Would now be the ultimate time to eliminate the capital gains tax?

[glenn1]

We all know how both political sides feel about this issue, so i won't rehash the old arguments. Let me just throw something new into the mix for those who don't support abolishment of the capital gains tax (CGT hereafter).

Did you know that the flip side of the CGT, is the ability for taxpayers to deduct capital losses? Yep, up to $3,000 in capital losses can be used to offset other taxable income in any given year, and the remainder can be "rolled forward" indefinitely and used over as many tax years as it takes?

Now let's take a look at the markets. Hmmmm... the Dow is at a 5-year low today. Let's not even talk about where the Nasdaq is. Last time i heard, the estimate is that about 60 million Americans are stockholders. The figure i've heard is that about $8 trillion in stock market wealth has been destroyed over the last couple of years, so I think it's pretty safe to say that a lot of them have some unrealized losses in their portfolios.

Let's say all those 60 million investors decide they can't take it anymore, and decide to sell out now since Uncle Sam will share some of the pain by writing off the capital loss. How much money do you think that the U.S. Treasury stands to lose in tax receipts, not only this year, but for years to come? Billions? Hundreds of billions? A trillion or more perhaps? (yes, that's trillion with a "T").

Of course, this could all be avoided. The conservatives get the prize they've wanted for a long time. Liberals get to keep more tax money coming their way that they'll be able to spend on social programs by limiting the government's exposure to capital loss writeoffs, which have the potential to be enormous given today's market. So where's the downside to the idea of finally doing away with the abomination known as the CGT?

 

[Evadman]

Sounds good to me. But not until next year. I have a bunch of losses to claim on my taxes

 

[DaveSimmons]

It's politcal suicide to take away a widely-used personal tax deduction, it's not going to happen.

If it ever happens (unlikely anytime soon given that we're back to deficit spending) it will be in some election year when most people are expecting to have gains not losses.

 

[Shantanu]

I think they should cut the capital gains and corporate taxes.

 

[Zebo]

How bout not paying any taxes till you hit 100K income or gains? That will restore investor confidence.

 

[klah]

There is a bill in the house, introduced by Zoe Lofgren(D), that is attempting to raise the deduction for losses from $3000 to $8250. It made it out of committee yesterday, but I do not know when it will hit the floor.

Here is an article about this bill from the NYT: House Republicans Push Bills to Benefit Small Investors.

 

[glenn1]

Thanks for the link, lotta nice stuff in that bill, hope it gets passed

 

[mithrandir2001]

Originally posted by: glenn1
So where's the downside to the idea of finally doing away with the abomination known as the CGT?

The market will go back up and the liberals will complain that people made money on capital without paying taxes.

 

[manly]

Originally posted by: klah
There is a bill in the house, introduced by Zoe Lofgren(D), that is attempting to raise the deduction for losses from $3000 to $8250. It made it out of committee yesterday, but I do not know when it will hit the floor.

Here is an article about this bill from the NYT: House Republicans Push Bills to Benefit Small Investors.

According to the L.A. Times, the chances of this bill clearing the Senate are slim. <insert-snide-political-comment-here />

Of course, glenn1's idea is idiotic. Guess a big reason why the stock markets have been hosed? Because of top executives' generous stock compensation that led many of them to massage the numbers and commit outright fraud (amongst other schemes). So let's kick them a larger bone while hosing the numerous Americans who have (capped) capital losses to write off because they were largely misled by Wall Street? Yeah, that makes a ton of sense.

What you actually want to promote is better balance between the top tax bracket (which Bush has achieved through 2010) and the CGT, so that the filthy rich don't just shift their income vehicles back and forth depending on the tax flavor of the year.

This plan fits in perfectly with SS equity investments that he happens to like. Hose American investors, line the pockets of the rich and Wall Street, save the Treasury, boost the economy all at once.