Tax cut beneficiaries

JWR ^ | Jan. 11, 2006 | Walter Williams

[Small-L]

Republican and Democratic big government advocates whine about President Bush's proposed tax cuts, particularly cuts in the capital gains tax. They say it's a $70 billion giveaway to the rich. Listening to demagoguery about the rich, I've sometimes wished that we could find a humane way to get rid of the rich so that we might better focus on what's in the interests of the other 99.44 percent of us.

Creating more equipment, whether it's earthmovers, computers or technical innovation, is called capital formation. The capital gains tax is a tax on capital formation, and when anything is taxed, one expects less of it. Less capital formation means a slower growth in wages. Roughly 95 percent of the growth in wages over the past 40 years is explained by the capital-to-labor ratio.

The capital gains tax dampens risk incentive. ... Capital gains taxes reduce your rate of return on the risk you have taken. Reduced rates of return mean that people will undertake less risk.

... There are other taxes that impede capital formation, such as dividend and corporate profit taxes, but the capital gains taxes, as well as the death tax, are particularly vicious. In 2004, the capital gains tax generated $56 billion, about three percent of federal revenues. The death tax generated $25 billion, a little over one percent of federal revenues. The death tax, like the capital gains tax, has an impact on capital formation because people often have to sell producing assets. These high-powered dollars are shifted from production to government consumption. The capital gains tax and the death tax are insignificant in terms of federal revenue. They only serve our collective taste to tax the so-called rich.

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[Small-L]

So if Congress is so smart, why do we have a capital gains tax? Oh, it must be because they're pandering to those who went to govenment schools and who have zero understanding of economics.

[marktwain]

"So if Congress is so smart, why do we have a capital gains tax?"

Because it is a remnant of the mythology of Marxism. According to Marxists, Property is Theft. A failed theory morphed to a failed philosophy converted to a failed article of faith.