Down With CGT, Says US Think Tank

by Mike Godfrey, Tax-News.com, Washington

05 May 2010

The Center for Freedom and Prosperity (CF&P) says that capital gains tax is inconsistent with good tax policy, hurts the American economy and should be abolished.

In a new video entitled 'Six Reasons Why the Capital Gains Tax Should Be Abolished' the CF&P argues that capital gains tax exacerbates double taxation, thus discouraging investment, savings, and competitiveness.

"The capital gains tax discourages the activities that lead to economic growth," said CF&P Foundation President Andrew Quinlan. "It should be abolished as part of a long-overdue shift to an ideal system such as the flat tax."

"The capital gains is double taxation and has a harmful effect on competitiveness," added Dan Mitchell, narrator of the video and Cato Institute Senior Fellow. "It is not even indexed for inflation. And people wonder why Americans do not save and invest enough."

The highest tax rate on a net capital gain in the US is generally 15%. However, there are some exceptions to this general rule, such as the taxable part of a gain from qualified small business stock and capital gains from selling collectibles such as coins or art, both of which are taxed at a maximum 28% rate. The part of any net capital gain from selling certain real property that is due to recapture of straight-line depreciation is taxed at a maximum 25% rate.

President Barack Obama plans to raise capital gains tax on high income individuals and couples by letting a temporary tax cut enacted under his predecessor, George W. Bush, lapse.

"The correct capital gains tax rate is zero because there should be no double taxation of income that is saved and invested. This is why all pro-growth tax reform plans, such as the flat tax and national sales tax, eliminate the capital gains tax," says the CF&P.

"Unfortunately, the President wants to boost the official capital gains tax rate to 20%, and that is in addition to the higher tax rate on capital gains included in the government-run healthcare legislation," the think tank notes.

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