Thursday, August 12, 2010

Capital gains taxes - more effective than people thought

There has been much huffing and puffing about capital gains taxes, with opponents of taxes on the wealthy arguing that raising capital gains taxes doesn't work - because wealthy folk will find ways around them. So, the argument goes, the best thing to do is cut them. There is a hoary story about the so-called Laffer Curve, which is a rather more academic way of saying the same thing. We have laughed at Laffer several times in the past (see here, for instance, or see Martin Wolf's opinions on this, or Paul Krugman's even more wonkish case against the Laffer arguments.)

New evidence is now emerging from the Congressional Research Service of the U.S., which shows that even the U.S. government forecasters have been bamboozled. And they were wrong to do so:

The revenue gain from allowing the capital gains tax to rise could be up to twice as much as that projected by the JCT for FY2019 if the smaller responses estimated in more recent studies were applied. It is reasonable to expect revenue gains of $28 billion, rather than the $13 billion likely to be projected by JCT if they maintain their current realizations response assumptions, and the gain is unlikely to be less than $18 billion.

(The rest, unfortunately, is even more jargon-filled.)


Blogger Physiocrat said...

If it is not inflation, underneath most capital gain is a gain in land value, and land value should not be ending up in private hands in the first place.

The trouble with CGT is that the increase is only collected when a transaction takes place.

Genuine land value tax collects all the land value each year without the exchequer having to wait for disposal.

And genuinely earned capital gains ie from work, are left untaxed, as they should be.

11:21 am  

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