The capital gains tax arguably is the most destructive levy in government’s arsenal of taxation. It is a direct tax on the returns on entrepreneurship and investment. Since such risk taking drives our economy, a capital gains tax means slower economic growth and reduced job creation.
The current capital gains tax rate on individuals is 15%, and on corporations, it’s 35%. But since gains are not indexed for inflation, the real capital gains tax rates are even higher. When inflation climbs (as has been the case recently), so does the real capital gains tax rate.
Finally, it must be noted that since the 2003 tax relief package is temporary, the top individual capital gains tax rate is scheduled to jump to 20% in 2011.
What’s the solution? Well, making the 2003 tax cuts permanent would be a good step. Also, indexing gains for inflation makes economic sense.
But why not get rid of this ugly, destructive tax altogether?
That’s exactly what Congressman Wally Herger (CA) has proposed. He has sponsored H.R. 5908. It would permanently eliminate both the individual and corporate capital gains taxes.
With a zero percent capital gains tax rate, the U.S. would be an international magnet for capital, spurring entrepreneurship and investment, and therefore, the economy and jobs.
This truly is pro-growth policymaking.