Tax Reform for the Rich: Reduce the Rates but Lose the Breaks

  • 6 years ago
Tax Reform for the Rich: Reduce the Rates but Lose the Breaks
As a simple matter of math, the rich will never pay anything close to the top statutory rate as long so much of their income is taxed
at a much lower rate (currently 20 percent for the top bracket, not counting the Affordable Care Act surcharge of 3.8 percent).
LONG-TERM CAPITAL GAINS The biggest revenue target is the preferential rate for long-term capital gains, which
raises a perennial question: Why should capital income be taxed at a much lower rate than ordinary income?
The top 1 percent reported $561 billion in capital gains taxed at the preferential rate, or 68 percent of the total.
He noted that after the 1986 tax reforms, “the economy did great.”
If Republicans are correct that lower rates spur economic growth, then lower rates on all income — made
possible in part by raising capital-gains rates — should bolster economic growth across the economy.
But it’s not as skewed as heavily toward the top 1 percent — they account for under 10 percent of the total interest-paid deduction.
While such breaks may yield benefits, the budget office warned
that they also “may lead to an inefficient allocation of economic resources by encouraging more consumption of goods and services receiving preferential treatment” and “may subsidize activity that would have taken place without the tax incentives.”
The report specifically cited the home-mortgage deduction as encouraging taxpayers to “purchase more expensive homes, investing too much in housing
and too little elsewhere relative to what they would do if all investments were treated equally.”
But it’s mostly hard-core libertarians and free market purists who want to get rid of all tax breaks for the rich.

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