension plan, as an above the line deduction. It's outrageous. I feel guilty every time I punch the number onto my turbo tax return screen - not enough to not punch it in however.

As to the butt sex thing ...