When a corporation sells an investment, “capital gains” is the amount left over after the company pays taxes on their profit. Companies use this money to invest in new business ventures or pay shareholder dividends.
And right now, there’s not much money left over after paying IRS. The 35 percent tax rate corporations currently pay on capital gains is one of the highest tax rates on corporate capital investment in U.S. history and 20 percentage points higher than the top rate paid by individuals. Rather than paying this 35 percent toll charge, many businesses choose either not to sell underproductive assets or to borrow against them, increasing their debt.
The NAM is working to lower this tax rate, at least to the 15 percent rate that individuals pay. Ending the “lock-in effect” of high taxes could unleash trillions of underused assets into the economy and help businesses operate more effectively and create more jobs. More broadly, it will help promote U.S. economic growth and competitiveness. As an added bonus, since companies will be paying taxes on sales that wouldn’t otherwise take place, Treasury will probably see billions of dollars of new revenue. This happened when Congress lowered the tax rate on individuals’ capital gains.
Now is the time for policy makers to make this change. The National Association of Manufacturers is cohosting a forum today with James Tisch of the Loews Corporation in New York City where corporate executives, legislators and economists will talk up this issue and get the ball rolling on an idea that will benefit, the economy, corporations, their shareholders and their workers.