Senior Director of Economic Policy
Great blog posts by our colleague Jared Bernstein and by Syracuse University professor Len Burman explain why the preferential tax treatment for capital gains — the gains from selling stocks, bonds, and other assets, which face a top tax rate of 15 percent, well below the top rates for ordinary income — is unjustified.
In two posts, Bernstein demonstrates that there is no convincing evidence that the preferential capital gains rate encourages investment or productivity growth. First, he shows that there is no clear correlation between the capital gains rate and the amount of real business investment. Then, he shows that the size of the difference between the capital gains rate and top ordinary income tax rate does not correlate with either real investment or investment growth.
Len Burman explains that the preferential capital gains rate fails miserably on other grounds as well, such as equity and efficiency:
At a time when we need to raise revenues responsibly to help address long-term deficits, the preferential tax treatment of capital gains — which costs the Treasury billions of dollars each year — makes no sense.