Sunday, January 29, 2012

Capital Gains

I was talking about capital gains taxes with a tax lawyer friend, who reminded me about the 1986 Tax Reform Act, promoted and signed into law by President Reagan. The law lowered the top income tax brackets, making the system somewhat less progressive, but it also closed many tax loopholes enjoyed by the wealthiest taxpayers, removed millions of the working poor from the rolls, and increased the tax rate on capital gains to the same as the rate on earned income.

Three things (at least) are important to remember about this history. One is that Ronald Reagan, the great champion of lower taxes and reduced federal spending, also firmly believed in the fairness of making people who earn their money from investments pay the same rate of taxes as those who earn their money from actually working. Maybe because Reagan had the experience of working as an actor for a living most of his life, he had some understanding of the importance of rewarding work, and less sympathy for rewarding those who make their living by cashing dividend checks. It's funny that you never hear any homage to Reagan's cherished principle of maintaining parity between the value of work and the value of investment from any of the current crop of Republican candidates. They instead react with outrage at any suggestion of raising the capital gains rate from the current bargain rate of 15%. (the percentage Mitt Romney pays on nearly all of his income)

Second, the story of the 1986 Tax Reform Act gives the lie to the Republican's current claim that any increase in capital gains or corporate tax rates will adversely impact the "job creators" and harm economic growth. The history of the last fifty years of fluctuations in individual, capital gains, and corporate tax rates should provide plenty of data to test the proposition that lowering rates stimulates economic growth and/or employment. Lots of people have analyzed this data, and have not found any correlation between capital gains tax rates and either economic growth or employment.  (same with corporate tax rates and individual tax rates)

Finally, Reagan's example should shame the current Republican leaders into re-thinking their strategy of refusing to cooperate in any way with Democrats in Congress and the White House. In addition to being called the Great Communicator, Reagan should also be known as the Great Compromiser. The 1986 Tax Reform Act represented an historic bi-partisan compromise. On a whole range of issues, not limited to taxing and spending policies, Reagan was more than willing to strike a deal with his political opponents that gave each side something of what they wanted.

If current Republican candidates truly wanted to follow the example of the president they revere above all others, they would stop spouting nonsense about the importance of keeping taxes on capital gains much lower than taxes on earned income, and they might reconsider their strategy of complete intransigence toward working with the opposite party. Neither of these positions is particularly popular with the American people, and neither is faithful to the spirit of Ronald Reagan.

1 comment:

  1. This is such a powerful article. So much truth. Then I read on about "lies" and "shameless" behavior.

    While I completely agree with your message on taxes -- I am still tempted to post similar inflammatory descriptions of the left. But I will not as it is not helpful.

    Why is it that ideologues can't share facts and let them stand on their own? My view, they underestimate those who might disagree.