Last night’s debate focused on red-herring issues at the expense of ‘the #1 issue’ on everyone’s mind – the economy.
But in one of the few moments when the debate turned to the economy, Charlie Gibson chose to push the idea that cutting the capital gains tax actually increases revenues.
TNR has the basics:
Charlie Gibson really hammered the candidates–both candidates–over their proposals to raise the capital gains tax. Why woudl they do that, he asked, when lowering the cap gains tax during the 1990s raised revenue?
More importantly, Dean Baker demolishes Gibson’s crazy idea:
As President Reagan noted when he signed the 1986 tax reform, taxing capital gains at a lower rate than other income gives people enormous incentive to game the tax code. If the tax rate on ordinary income for high-income taxpayers is 35 percent, and the tax rate on capital gains is 15 percent, then these folks can get a 20 percent return if they can make wage, interest, rent or dividend income appear as capital gains income. This can fuel a lot of creative tax shelters. This gap will also lead to an increase in capital gains tax collection – at the expense of ordinary income tax collections.