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Capital gains nonsense, part 2

Summary:
Here’s Investor’s Business Daily: Biden proposes raising the capital gains tax rate to 39.6%, nearly double the current top rate of 20%, for millionaires and billionaires. . . . If enacted, the new higher cap-gains rate would impact just taxpayers with incomes over million. Well, that’s good to know! People with incomes below million presumably are not “impacted” if stock prices decline. And I guess workers don’t care if the nation’s physical capital stock gets smaller. You can argue that these effects might not be large, but it’s crazy to suggest they don’t exist at all.  Stocks fell on Biden’s announcement, despite the fact that it’s unlikely the proposal goes through Congress without being watered down. Biden’s proposal would push the top capital gains

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Here’s Investor’s Business Daily:

Biden proposes raising the capital gains tax rate to 39.6%, nearly double the current top rate of 20%, for millionaires and billionaires. . . .

If enacted, the new higher cap-gains rate would impact just taxpayers with incomes over $1 million.

Well, that’s good to know! People with incomes below $1 million presumably are not “impacted” if stock prices decline. And I guess workers don’t care if the nation’s physical capital stock gets smaller.

You can argue that these effects might not be large, but it’s crazy to suggest they don’t exist at all.  Stocks fell on Biden’s announcement, despite the fact that it’s unlikely the proposal goes through Congress without being watered down.

Biden’s proposal would push the top capital gains rate in the US to over 50% (including state taxes).  Biden should learn from Sweden where the top rate is 30%, roughly the same as the current US top rate.  Even better, emulate one of the developed economies with no capital gains tax at all (at least for passive investors).

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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