Learn from History: Lower Tax Rates to Compete

By March 13, 2008Economy, Taxation

Mark Bloomfield, President and CEO of the American Council for Capital Formation does an excellent job in today’s Wall Street Journal of laying out the case for a lower tax rate on capital gains from a historical perspective and debunking the myth that lower capital gains tax rates are “tax breaks for the rich.” As Mr. Bloomfield so accurately states in his column, “How We Beat the ’70s“:

Mainstream economists know that lower capital gains taxes result in lower capital costs, more savings and investment, and a strong economy. And ordinary citizens understand that low taxes on capital gains make it possible for them to buy a new lathe or the newest software, which will give them the chance to compete effectively in today’s global economy. Retirement security is also at stake. Low taxes on capital gains allow Americans to build up larger nest eggs.

From our perspective here at the NAM, there is strong evidence that the investment tax relief enacted in recent years—both the lower tax rates on capital gains and dividends—has played an important role in spurring economic growth. Any talk of raising these rates is, at best, irresponsible and, at worse, a serious threat to our country’s economy. NAM members believe it is critical that Congress make these investment tax cuts permanent.

And while they’re at it……policy makers also should significantly reduce the U.S. corporate long-term capital gains tax rate. For corporations, capital gains represent the after-tax proceeds retained by a company for future investment in new business ventures or for dividend payments to shareholders. The current 35 percent rate on corporate capital gains — one of the highest tax rates on corporate capital investment in U.S. history—creates a “lock-in” effect that discourages corporate taxpayers from selling appreciated assets because the tax cost significantly reduces their after-tax return on investment. In contrast, reducing the corporate capital gains rate will enable U.S. corporations to redeploy and invest capital in its most productive use and contribute to economic growth and job creation.

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