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 Richmans' Trade and Taxes Blog

Do Low Capital Gains Taxes Spur Economic Growth?
Jesse Richman, 9/28/2012

Ezra Klein of the Washington Post recently posted an interesting piece oncapital gains taxation.  He reviews the empirical evidence that capital gains tax rates have influenced economic growth rates -- there isn't any -- and discusses the economic reasons why this is the case.  Basically his case is that the economic benefits of low capital gains tax rates are potentially counter-balanced by the economic distortions created by the incentive to reengineer other income into capital gains tax rates.  The article can be read at:

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/09/25/the-case-for-raising-taxes-on-capital-gains/

Klein does not discuss the economic case we have made that low capital gains tax rates also encourage the consumption of capital.  The incentive to consume capital may be another reason for the minimal economic benefits of low capital gains tax rates.  Our argument suggests that the U.S, should raise tax rates on consumed capital gains to equal the marginal rates paid on all other income.