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Capital Gains Tax Main File Public Forum February 2018
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West Coast Publishing
Capital Gains Tax Main File
Public Forum February 2018
Edited by Jim Hanson
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WEST COAST DEBATE
Public Forum February 2018
Capital Gains Tax Main File
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Table of Contents
WEST COAST DEBATE .......................................................................................................................... 2
Table of Contents ............................................................................................................................... 3
Resolved: The United States Should Abolish the Capital Gains Tax. .............................................5
Definitions .................................................................................................................................7
United States...................................................................................................................................... 8
Should ................................................................................................................................................ 9
Abolish ............................................................................................................................................. 10
Capital Gains Tax .............................................................................................................................. 11
PRO Case .................................................................................................................................. 12
Contention 1: Capital gains tax should be abolished because it taxes individuals and corporations twice
for their assets. ................................................................................................................................ 13
Contention 2: The capital gains tax deters small business from investing, disallowing growth
throughout the economy. ................................................................................................................. 15
Rebuttal to: Capital gains tax is needed to tax the rich. ...................................................................... 17
Rebuttal to: The capital gains tax is good for the middle class. ........................................................... 18
Rebuttal to: History proves the capital gains tax is a good thing. ........................................................ 19
Rebuttal to: Small businesses benefit from the capital gains tax. ....................................................... 21
Rebuttal to: The capital gains tax promotes income and economic equality. ...................................... 22
Rebuttal to: The capital gains tax helps the economy. ....................................................................... 23
Rebuttal to: Abolishing the capital gains tax is a bad idea. ................................................................. 25
Rebuttal to: The capital gains tax is good for spurring investment. ..................................................... 26
CON Case ................................................................................................................................. 28
Contention 1: Abolishing the capital gains tax would be detrimental to the U.S. deficit. ..................... 29
Contention 2: Economists are wrong – abolishing the capital gains tax hurts the economy, not helps it.
........................................................................................................................................................ 31
Rebuttal to: Capital gains tax is not needed to tax the rich ................................................................. 33
Rebuttal to: The capital gains tax is bad for the middle class. ............................................................. 34
Rebuttal to: History proves the capital gains tax is a bad thing. .......................................................... 36
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Rebuttal to: Small businesses are hurt by the capital gains tax. .......................................................... 37
Rebuttal to: The capital gains tax hurts income and economic equality. ............................................. 39
Rebuttal to: The capital gains tax hurts the economy. ........................................................................ 40
Rebuttal to: Abolishing the capital gains tax is a good idea. ............................................................... 42
Rebuttal to: The capital gains tax stifles investment. ......................................................................... 43
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Resolved: The United States Should Abolish the Capital Gains Tax.
The debate about the capital gains tax has been around for decades. Economists, political figures,
and many business owners have argued about what an appropriate, if any, capital gains tax in the United
States should look like in order to be best for the economy, both in the short term and the long term. One
of the long-term benefits of abolishing the capital gains tax concerns investment. When companies have to
pay taxes when they sell their assets, companies lose out on profits from that sale, despite paying taxes
when they purchased the asset in the first place. Because of this, companies have less capital to reinvest in
other businesses or new ventures. It also deters more risky investments, which could produce further
economic gain. This tends to hurt small business owners the worst, disallowing them to grow in the longterm. Investment is an important element of innovation and is key to a growing economy. When
investments can happen in areas like the technology sector, it means we develop faster, more efficient,
technological methods for every facet of our lives – healthcare, infrastructure, AI, military, and the list goes
on and on. Investments in these sectors are less likely when companies pay a capital gains tax. Another
problem with the capital gains tax is that it is essentially a double tax for those that control the assets.
When you purchase an asset, you pay taxes during the transaction. With a capital gains tax, if you sold that
asset and made a profit, you’re taxed on the difference. Because an asset gained value should not mean
that the asset ought to be taxed by the government again. This is one of the more short-term issues with
the tax. For decades, presidents have offered cuts to the capital gains tax or even had advisors that
supported its abolishment, like with the topic for this month. Those economists weren’t wrong. Evidence
below suggests that abolishing the rate would work akin to drastic cuts in the past, all of which have been
effective in the past. Additionally, any debate about the economy discusses the inequality that exists in the
United States. The pro can argue that abolishing the capital gains tax is better for the lower and middleclass than keeping it around. Those people and businesses in those brackets end up carrying a larger
burden of the revenue from all capital gains than the wealthiest Americans. Abolishing the tax means that
some equity is brought back to the economy.
As the con, there is an interesting framing argument you can make to give you more ground than
the pro. The resolution is very explicit with what the pro must defend – they must defend that the capital
gains tax goes away completely – that it is abolished – that it no longer exists. As the con, you can defend
anything that isn’t abolishment. Essentially, you can defend a multitude of things that proves that
abolishment is a bad idea. If a bulk of your evidence suggests that the current corporate tax rate is a good
thing as-is, you can defend that the current rate is better than abolishment. More narrowly and perhaps
more interestingly, as the con you can also argue that a reduction or an increase in the corporate tax rate is
better than its abolishment. As the con, you can essentially defend anything that isn’t abolishment, which
gives you a lot of options in terms of picking your offense with this topic. With framing arguments and
considerations aside, there is a lot of evidence in the rest of the file that can be used for either a reduced or
a current capital gains tax, so you have plenty of arguments that hit at the core of the pro case – that
abolishment is the best option. First, income inequality is a major issue in the United States. Especially
when it comes to tax code, there are many barriers in place to disallow low or middle-income earners to
succeed in today’s economic climate. Many economists argue that the capital gains tax is a way of leveling
the economic playing field. Along those lines, capital gains taxes have another added benefit that ensures
the wealthiest Americans still contribute to government revenue. Evidence below from economic gurus like
Warren Buffet argue that the rich need to pay taxes, and even now, some of the tax rates are not high
enough. Some of the richest people in the country only pay taxes in the form of capital gains. If the capital
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gains tax was abolished, the tax burden then shifts to the lower and middle-income brackets, which is
inherently unfair. This could even further the income inequality divide in the U.S., leading to further poverty
and economic instability. One of the problems with abolishing the capital gains tax is that the pro won’t be
able to answer the question – how is the government able to make up that revenue? Billions of dollars of
the U.S. budget are a revenue source that comes directly from capital gains taxes. If the government were
to abolish this 28% tax, the government would have to find a way to deal with that loss of revenue.
Typically, such a problem would not have a solution, and the U.S. would have to deficit spend, which causes
a whole host of problems for law makers.
During the pro rebuttals, you’ll need to prepare for any of the framing arguments from the con.
Make sure you stick them to one line of argumentation when it comes to whether the tax should be raised,
slightly lowered, or stay the same. Perhaps forcing the con to stick to the status quo can be argued as the
most fair division of ground – either abolish the tax or keep it the same. One of the things the con will do in
this debate is say that the capital gains tax is necessary for income and general economic equality. The
problem, though, is many economists do not think the capital gains tax is an integral part of the reasons
income inequality exists in the first place.
In the rebuttals for the con, you have to decide which pieces of evidence are your strongest and
finalize your line of defense against abolishment of the tax. You can defend a decrease, an increase, or the
status quo, but in the rebuttal, you must refine your scope and pick one strategy here. Depending on which
you pick, be sure to compare both the short-term and long-term effects of abolishment versus your stance.
The pro is going to focus on how reductions in the past can be indicative of the benefits of abolishing the
tax. This evidence is invalid – it doesn’t directly demonstrate that abolishing the tax is good in and of itself.
Additionally, you’ll have to answer this double taxation argument. The assets that are taxed for capital gains
may have been taxed before, but their increased value had not yet been taxed. When the richest people in
the U.S. keep selling assets and making money, it seems that they should have to pay tax on the added
value of their assets, so they can contribute more capital to the economy. It seems only fair to help
maintain any semblance of equity in the U.S. economy.
At the end of the debate, one of the more important weighing arguments concerns timeframe. You
have to think about which could be more necessary – the short or the long-term effects of abolishing the
capital gains tax. It is a way for you to frame which ramifications are the most important to the judge at the
end of the debate. For the pro, you’ll want to focus on some of the larger implications for abolishing the tax
– the new, possible investment for all. For small businesses, this means that individuals can grow their
companies, invest in efficiency mechanisms, hire more of the workforce, and the like. This works as both a
short-term and long-term implication for abolishing the tax. Focusing on income and economic equality. For
the con, there are a few things to focus on. First, you need to cast doubt on whether abolishing the tax will
even be feasible. There is no evidence to suggest this works. Next, you build on that foundation, showing
that billions will be added to the deficit, which can’t be recovered, hurting the economy both in the long
and the short term. The argument crescendos to ensure that you demonstrate that no matter the
alternative – raising, lowering, maintaining – abolishing the capital gains tax is a terrible idea.
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Definitions
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United States
The United States contains all 50 federated states and territories.
Black’s Law Dictionary, 2018
United States, http://thelawdictionary.org/united-states/ (accessed 1/3/18)
Made up of the 50 federated states, American Samoa, District of Columbia, Johnston Island, Guam, Wake
and Midway Islands, Northern Marianas and US Virgin Islands.
The United States is the 50 states in North America.
Cambridge Dictionary, 2018
United States, http://dictionary.cambridge.org/us/dictionary/english/united-states?q=united+states+
(accessed 1/3/18)
the United States of America, a nation consisting of 50 states, all but one (Hawaii) in North America.
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Should
To express a condition or to indicate a duty.
Dictionary.com, 2018
Should, http://www.dictionary.com/browse/should?s=t (accessed 1/3/18)
2. (used to express condition): Were he to arrive, I should be pleased. 3. must; ought (used to indicate
duty, propriety, or expediency): You should not do that. 4. would (used to make a statement less direct or
blunt): I should think you would apologize.
To express obligation and what is probable.
Merriam-Webster, 2018
Should, http://www.merriamwebster.com/dictionary/should?utm_campaign=sd&utm_medium=serp&utm_source=jsonld (accessed
1/3/18)
1 —used in auxiliary function to express condition <if he should leave his father, his father would die —
Genesis 44:22(Revised Standard Version)> 2 —used in auxiliary function to express obligation, propriety, or
expediency <'tis commanded I should do so — Shakespeare> <this is as it should be — H. L. Savage> <you
should brush your teeth after each meal> 3 —used in auxiliary function to express futurity from a point of
view in the past <realized that she should have to do most of her farm work before sunrise — Ellen
Glasgow> 4 —used in auxiliary function to express what is probable or expected <with an early start, they
should be here by noon> 5 —used in auxiliary function to express a request in a polite manner or to soften
direct statement <I should suggest that a guide…is the first essential — L. D. Reddick>
To indicate what is necessary, desirable, or important.
Cambridge Dictionary, 2018
Should, http://dictionary.cambridge.org/us/dictionary/english/should (accessed 1/3/18)
used to express that it is necessary, desirable, or important to perform the action of the following verb:
He should have told me about the change in plans. People like that should go to jail. Where should we meet
tonight? used to express that the action of the main verb is probable
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Abolish
To abolish is to end the effect of something, like a law.
Merriam-Webster Dictionary, 2018
“Abolish,” Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/abolish (accessed
1/7/18)
: to end the observance or effect of (something, such as a law) : to completely do away with (something) :
annul, abolish a law, abolish slavery
To abolish is to put an end to something.
Cambridge Dictionary, 2018
“Abolish,” Cambridge Dictionary, https://dictionary.cambridge.org/us/dictionary/english/abolish
(accessed 1/7/18)
to put an end to something, such as an organization, rule, or custom.
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Capital Gains Tax
A capital gain is income derived from the sale of an investment, which is taxable.
Stephen Moore, president of the Club for Growth and senior fellow at the Cato Institute,
and Phil Kerpen, research assistant at the Club for Growth, October 11, 2001
“A Capital Gains Tax Cut: The Key to Economic Recovery,” The Institute for Policy Innovation,
http://www.ipi.org/ipi_issues/detail/a-capital-gains-tax-cut-the-key-to-economic-recovery (accessed
1/4/18)
A capital gain is income derived from the sale of an investment.2 A capital investment can be a home, a
farm, a ranch, a family business, or a work of art, for instance.3 In most years slightly less than half of
taxable capital gains are realized on the sale of corporate stock. The capital gain is the difference
between the money received from selling the asset and the price paid for it.
A capital gains tax is the tax on the profit from a fixed asset.
Black’s Law Dictionary, 2018
“Capital Gains Tax,” Black’s Law Dictionary, https://thelawdictionary.org/capital-gains-tax/ (accessed
1/7/18)
When a fixed asset is sold at a profit, the profit may be liable to a tax called Capital Gains Tax. Calculating
the tax can be a complicated affair (capital gains allowances, adjustments for inflation and different
computations depending on the age of the asset are all considerations you will need to take on board).
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PRO Case
It is because current tax law is unfair and unnecessary, we stand in affirmation of the
topic Resolved: The United States should abolish the capital gains tax.
We define Abolish as:
To abolish is to end the effect of something, like a law.
Merriam-Webster Dictionary, 2018
“Abolish,” Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/abolish (accessed
1/7/18)
: to end the observance or effect of (something, such as a law) : to completely do away with (something) :
annul, abolish a law, abolish slavery
And Capital Gains Tax as:
A capital gain is income derived from the sale of an investment, which is taxable.
Stephen Moore, president of the Club for Growth and senior fellow at the Cato Institute,
and Phil Kerpen, research assistant at the Club for Growth, October 11, 2001
“A Capital Gains Tax Cut: The Key to Economic Recovery,” The Institute for Policy Innovation,
http://www.ipi.org/ipi_issues/detail/a-capital-gains-tax-cut-the-key-to-economic-recovery (accessed
1/4/18)
A capital gain is income derived from the sale of an investment.2 A capital investment can be a home, a
farm, a ranch, a family business, or a work of art, for instance.3 In most years slightly less than half of
taxable capital gains are realized on the sale of corporate stock. The capital gain is the difference
between the money received from selling the asset and the price paid for it.
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Contention 1: Capital gains tax should be abolished because it taxes individuals
and corporations twice for their assets.
Capital gains taxes are basically double taxation.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
There is one other large inequity of the capital gains tax. It represents a form of double taxation on
capital formation. This is how economists Victor Canto and Harvey Hirschorn explain the situation: A
government can choose to tax either the value of an asset or its yield, but it should not tax both. Capital
gains are literally the appreciation in the value of an existing asset. Any appreciation reflects merely an
increase in the after-tax rateof return on the asset. The taxes implicit in the asset's after-tax earnings are
already fully reflected in the asset's price or change in price. Any additional tax is strictly double taxation.
Currently, those with capital gains are taxed twice, shifting the burden to capital.
Thomas L. Hungerford, Specialist in Public Finance, December 29, 2011
“Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor
Income, Capital Income, and Tax Policy,” Congressional Research Service Report for Congress,
https://fas.org/sgp/crs/misc/R42131.pdf (accessed 1/4/18)
Individual taxpayers are not directly subject to the U.S. corporate income tax, but may indirectly bear the
burden of the corporate income tax. One justification offered for lower tax rates on capital gains and
dividends is this income can be taxed twice—once under the corporate income tax and again under the
individual income tax. It is likely that most or all of the burden of the corporate income tax falls on
capital.
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The capital gains tax is not indexed for inflation, causing investors to sometimes pay far too
much in taxes.
Stephen Moore, president of the Club for Growth and senior fellow at the Cato Institute,
and Phil Kerpen, research assistant at the Club for Growth, October 11, 2001
“A Capital Gains Tax Cut: The Key to Economic Recovery,” The Institute for Policy Innovation,
http://www.ipi.org/ipi_issues/detail/a-capital-gains-tax-cut-the-key-to-economic-recovery (accessed
1/4/18)
One of the least fair features of the capital gains tax is that it taxes gains that may be attributable only to
price changes, not real gains. That is because the capital gains tax, unlike most other elements of the U.S.
tax code, is not indexed for inflation. The nonpartisan Tax Foundation reports that that can have major
distortion effects on what an individual pays in capital gains taxes and can—indeed, often does—lead to
circumstances in which investors “pay effective tax rates that substantially exceed 100 percent of their
gain.”
A capital gains tax is basically taxing someone’s income twice, at the corporate and individual
levels.
Mike Whalen, Contributor to U.S. News, September 28, 2012,
“Eliminate the Capital Gains Tax,” U.S. News and World Report,
https://www.usnews.com/opinion/blogs/economic-intelligence/2012/09/28/eliminate-taxes-on-capitalgains (accessed 1/4/18)
The reality is that Romney, and others like him who derive significant capital gains or dividends, has
already been taxed by the time they receive this income, which is taxed around 15 percent. But this
income gets taxed twice, once at the corporate level and then again at the individual level. Added
together, the total tax rate may, in some cases, reach 44.75 percent. The bulk of the tax payments were
lopped off before the investor received a penny. The seemingly lower tax rate is simply an artifact of how
taxes are calculated rather than a reflection of the actual taxes paid.
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Contention 2: The capital gains tax deters small business from investing,
disallowing growth throughout the economy.
The capital gains tax is a burden for businesses, especially since the recession.
Newt Gingrich, former Speaker of the House, and Emily Renwick, writer for The
American, August 13, 2009
“Capital Gains Tax: An Argument for Repeal,” The American http://www.aei.org/publication/capital-gainstax-an-argument-for-repeal/ (accessed 1/4/18)
The capital gains tax is an unequivocal burden on the capital we need to grow, prosper, and compete in a
21st century global economy. Any American or business that sees an appreciation of the value of their
income (capital) must pay up to 39.6 percent in additional taxes on this appreciation (depending on the
length of the investment and the marginal tax rate of the individual or business). Considering inflation, the
effective rate paid on investments is even higher. As we are coming out of the recession, the United States
should do everything within its power to create a financial environment that allows businesses to rapidly
grow and prosper.
There are more IPOs and start ups without high capital gains taxes.
Stephen Moore, president of the Club for Growth and senior fellow at the Cato Institute,
and Phil Kerpen, research assistant at the Club for Growth, October 11, 2001
“A Capital Gains Tax Cut: The Key to Economic Recovery,” The Institute for Policy Innovation,
http://www.ipi.org/ipi_issues/detail/a-capital-gains-tax-cut-the-key-to-economic-recovery (accessed
1/4/18)
Not only are there more small business start-ups and IPOs during periods of low capital gains taxes, but
also the stock of smaller firms appears to outperform that of large corporations during periods of low
capital gains taxes. New research by Merrill Lynch (1995) demonstrates that over the past 25 years small
and medium-sized firms have benefitted more from reductions in capital gains taxes than have large,
established corporations. In its innovative study, Merrill Lynch constructed an index of the performance of
small-capitalization stocks relative to that of large corporate stocks (measured using the Standard & Poor’s
500 index). That ratio was then compared to the capital gains tax rate.
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The capital gains tax is a wealth destroyer, deterring investment.
Rod D. Martin is Founder and Chairman of TheVanguard.Org. A former policy director to
Arkansas Gov. Mike Huckabee, April 17, 2006
Everybody's Doing It: Abolish The Capital Gains Tax, The Free Republic,
http://www.freerepublic.com/focus/f-news/1616598/posts?page=9 (accessed 1/4/18)
The capital gains tax is a wealth destroyer, but in a much more insidious way than just this. The logic is
straightforward. Anytime government taxes something, you get less of it. So when government taxes
capital formation -- people investing their money so businesses can expand, research and hire -- it creates
a colossal roadblock to entrepreneurship and a huge disincentive for investment, the essential building
blocks of prosperity for any family or nation.
Without taxing capital gains, investment funds can go to new business startups instead, which is
key to the economy.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
One of the potential benefits from reducing the capital gains tax is to divert investment funds to new
business startups, particularly in the high-tech industries--where investments tend to involve high risk
but have potentially large payoffs. That is particularly vital to the economy because studies indicate that
small businesses (20 employees or fewer) create anywhere from 50 percent to 80 percent of all new jobs
in the United States. Why do investors put seed capital into high-risk small start-up companies rather than
more established firms or mutual funds with more stable rates of return? The answer is that start-up firms,
despite their higher risk, offer much higher potential payoffs. Here is an example of a small business that
turned into a highly profitable gazelle in the 1980s, as reported by the Wall Street Journal. Back in 1985 a
little company called Novell Inc.--which makes hardware and software used to link personal computers-raised $5.8 million in an initial public offering of its shares. A year later it raised an additional $18 million.
Since 1985, Novell shares have shot up by more than 10,000 percent. If the original investors had held on to
all of those shares, that $24 million investment would now be worth $1.5 billion.
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Rebuttal to: Capital gains tax is needed to tax the rich.
Despite popular belief, the capital gains tax does not affect the 1%. Primarily, it impacts lower and middleclass investors and families. Research shows that if the rate is lowered or eliminated, then the rich will
actually pay more in taxes.
If the rate is lowered, the rich will pay more in taxes.
Stephen Moore, president of the Club for Growth and senior fellow at the Cato Institute,
and Phil Kerpen, research assistant at the Club for Growth, October 11, 2001
“A Capital Gains Tax Cut: The Key to Economic Recovery,” The Institute for Policy Innovation,
http://www.ipi.org/ipi_issues/detail/a-capital-gains-tax-cut-the-key-to-economic-recovery (accessed
1/4/18)
Paradoxically, if the capital gains tax rate is lowered, the rich may pay more taxes than they do now. The
reason is that wealthy Americans have hundreds of billions of dollars outside the reach of the tax
collector as a result of the lock-in effect. They are avoiding the tax by holding their assets. The CBO found
in 1988 that the share of total capital gains tax collections from the wealthy rises when the tax rate is low,
and falls when the rate is high.
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Rebuttal to: The capital gains tax is good for the middle class.
The capital gains tax is a hindrance for many middle class earners. They end up taking most of the tax
burden and have less of a chance to reinvest their money, which disallows them upward mobility. The
capital gains tax is bad for the American dream.
The capital gains tax only hurts the middle class more than redistributing wealth.
David Goldman, Managing Director of Bear Stearns and Co. Inc., and Evan Kalimtgis, Vice
President in the Financial Analytics Structured Transactions Group at Bear Stearns and
Co. Inc., June 1, 1995
“Capital Gains: A Tax on the Middle Class,” The Manhattan Institute, https://www.manhattaninstitute.org/html/capital-gains-tax-middle-class-5605.html (accessed 1/4/18)
The capital gains tax falls overwhelmingly on the middle class, specifically, on savers and entrepreneurs,
the most thrifty and industrious members of the middle class. It is not a means of redistributing wealth
from the rich to the poor: the wealthy may for the most part avoid the tax through well-known and
commonly used techniques. Because the upward-striving middle class is the key to economic growth, the
capital gains tax harms the economy by creating a disincentive to thrift and investment. The capital gains
tax should be cut substantially or, better, abolished altogether.
Capital gains taxes hurt the poorest the worst, which accounts to being a tax on the American
dream.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
Economics consultant Jude Wanniski recently told the Senate Finance Committee, When the government
puts a high tax on capital gains, the people who lose the most from a high rate are the poorest, the
youngest, those at the beginning of their careers, those who are furthest from the sources of capital. . . .
The people who ultimately benefit from a capital gains tax cut are those who have no wealth, but aspire
to it. The capital gains tax has been described as a tax on the American dream. For many low- and
moderate-income workers, one of the few ways of accumulating wealth is through investment in stocks
and businesses.
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Rebuttal to: History proves the capital gains tax is a good thing.
Throughout the history of the United States, the government has tinkered with the capital gains tax rate
and looked at it compared to its allies and enemies abroad. Not only do many of the most important
economists agree that the rate should be abolished, the U.S. is one of the only industrialized nations to still
have this tax. Without a stable plan for economic growth, things like the capital gains tax could be bad for
U.S. leadership.
Economist Alan Greenspan says the appropriate capital gains tax rate is zero, history proves.
Steven Mufson, Reporter for the Washington Post, and Jia Lynn Yang is the deputy
national security editor at The Washington Post, September 11, 2011
"Capital gains tax rates benefiting wealthy are protected by both parties," The Washington Post,
https://www.washingtonpost.com/people/jia-lynn-yang/?utm_term=.b5bb96151f0b (accessed 1/5/18)
In 1997 congressional testimony, Greenspan said the “major impact” of the capital gains tax, “as best I
can judge, is to impede entrepreneurial activity and capital formation.” “The appropriate capital gains tax
rate was zero,” he added. Greenspan’s thinking had been around for decades. The same approach was
adopted in 1921, just before a stock market boom, when the U.S. government lowered the capital gains
rate for the first time. Over the decades, the rate fluctuated but remained lower than the rate on wage
income.
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High capital costs are a barrier to growth and are bad for U.S. leadership, especially as the U.S.'s
costs are higher than any of our competitors.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
Economists Robert N. McCauley and Steven A. Zimmer of the Federal Reserve Bank of Boston find that
capital costs for various standard investments in plant, equipment, research and development, and land
in the United States are higher in almost all cases than in the United Kingdom, Germany, and Japan. For a
factory with a 40-year life, for example, the cost of capital in the United States is 104 percent higher than in
Japan. Abnormally high capital costs in the United States are increasingly a barrier to growth and global
U.S. leadership. A 1991 report by the Manufacturers' Alliance for Productivity and Innovation compared
capital costs for large industries in the United States with similar costs in Japan. The report comes to this
sobering assessment: Japanese tax and economic policies aim to keep the cost of capital low, and as a
consequence, the cost of capital in Japan is one-half that for U.S. firms. This lower cost of capital has
encouraged Japanese firms to invest, which in turn has meant a higher rate of productivity and increased
competitiveness in comparison to U.S. firms. If U.S. policy fails to stimulate investment and renders U.S.
industry unable to match the productivity performance of Japan and a number of other industrial
nations, there is no question that U.S. industry will become less competitive in world markets. In sum,
the United States cannot compete and win in the global economy of the 21st century with a tax code that
repels capital.
Historically, reducing capital gains taxes is a good thing for economic growth and producing
good, stable economic policy.
Rea Hederman, Former Director for the Center for Data Analysis and Lazof Family Fellow,
and William Beach, Senior Associate Fellow, February 16, 2006
“Make the Dividend and Capital Gains Tax Rates Permanent to Keep the Economy Growing,” The
Heritage Foundation, http://www.heritage.org/taxes/report/make-the-dividend-and-capital-gains-taxrates-permanent-keep-the-economy-growing (accessed 1/7/18)
Reducing dividend and capital gains taxes succeeded in supporting stronger economic growth and making
dividend payments more popular to businesses. After the tax cut, many companies such as Microsoft
began offering dividend payments or increased their dividend payouts. In addition, extending these tax
rates or making them permanent would reinforce a central element of good economic policy: predictable
and stable tax law.
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Rebuttal to: Small businesses benefit from the capital gains tax.
When small businesses are not paying taxes on their capital gains, they are more willing and likely to invest
that money back in their businesses. Without that revenue stream, most small businesses lack the capital to
do substantial investment in their businesses like increasing its labor force or modernizing their production
processes.
Capital gains tax cuts are critical for American entrepreneurship and small businesses, especially
in the technology sector.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
To summarize, a capital gains tax cut is critical to American entrepreneurs and small business owners
because 1. most high-risk small business start-ups receive the bulk of their seed money from informal
investors who are subject to the capital gains tax; 2. over the past 25 years higher capital gains taxes
have been associated with a drying up of investment capital for small and growing businesses, and lower
capital gains taxes have produced substantial increases in business start-ups and financings; and 3. a
capital gains tax cut will particularly benefit America's new high-technology companies, which have a
voracious appetite for investment capital in their start-up stages; those firms tend to be financed by a
combination of informal investors and venture capital--both of which are highly influenced by the capital
gains tax rate.
Without capital gains, businesses would have more of an incentive to invest capital, creating
growth.
Newt Gingrich, former Speaker of the House, and Emily Renwick, writer for The
American, August 13, 2009
“Capital Gains Tax: An Argument for Repeal,” The American http://www.aei.org/publication/capital-gainstax-an-argument-for-repeal/ (accessed 1/4/18)
First and foremost, businesses would have more of an incentive to invest capital in all areas of their
business, including labor, capital, and research and development. Moreover, businesses would be able to
finance their debt at a lower cost if capital gains were not taxed. In today’s market, businesses seek out
new stocks or bonds to finance their investments. Those assets will be more desirable if investors do not
have to pay the capital gains tax on the revenue gained from the investment. As these corporate assets
become more appealing, this will drive down the cost of capital for companies, facilitating investment by
companies so that they can grow and hire more employees.
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Rebuttal to: The capital gains tax promotes income and economic equality.
There is a multitude of factors throughout our economy that are the reason income inequality and other
inequities exist. It is not the fault of the capital gains tax. Cutting the capital gains tax would actually be
better for economic equality for the lower and middle-income brackets overall.
Capital gains tax cuts improve the entire economy, allowing for investments and stopping
hurting low and middle-income investors.
The Heritage Foundation, October 11, 2001
“Capital Gains Tax Cuts: Myths and Facts,” The Heritage Foundation,
http://www.heritage.org/taxes/report/capital-gains-tax-cuts-myths-and-facts (accessed 1/7/18)
Capital gains tax reductions stimulate economic growth, which benefits the entire country. As President
Kennedy noted, "A rising tide lifts all boats." Capital gains taxes disproportionately hurt the elderly, low
and middle-income investors who have less discretion over the timing of their capital gains. Most people
who report capital gains do not have high annual incomes. People with high incomes are most sensitive
to capital gains tax rates, because they possess the most flexibility and means to avoid high tax rates.
When capital gains tax rates are high, people with high incomes do not sell their assets and realize their
gains. High-income people pay a greater percentage of capital gains taxes when capital gains tax rates are
low than when capital gains tax rates are high. High capital gains tax rates make capital scarce. When
capital is scarce it goes to safe investments. Low capital gains tax rates make capital abundant. When
capital is plentiful it goes to "riskier" investments - such as inner cities and disadvantaged areas.
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Rebuttal to: The capital gains tax helps the economy.
The capital gains tax is not the only thing that could affect the economy. Despite arguments to the contrary,
the capital gains tax is bad for international competition, as growth is hindered. The capital gains tax does
not help our economy overall.
The U.S. has a higher capital gains tax than any of its global competitors, which disallows it from
competing for economic growth against its rival, China.
Newt Gingrich, former Speaker of the House, and Emily Renwick, writer for The
American, August 13, 2009
“Capital Gains Tax: An Argument for Repeal,” The American http://www.aei.org/publication/capital-gainstax-an-argument-for-repeal/ (accessed 1/4/18)
Part of our economic problem is that the United States has one of the highest tax rates on capital gains in
the world. Many industrial countries have no taxes on capital gains including Austria, Belgium, Germany,
Greece, Luxembourg, Mexico, New Zealand, Portugal, and Turkey. Countries that do not impose capital
gains taxes on stocks include Argentina, China, Greece, Hong Kong, Israel, Malaysia, Mexico, the
Netherlands, Pakistan, the Philippines, Poland, Singapore, Spain, Sri Lanka, Taiwan, and Thailand. In order
to compete with economic growth in Shanghai, America must match China’s 0 percent capital gains rate.
Reducing capital gains would be good for economic growth, as more investment would occur.
Newt Gingrich, former Speaker of the House, and Emily Renwick, writer for The
American, August 13, 2009
“Capital Gains Tax: An Argument for Repeal,” The American http://www.aei.org/publication/capital-gainstax-an-argument-for-repeal/ (accessed 1/4/18)
Past efforts to decrease the capital gains tax rate have been influenced by convincing evidence that a cut
would increase economic growth. The investor class is integral to a functioning economy and investors’
decisions are influenced by the tax system in which they operate. Likewise, assets are in part priced with
the calculation that if the stock is sold, the investor will have to pay tax on realized capital gains. As a
result, buyers, knowing that they have to pay taxes, reduce the price that they are willing to pay for
assets, thus driving down stock prices.
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Page 24
The output of tax cuts has positive effects, top economists prove.
James Pethokoukis, columnist and blogger at the American Enterprise Institute,
September 17, 2012
"Sorry, New York Times, tax cuts sure do lead to economic growth, http://www.aei.org/publication/sorrynew-york-times-tax-cuts-sure-do-lead-to-economic-growth/ (accessed 1/5/18)
And one thing policymakers and journalists — and voters — should be sure of is that cutting tax rates can
be a pretty effective way to boost economic growth. And raising tax rates hurts economic growth. I could
point to numerous studies and historical examples. But here’s just one, a study from Christina Romer,
President Obama’s former top economist: “Tax increases appear to have a very large, sustained, and
highly significant negative impact on output … [and] tax cuts have very large and persistent positive
output effects.”
Getting rid of capital gains taxes would not be as expensive as proponents of the tax say, and it
would be phased out over time, ensuring to implications for tax liability. .
Karen A. Campbell, Ph.D., Policy Analyst for The Heritage Foundation, and Guinevere
Nell is Research Programmer in the Center for Data Analysis at The Heritage Foundation,
February 3, 2009
“Sustainable Economic Stimulus: Repeal Capital Gains and Dividend Taxes,” The Heritage Foundation
http://www.heritage.org/trade/report/sustainable-economic-stimulus-repeal-capital-gains-and-dividendtaxes (accessed 1/7/18)
The cost of a longer-term repeal of the capital gains and dividend taxes is not as expensive as some
policymakers might imagine. Analysts at The Heritage Foundation simulated the effect of the repeal in
terms of static revenue losses and macroeconomic growth. The Individual Income Tax Model shows that
lost revenue in 2008 would be $74 billion if losses can still be deducted up to $3,000 for the current year.
This lost revenue would cost about $370 billion over five years--much less than the $850 billion over
three years currently being debated in Congress. The repeal of the capital loss deduction could also be
phased in over this time, reducing the total cost in subsequent years. Tax filers incurring losses in 2008
based on past decisions could deduct losses, but future losses and gains would not affect tax liability.
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Page 25
Rebuttal to: Abolishing the capital gains tax is a bad idea.
Many economists agree; abolishing the capital gains tax would be a good thing overall. It could promote
growth in the economy, which helps every sector.
Economic growth benefits all income groups, and a capital gains tax disallows this.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
The equity issue has been used by opponents of the capital gains tax cut as a smoke screen to avoid the
real issue, economic growth. If a capital gains tax cut generates new investment and new jobs, as most of
the evidence suggests, all Americans will reap the benefit. For example, when the capital gains tax rate
was lowered in 1981, the incomes of all income groups rose and the unemployment rate fell by nearly 3
percentage points by 1986. The rich and the poor alike benefited from the tax law change.
The capital gains tax system makes it difficult for businesses and individuals to invest.
Newt Gingrich, former Speaker of the House, and Emily Renwick, writer for The
American, August 13, 2009
“Capital Gains Tax: An Argument for Repeal,” The American http://www.aei.org/publication/capital-gainstax-an-argument-for-repeal/ (accessed 1/4/18)
Additionally, because investors have to pay a tax on their gains, they often are penalized for diversifying
their investment portfolio with a wide range of investment products. The capital gains tax distorts what
the investors’ pre-tax optimal allocation of assets would be, potentially creating more challenges in
investment for Americans. Taxing investment gains clearly raises the opportunity cost of asset
transactions, leading to various inefficient outcomes.
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Page 26
Rebuttal to: The capital gains tax is good for spurring investment.
When companies are having to pay capital gains tax, they are less likely to spend capital on investments
because the simply lack the capital. Without paying the tax, entrepreneurs are more willing to not only take
on more risky investments, but those investments lead to growth, which promotes jobs, wage increases,
and better economic output.
The capital gains tax deters risky investments.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
Another unfairness of the tax is that individuals are permitted to deduct only a portion of the capital
losses that they incur, whereas they must pay taxes on all of the gains. That introduces an unfriendly bias
in the tax code against risk taking. When taxpayers undertake risky investments, the government taxes
fully any gain that they realize if the investment has a positive return. But the government allows only
partial tax deduction (of up to $3,000 per year) if the venture goes sour and results in a lost.
A cut would increase investment, output, and real wages.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
If the tax on the return from capital investments--such as stock purchases, new business start-ups, and
new plant and equipment for existing firms--is reduced, more of those types of investments will be
made. Those risk-taking activities and investments are the key to generating productivity improvements,
real capital formation, increased national output, and higher living standards.
Cutting capital gains tax rates will, as it has in the past, cause asset values, including stock
markets, to rise.
The Heritage Foundation, October 11, 2001
“Capital Gains Tax Cuts: Myths and Facts,” The Heritage Foundation,
http://www.heritage.org/taxes/report/capital-gains-tax-cuts-myths-and-facts (accessed 1/7/18)
Some people claim that lowering capital gains tax rates will cause the stock market to fall, because people
would sell their investments. By this silly logic, if people want to increase stock market values, then there
should be an increase in capital gains tax rates, because, then investors would be less willing to sell
investments. In fact, lowering capital gains tax rates increases the prices of stocks and other assets. Stock
markets reflect the collective actions of people looking forward. Lowering the cost of capital by
decreasing tax rates on investment returns will increase asset values. For example, the 1997 cut in the
top capital gains tax rate from 28 percent to 20 percent increased stock prices by approximately 8
percent.
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Page 27
A decrease in capital gains taxation leads to the lock-in effect, which harms a vendor’s ability to
get profit and invest successfully in the future.
Lars P. Feld, University of Freiburg and ZEW, Martin Ruf, University of Tübingen and
NoTeC, Ulrich Schreiber, University of Mannheim and ZEW, Maximilian Todtenhaupt,
University of Mannheim and ZEW, and Johannes Voget, University of Mannheim and
ZEW, January 26, 2016
“Taxing Away M&A: The Effect of Corporate Capital Gains Taxes on Acquisition Activity,” CESifo Working
Paper Series no. 57.8, p. 1
Capital gains taxation has long been identified as a potential obstacle for the efficient allocation of
capital (e.g. Feldstein & Yitzhaki, 1978). Being generally paid upon realization, capital gains taxes impose
payments on vendors of stock which these could have deferred otherwise. The resulting lock-in effect
raises the vendor’s reservation price and makes a sale less attractive (e.g. Holt & Shelton, 1962; Landsman
& Shackelford, 1995). These considerations have direct implications for corporate acquisition activity.
Capital gains taxation reduces the net gain of an acquisition deal from the perspective of the vendor firm
by triggering a high tax liability on accrued capital gains that have been retained in the target firm. To
compensate for this, the vendor demands a higher price and, as a consequence, the deal becomes less
attractive and may even fail.
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Page 28
CON Case
It is because current tax law is both fair and necessary to ensure equality in our
economy, we stand in negation of the Resolved: The United States should abolish the
capital gains tax.
We define Abolish as:
To abolish is to end the effect of something, like a law.
Merriam-Webster Dictionary, 2018
“Abolish,” Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/abolish (accessed
1/7/18)
: to end the observance or effect of (something, such as a law) : to completely do away with (something) :
annul, abolish a law, abolish slavery
And Capital Gains Tax as:
A capital gain is income derived from the sale of an investment, which is taxable.
Stephen Moore, president of the Club for Growth and senior fellow at the Cato Institute,
and Phil Kerpen, research assistant at the Club for Growth, October 11, 2001
“A Capital Gains Tax Cut: The Key to Economic Recovery,” The Institute for Policy Innovation,
http://www.ipi.org/ipi_issues/detail/a-capital-gains-tax-cut-the-key-to-economic-recovery (accessed
1/4/18)
A capital gain is income derived from the sale of an investment.2 A capital investment can be a home, a
farm, a ranch, a family business, or a work of art, for instance.3 In most years slightly less than half of
taxable capital gains are realized on the sale of corporate stock. The capital gain is the difference
between the money received from selling the asset and the price paid for it.
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Page 29
Contention 1: Abolishing the capital gains tax would be detrimental to the U.S.
deficit.
Eliminating the capital gains tax would add $11 billion to the federal deficit.
Amy Bingham, writer for ABC News, August 15, 2011,
“Warren Buffett Tells Congress To Raise Taxes On Wealthy,” ABC News,
http://abcnews.go.com/Politics/warren-buffett-raise-taxes-wealthy-friends/story?id=14307993 (accessed
1/4/18)
Republican presidential candidate Michele Bachmann told the Wall Street Journal's Stephen Moore in June
that if elected she would abolish the capital gains tax, which Buffett said should be increased, and amend
the tax code so every American pays income tax. By eliminating the capital gains tax, which is currently 15
percent, the Tax Policy Center estimates that about 23,000 millionaires would no longer have to pay
income tax because their only income comes from capital gains. This move would add $11 billion to the
federal deficit, according to Forbes.
A capital gains tax cut would increase the budget deficit.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
If a capital gains tax cut reduces revenues and increases the federal budget deficit, then savings and
investment in the United States might actually fall after the tax cut. That would only worsen America's
reported capital shortage. Sen. Bill Bradley (D-N.J.), for instance, has been highly skeptical of the economic
dividend from a capital gains tax cut and has argued that eliminating the federal budget deficit should be a
higher policy priority
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Page 30
Higher tax rates are important for economic growth, job creation, and helping to ameliorate the
budget deficit.
Chye-Ching Huang, Deputy Director, Federal Tax Policy at The Center for Budget and
Policy Priorities, April 24, 2012
"Recent Studies Find Raising Taxes on High-Income Households Would Not Harm the Economy," The Center
for Budget and Policy Priorities, https://www.cbpp.org/research/recent-studies-find-raising-taxes-onhigh-income-households-would-not-harm-the-economy?fa=view&id=3756 (accessed 1/7/18)
History shows that higher taxes are compatible with economic growth and job creation: job creation and
GDP growth were significantly stronger following the Clinton tax increases than following the Bush
tax cuts. Further, the Congressional Budget office (CBO) concludes that letting the Bush-era tax cuts expire
on schedule would strengthen long-term economic growth, on balance, if policymakers used the revenue
saved to reduce deficits. In other words, any negative impact on economic growth from increasing taxes
on high-income people would be more than offset by the positive effects of using the resulting revenue
gain to reduce the budget deficit. Tax increases can also be used to fund, or to forestall cuts in,
productive public investments in areas that support growth such as public education, basic research, and
infrastructure.
Taxes are key to deficit reduction; the highest incomes should not be exempt from paying taxes.
Chye-Ching Huang, Deputy Director, Federal Tax Policy at The Center for Budget and
Policy Priorities, April 24, 2012
"Recent Studies Find Raising Taxes on High-Income Households Would Not Harm the Economy," The Center
for Budget and Policy Priorities, https://www.cbpp.org/research/recent-studies-find-raising-taxes-onhigh-income-households-would-not-harm-the-economy?fa=view&id=3756 (accessed 1/7/18)
Finally, failure to include, as part of deficit reduction, measures that ask high-income individuals to
contribute more in taxes would require low- and middle-income households to bear an overly large share
of the deficit reduction burden through steep spending cuts. If shared sacrifice in reaching fiscal
sustainability is to be achieved, the only way to include high income households in a significant way is
through tax increases. Given the need to reduce deficits, and the need for revenues to make a
contribution, it would be odd to suggest that those with the highest incomes should be exempt.
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Contention 2: Economists are wrong – abolishing the capital gains tax hurts the
economy, not helps it.
Cutting capital gains will not produce fiscal stimulus and investment won’t increase, according to
the CBO.
Joel Friedman, Vice President for Federal Fiscal Policy Center on Budget and Policy
Priorities, and Aviva Aron-Dine, Senior Fellow and Senior Counselor, March 27, 2006
“The Capital Gains and Dividend Tax Cuts and The Economy,” The Center on Budget and Policy Priorities,
https://www.cbpp.org/research/the-capital-gains-and-dividend-tax-cuts-and-the-economy (accessed
1/4/18)
A Congressional Budget Office study found that the same was true of capital gains tax cuts: “in general,
little fiscal stimulus would be provided by cutting capital gains tax rates.” This is the case in part because
the initial benefits of capital gains tax cuts (and of dividend tax cuts as well) are directed in large part
toward investments that have already taken place. That is, rather than spurring new investment, the bulk
of the initial benefits of the tax cuts go toward rewarding investment decisions that have already been
made.
Research on capital gains cuts show they are ineffective as an economic stimulus.
Joel Friedman, Vice President for Federal Fiscal Policy Center on Budget and Policy
Priorities, and Aviva Aron-Dine, Senior Fellow and Senior Counselor, March 27, 2006
“The Capital Gains and Dividend Tax Cuts and The Economy,” The Center on Budget and Policy Priorities,
https://www.cbpp.org/research/the-capital-gains-and-dividend-tax-cuts-and-the-economy (accessed
1/4/18)
Simulations of the effects of dividend and capital gains tax cuts have found they are highly ineffective as
economic stimulus. An Economy.com study found that reducing the taxation of dividends and capital
gains would generate less than a dime of stimulus for each dollar of lost revenue; a Goldman Sachs
analysis estimated the dividend tax cut would provide eight cents of stimulus for each dollar of cost. (By
comparison, Economy.com estimated that more efficient stimulus proposals such as extending federal
unemployment benefits would yield more than a dollar of stimulus per dollar of revenue loss.)
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Cutting capital gains will lead to a revenue loss, a reduction in trading, and changes to wages.
Stephen Moore, president of the Club for Growth and senior fellow at the Cato Institute,
and Phil Kerpen, research assistant at the Club for Growth, October 11, 2001
“A Capital Gains Tax Cut: The Key to Economic Recovery,” The Institute for Policy Innovation,
http://www.ipi.org/ipi_issues/detail/a-capital-gains-tax-cut-the-key-to-economic-recovery (accessed
1/4/18)
The impact of a capital gains tax cut on federal revenue collections has long been an issue of contentious
debate—both in the academic literature and in public policy circles. In the current era of emphasis—at
least rhetorical emphasis—in Washington on maintaining the surplus and paying down debt, it is
predictable that the budgetary effect of capital gains tax changes would dominate public discussion. In
theory, a capital gains tax cut would create several countervailing positive and negative revenue effects.
The revenue-losing effects are 1. A static revenue loss from asset sales that would have occurred without
the tax cut but benefit from the lower rate; 2. A reduction in trading in anticipation of changes in the tax
rate, as was witnessed in 1986; and 3. A paper shifting of reported income from ordinary sources—such
as wages taxed at the “normal” rate—to capital gains income with lower rates.
When raising taxes and creating equal income distribution in the economy, capital gains taxes
play a role.
Henry J. Aaron, Bruce and Virginia MacLaury Senior Fellow at The Brookings Institution,
October, 2015
“Can taxing the rich reduce inequality? You bet it can!” The Brookings Institution,
https://www.brookings.edu/research/can-taxing-the-rich-reduce-inequality-you-bet-it-can/ (accessed
1/4/18)
An increase in the top rate on ordinary income should be linked to an increase in the rate on capital gains
and dividends to avoid making a bad problem worse. Exactly how much the rate on capital gains and
dividends would have to go up to achieve that result is hard to pin down. For illustration, however, I
assume that if the top rate on ordinary income were increased to 50 percent, the tax rate applied to capital
gains and dividends would go up by the same amount, from 20 percent to 30.4 percent. These two changes
would boost revenue by $144 billion a year or $2.0 trillion over ten years. If that revenue were distributed
to the bottom 20 percent of the income distribution, the rate increases combined with the transfers
would lower the 99/10 income ratio by 110 percent as much as it is by the entire current tax system.
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Rebuttal to: Capital gains tax is not needed to tax the rich
Some of the richest people in the United States have capital gains. For many of the wealthy, capital gains
tax is the only tax they pay each year due to the multiple loopholes in the system. In order to keep making
sure the wealthy pay taxes, the capital gains tax is necessary.
Without capital gains taxes, the some of the richest people in the U.S. wouldn’t pay any taxes as
in 2008, 88 of the richest 400 only had capital gains to report as income.
Warren E. Buffett, chairman and chief executive of Berkshire Hathaway, August 14, 2011
“Stop Coddling the Super-Rich,” The New York Times, http://www.nytimes.com/2011/08/15/opinion/stopcoddling-the-super-rich.html?_r=1&scp=2&sq=warren%20bufett&st=cse (accessed 1/4/18)
Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest
income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2
percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a
staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent. The taxes I refer to
here include only federal income tax, but you can be sure that any payroll tax for the 400 was
inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every
one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can
relate to that.)
A capital gains cut would only help the rich and would not benefit the U.S. economy.
Stephen Moore, director of fiscal policy studies at the Cato Institute, and John Silvia is
chief economist at Kemper Financial Services, October 4, 1995
"CATO Institute Policy Analysis No. 242: The ABCs of the Capital Gains Tax," CATO Institute Policy analysis
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa242.pdf (accessed 1/4/18)
Opponents of a capital gains tax cut question those advantages. They argue that a capital gains cut will do
the following: 1. Provide a large tax cut for the wealthiest Americans. Most capital gains taxes are paid by
Americans with incomes above $200,000. 2. Have very little positive impact on the U.S. economy. Many
argue that taxes do not influence investment decisions and that even if there were an unlocking effect,
investors might simply consume the proceeds or shift investment from U.S. assets to foreign assets that
may hold greater earnings potential.
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Rebuttal to: The capital gains tax is bad for the middle class.
The economy is complicated. The ways in which the upper class is taxed is important to ensure they are
contributing to the economy. The capital gains tax is integral in the economic equation to encourage
equality. Economists also have found that without a capital gains tax, investors will snatch up all of the
houses they can and hold their assets, which makes it difficult for some lower-income folks to buy houses
and take part in the market.
The capital gains tax is an important part in the equation to reduce income equality for the low
and middle income families in the U.S.
Derek Thompson, senior editor at The Atlantic, September 18, 2013,
“The Simplest Income Inequality Policy: Raising Taxes on Investment Income,” The Atlantic,
https://www.theatlantic.com/business/archive/2013/09/the-simplest-income-inequality-policy-raisingtaxes-on-investment-income/279794/ (accessed 1/4/18)
But it's awfully simple and direct. The most important source of income gains for the investor class is,
after all, investments. If we want to mitigate, if not quite solve, income inequality, let's start there. It
would accomplish something small, but significant: Help Washington keep more low- and middle-income
families free of federal income taxes while raising rates on capital gains from global finance and business,
which today go almost entirely to the richest sliver of the country.
Eliminating the tax would encourage investors to buy assets and be discouraged from selling
their assets.
Karen A. Campbell, Ph.D., Policy Analyst for The Heritage Foundation, and Guinevere Nell
is Research Programmer in the Center for Data Analysis at The Heritage Foundation,
February 3, 2009
“Sustainable Economic Stimulus: Repeal Capital Gains and Dividend Taxes,” The Heritage Foundation
http://www.heritage.org/trade/report/sustainable-economic-stimulus-repeal-capital-gains-and-dividendtaxes (accessed 1/7/18)
Because investors are burdened with paying capital gains taxes when the gain is realized through a sale
of an asset, capital gains taxes are known to discourage sale of appreciated assets. The higher such taxes,
the more the investor is discouraged--a consequence known as the "lock-in effect." Similarly, because
losses can be deducted, the sale of underperforming assets is encouraged.
During an economic crisis, the lock-in effect will not prevent investors from selling. However, the
elimination of the tax would still create an immediate unlocking of another sort: the decision to buy
assets.
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Without a high capital gains tax could lead to a reduction on the supply of homes for sale.
Jacob Gaffney, Editor in chief of housing wire, December 4, 2017
“Black Knight: Capital gains tax reform may further reduce housing supply,” Housing Wire,
https://www.housingwire.com/articles/41999-black-knight-capital-gains-tax-reform-may-further-reducehousing-supply (accessed 1/4/18)
Leveraging the company’s SiteX property records database, Black Knight found that on average, over the
past 24 months, more than 14 percent of property sales were by homeowners falling into that two-tofive-year window and who would no longer be exempt from capital gains taxation. On average, $60
billion in capital gains each year could be impacted, with a worst-case scenario (taxing the full amount
under the highest tax bracket) putting the cost to home sellers at approximately $23 billion. If such
homeowners choose to forego or delay selling to avoid a tax liability, this may also further reduce the
supply of homes for sale.
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Rebuttal to: History proves the capital gains tax is a bad thing.
All of the historical examples of a capital gains tax reduction are just that – a reduction. No evidence exists
to suggest that abolishment is good for the U.S. economy. Arguments for a reduction are neg ground.
The tax cut of 1997 proves that a capital gains cut would not lead to more revenue.
Stephen Moore, president of the Club for Growth and senior fellow at the Cato Institute,
and Phil Kerpen, research assistant at the Club for Growth, October 11, 2001
“A Capital Gains Tax Cut: The Key to Economic Recovery,” The Institute for Policy Innovation,
http://www.ipi.org/ipi_issues/detail/a-capital-gains-tax-cut-the-key-to-economic-recovery (accessed
1/4/18)
Perhaps the most persuasive case for cutting the capital gains tax comes from the most recent rate cut of
1997. That rate cut did not lead to any of the revenue losses that had been expected. According to
Treasury Department tax collection data, in 1996, the year before the capital gains tax rate cut from 28 to
20 percent, the total amount of net capital gains on assets sold was $260 billion. A year later capital gains
had mysteriously jumped to $400 billion. (The capital gains tax cut was retroactive to May of 1997.)In 1998
they climbed to $450 billion. In 1999 total capital gains exceeded $500 billion.
The Treasury Department data also indicates that capital gains revenues have exploded. In 1996 the last
year with the 28 percent rate, the government collected $62 billion in capital gains receipts.
Even Obama felt that raising capital gains would be beneficial for the economy, the deficit, and
the economy.
Sanjay Sanghoee, investment banker and author, September 3, 2012
“Inequality: Why the Capital Gains Tax Rate should be Raised,” The Huffington Post,
https://www.huffingtonpost.com/sanjay-sanghoee/inequality-why-the-capita_b_1851729.html (accessed
1/4/18)
President Obama wants to raise the capital gains tax rate to 20%, which I think is a good way to restore
some equality while preserving the impetus for investment. His challenger, on the other hand, does not
want to raise the rate at all, which is not surprising given that Romney himself made a lot of money on
the back of a preferential capital gains tax rate - first through his involvement with Bain and then via his
private investments; and that renders his view disturbingly self-serving. In any case, for the sake of sheer
pragmatism, it is high time that the capital gains tax rate was raised. It will be good for our deficit, good
for equality, and good for our economy.
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Rebuttal to: Small businesses are hurt by the capital gains tax.
The capital gains tax is not a burden for small businesses. All businesses should be subject to taxation to
help the economy along. In addition, current tax breaks for small businesses ensure they don’t pay taxes
beyond their means.
Small businesses currently have a partial gain tax exclusion.
Tina M. DeSanty, CPA, Fort Lauderdale, Fla., April 30, 2013
"Sec. 1202: Small Business Stock Capital Gains Exclusion," The Tax Advisor,
https://www.thetaxadviser.com/issues/2013/may/clinic-may2013-story-07.html (accessed 1/7/18)
For most taxpayers, QSBS is a capital asset subject to capital gain tax rates. Most taxpayers to whom Sec.
1202 applies are subject to a lower effective tax rate than would have been the case had Congress not
provided for partial gain exclusion for QSBS. However, a taxpayer is not entitled both to partial gain
exclusion under Sec. 1202 and to the reduced capital gain rates that otherwise would be available. The
taxable portion of the gain is taxed under the normal rules and subject to a maximum rate of 28% on
capital gains. This makes the maximum effective rate on the gain from the sale of QSBS 14%. The
potential application of the alternative minimum tax (AMT) further erodes the benefits of investing in
QSBS.
Small businesses are not as adversely affected by capital gains taxes as other businesses; claims
to the contrary are misleading.
Chye-Ching Huang, Deputy Director, Federal Tax Policy at The Center for Budget and
Policy Priorities, April 24, 2012
"Recent Studies Find Raising Taxes on High-Income Households Would Not Harm the Economy," The Center
for Budget and Policy Priorities, https://www.cbpp.org/research/recent-studies-find-raising-taxes-onhigh-income-households-would-not-harm-the-economy?fa=view&id=3756 (accessed 1/7/18)
The claim that raising marginal tax rates at the top of the income distribution would severely harm small
businesses has little empirical basis. Few small business owners pay taxes at the top rates. According to
a recent Treasury analysis, only 2.5 percent of small business owners who are taxed at the individual
rather than corporate rates are in the top two income-tax brackets.
Further, claims that about half of “pass-through” business income (i.e., income that firms pass through to
their owners, who pay income taxes on these profits) is taxed at the top two tax rates are also
misleading. These claims rely on an extremely broad definition of “business” that treats any filer with any
business income as a business owner. Under that definition, professors who occasionally get paid for giving
a speech or doing some consulting on the side, lawyers and accountants whose firms are organized as
partnerships, and corporate executives who get paid to sit on other firms’ boards of directors are treated as
small business owners.
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Capital gains taxes can encourage, not discourage small business growth.
Chye-Ching Huang, Deputy Director, Federal Tax Policy at The Center for Budget and
Policy Priorities, April 24, 2012
"Recent Studies Find Raising Taxes on High-Income Households Would Not Harm the Economy," The Center
for Budget and Policy Priorities, https://www.cbpp.org/research/recent-studies-find-raising-taxes-onhigh-income-households-would-not-harm-the-economy?fa=view&id=3756 (accessed 1/7/18)
Opponents of raising the top marginal income tax rates on capital gains and dividends argue that doing so
would discourage entrepreneurship and new small business ventures. Yet CRS reported that “the empirical
evidence suggests that tax rates have small, uncertain, and possibly unexpected effects on the formation
of small business.” Summarizing the economic literature, CRS concludes that “higher tax rates are more
likely to encourage, rather than discourage, self-employment.”
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Rebuttal to: The capital gains tax hurts income and economic equality.
Billionaires are not paying enough in taxes. The ways in which the tax system is set up are demonstrative of
a need for the wealthy to contribute more to the economy. The capital gains tax is a way for them to do so.
It should not be abolished.
Billionaire Warren Buffet believes that the rich should pay more in capital gains taxes to help the
burden on others.
Amy Bingham, writer for ABC News, August 15, 2011,
“Warren Buffett Tells Congress To Raise Taxes On Wealthy,” ABC News,
http://abcnews.go.com/Politics/warren-buffett-raise-taxes-wealthy-friends/story?id=14307993 (accessed
1/4/18) \
Buffett, who has spoken out in favor of raising taxes on the rich multiple times, urged the supercommittee to increase income taxes for the 236,000 people who earned more than $1 million in 2009,
including taxes on investment profits such as capital gains and dividends. For the 8,000 people who made
more than $10 million in 2009, Buffett suggested an even higher tax increase. The billionaire said he paid
about $7 million in payroll and income taxes last year. That is about 17.4 percent of his taxable income, a
lower proportion than any of the other 20 people in his office whose tax burdens range from 33 percent
to 41 percent, he said.
Capital gains taxes are good for curbing tax evasion, addressing equality, and efficiency.
Rainer Niemann, Karl-Franzens University, and Caren Sureth-Sloane, University of
Paderborn, August 2016
“Does Capital Tax Uncertainty Delay Irreversible Risky Investment?” CESIFO Working Paper No. 6046, p. 2-3
Despite the claim that capital taxes are harmful, we observe repeated calls for increases in capital taxes
such as the (re-) introduction of a general wealth tax (for example, IMF 2013, IMF 2014, Piketty 2014) or an
increase in taxes on specific assets, such as real estate. This is because capital taxes are often considered
superior to profit taxation in curbing tax evasion and serve both efficiency and equality aims. Although
several countries abolished capital taxation during the 1990s and 2000s, there are animated political
debates on capital taxation for distributional and fiscal purposes, especially in industrialized countries.
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Rebuttal to: The capital gains tax hurts the economy.
Cutting the capital gains tax has both long-term and short-term effects. The stimulus from proposed cuts
would not be substantial enough to account for the loss of long-term revenue.
Cutting capital gains would have long term effects, not yielding any short term economic
stimulus benefits.
Joel Friedman, Vice President for Federal Fiscal Policy Center on Budget and Policy
Priorities, and Aviva Aron-Dine, Senior Fellow and Senior Counselor, March 27, 2006
“The Capital Gains and Dividend Tax Cuts and The Economy,” The Center on Budget and Policy Priorities,
https://www.cbpp.org/research/the-capital-gains-and-dividend-tax-cuts-and-the-economy (accessed
1/4/18)
Economic theory and evidence surrounding capital gains and dividend tax cuts. Capital gains and
dividend tax cuts are generally understood to be “supply-side” tax cuts — that is, even if they “work,”
their effects are felt in the long run, not as short-run economic stimulus. The Congressional Budget Office,
for instance, found that “little fiscal stimulus would be provided by cutting capital gains tax rates.”
Conservative economist Gary Becker, a supporter of the dividend tax cut, wrote that it “will not yield
immediate benefits…. Any short-run stimulus from eliminating the dividend tax would be too weak to
have a significant benefit to the economy.” Kevin Hassett, another conservative economist who supports
the dividend tax cut, has called it “preposterous” to claim that reducing taxes on dividends created
millions of new jobs.
The Federal Reserve answers claims that capital gains tax cuts do not boost the economy, 2003
proves.
Joel Friedman, Vice President for Federal Fiscal Policy Center on Budget and Policy
Priorities, and Aviva Aron-Dine, Senior Fellow and Senior Counselor, March 27, 2006
“The Capital Gains and Dividend Tax Cuts and The Economy,” The Center on Budget and Policy Priorities,
https://www.cbpp.org/research/the-capital-gains-and-dividend-tax-cuts-and-the-economy (accessed
1/4/18)
Some supporters of the capital gains and dividend tax cuts argue that they boosted the economy in the
short run by boosting the stock market. A Federal Reserve study, however, found that the dividend and
capital gains tax cuts were not the reason the market rose in 2003. (Not surprisingly, the Treasury report
did not cite this Federal Reserve study.)
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There is no evidence that suggests there is a reason capital gains cuts benefit the economy;
correlation doesn't lead to causation.
Paul Solman, economics correspondent for PBS News Hour, December 5, 2012
"Argument For and Against Capital Gains Tax Cuts," PBS News Hour,
https://www.pbs.org/newshour/economy/capital-gains-tax-cuts-for-and (accessed 1/5/18)
This story seems true. How could it not be? But this no more proves that a capital gains cut is a net
positive for the economy than giving money to rich people is a way to increase overall investment. Come
to think of it, that’s what a capital gains tax cut boils down to: handing back to rich folks the money that
would otherwise have come to the government in the form of taxes because of a tax rate previously
considered legitimate. The lack of correlation you refer to is failure to find, in the data, a growth spurt in
the wake of a capital gains tax cut. In fairness, economic growth depends upon many factors. Any
correlation analysis has to hold the main variables constant before pronouncing on a statistically
significant relationship between two variables like a tax cut and growth. And even a statistically
significant correlation does not prove a causal connection. The sun rises every morning and so does yeast;
100 percent correlation, but so what?
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Rebuttal to: Abolishing the capital gains tax is a good idea.
Getting rid of the capital gains tax would be a terrible idea. All types of income should be taxed. The gain
was not taxed when the asset was first taxed, so it’s not a double taxation, it’s just income that should be
taxed like anything else.
Capital gains as income should not be treated differently than any other income.
Sanjay Sanghoee, investment banker and author, September 3, 2012
“Inequality: Why the Capital Gains Tax Rate should be Raised,” The Huffington Post,
https://www.huffingtonpost.com/sanjay-sanghoee/inequality-why-the-capita_b_1851729.html (accessed
1/4/18)
Capital gains are a form of passive income that arise not from working but from realizing profits from
investments. While there is nothing wrong with making money passively, there is no defensible reason to
tax that type of income any differently than the wages of say, a policeman or a cashier at a fast food
restaurant. After all, those people contribute to our economy as well, so why should they be treated
differently?
When capital gains taxes have been reduced, there is no evidence to prove that the reduction
has led to economic growth.
James Pethokoukis, columnist and blogger at the American Enterprise Institute,
September 17, 2012
"Sorry, New York Times, tax cuts sure do lead to economic growth, http://www.aei.org/publication/sorrynew-york-times-tax-cuts-sure-do-lead-to-economic-growth/ (accessed 1/5/18)
The top income tax rates have changed considerably since the end of World War II. Throughout the late1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top
capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax
rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax
rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the
end of the second World War. The results of the analysis suggest that changes over the past 65 years in
the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic
growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and
productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.
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Rebuttal to: The capital gains tax stifles investment.
The capital gains tax is not the ultimate arbiter of whether or not a company can bolster its investment in
its own company or in others.
Investment and revenue hikes would only be short term if the capital gains tax was cut.
Steven Mufson, Reporter for the Washington Post, and Jia Lynn Yang is the deputy
national security editor at The Washington Post, September 11, 2011
"Capital gains tax rates benefiting wealthy are protected by both parties," The Washington Post,
https://www.washingtonpost.com/people/jia-lynn-yang/?utm_term=.b5bb96151f0b (accessed 1/5/18)
Many tax experts contest the benefits of a low capital gains rate. Jane Gravelle, a tax expert at the
Congressional Research Service, says a rate cut could generate more government revenue for a year or
two as investors take advantage of lower rates or a rising stock market, but she says that initial bump in
tax revenue would fade. And the government, over time, would collect more overall if it kept the rate
higher.
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