ACCF Cap Gains Research in WSJ editorial

Today’s Wall Street Journal editorial “The Buffet Ruse” digs into the nuts and bolts of President Obama’s State of the Union address and the clear assault on investment that is underway.  The editorial cites ACCF research on international comparisons of capital gains rates:

The new 30% capital gains rate would be the developed world’s third highest behind only Denmark and Chile, according to the American Council for Capital Formation. This is on top of the 35% corporate rate that is already the second highest rate in the world after Japan. That giant sucking sound you hear come January 2013 would be hundreds of billions of investment dollars fleeing to China, India, Korea and other U.S. competitors. Lower capital investment in the U.S. means less wage growth, and so the people hurt most by this tax hike would be workers, according to a study by the Institute for Research on the Economics of Taxation.

Fox News: Don’t Tax Savings and Investment

If you missed yesterday’s Washington Post editorial, “Bush Tax Cuts Helped the Rich Get Richer,” it is clear that the markers are being laid down now and the assault on the wealthy to pay a greater share in taxes is underway.  Yesterday, I went on Fox News to explain the imperative that the country must boost savings and investment in the long term if we are ever to see the economy rebound.  Raising taxes on capital gains and dividends is not the right path forward.

Forbes, Lady Gaga and taxes…

Wanted to share my op-ed which was published today in Forbes.  If you missed the news the pop culture phenomenon and one-percenter said that she had to get drunk before paying her exorbitant share to the IRS.

If Lady Gaga has her way, the tax man won’t see her “poker face”—but he will see the bleary eyes of another unhappy taxpayer who has to drink away IRS pain.

Last week, the international pop star admitted, “When I signed my tax returns this year, I had to get completely wasted. They were just holding me up. It’s unbelievable.”

If Lady Gaga recognizes and espouses the unfairness of our tax system, then the first drink is on me and the first shot is to make our tax system smarter, starting with rates.

A shift from progressive rates on an income tax base to flatter rates on a consumption tax base would allow for much greater savings and investment so that an earner would be taxed only on what he spends; simplifying his tax liability and giving him more control over his hard-earned income, retirement and college savings. Similarly, businesses would become more confident about putting profits and savings back into their companies and other incentives that spur growth and jobs.

Another critical ingredient to this cocktail is to keep capital gains rates low—or even lower them.

An econometric study by the highly respected economist Dr. Allen Sinai notes that the economic activity sparked by eliminating the capital gains tax increases GDP by a little over 0.23 percentage points per year. Jobs increase by an average of 1.3 million per annum while the unemployment rate drops 0.7 percent at its lowest point.  Conversely, Sinai found that raising the U.S. top individual capital gains rate from the current 15 percent rate to 20 percent, as suggested in several deficit reduction plans, would cut annual economic growth by an average of .05 percent per year and job growth would decline throughout the economy by an average of 231,000 from 2011-2016.

And here’s the tax system chaser: we should not be looking at paying more into the broken systems that have left us deeply mired in unemployment, wiped out nest eggs and have led many to lose confidence in our democratic institutions and their own individual future.  A sobering Gallup Poll released earlier this year found that only 44% of Americans believe it is “likely” that today’s young people will “have a better life than their parents, with better living standards, better homes, and better educations.” A poll from Wells Fargo found that just 74 percent of middle class Americans expect to work in their retirement years, with a total of four out of ten Americans saying they will need to work to make ends meet or maintain their lifestyles.

If this remedy doesn’t seem palatable, the alternative could be a very stiff shot of ouzo, the licorice-flavored liquor so popular in Greece. That nation’s shaky fiscal outlook could lead it into default, dragging down other European nations such as Italy and France with it. And as goes Europe, so goes the world economy in this case.

It’s clearly time to sober up and address our own economic situation.

If the President and Congress are unlikely to act on the Bush tax cuts before the election, there will be the introduction of a damaging tax increase on income in a likely weak economy. And another vote to increase the U.S. debt ceiling will be upon us as well.

These will be trying times, but we can’t allow ourselves to pull a Gaga and drink away our pain. If we don’t figure out a way to pay our national tab, the future truth includes higher tax rates, reduced economic activity, fewer jobs and a multi-decade hangover.

Mark Bloomfield is president and CEO of the American Council for Capital Formation (www.accf.org), a nonprofit, nonpartisan organization dedicated to public policies supportive of saving and investment to promote long-term economic growth, job creation and competitiveness.  Bloomfield also runs a blog, www.MrCapitalGains.com.

Kyl Kudos

It’s reassuring to know that there are pro-growth allies like Senator Jon Kyl (R-AZ) on the debt Super Committee making the important case of keeping low tax rates on capital gains and dividends.  From BNA Daily Tax Report:

 Senator Jon Kyl (R-AZ), a committee member took issue with proposals in both the Bowles-Simpson plan and the Domenici-Rivlin plan to tax capital gains and dividends at the same rates as labor is taxed.   “My observation is you could do great harm by effectively doubling capital gains and dividend taxes because those represent areas of capital formation and investment in our economy.”

Indeed, great harm could come from raising tax rates on savings and investment as I pointed out today as a panelist on National Journal’s Policy Summit on tax reform.