Increased Capital Gains Tax, Decrease Corporate Tax
Income from capital gains and dividends is the largest contributor to rising income inequality in recent years
January 31, 2012
Yes. Making Mitt Romney pay more in capital gains taxes would both help slow the alarming growth of inequality in the U.S. and, if offset by a decrease in the corporate tax rate, help keep capital and investment within our borders.
According to the non-partisan Congressional Research Service, changes in income from capital gains and dividends were the single largest contributor to rising income inequality in recent years. During that same period, largely due to the tax cuts on capital gains, the U.S. tax system actually became more regressive, as "there was a relatively large decrease in average tax rates for tax filers at the top of the income distribution." Since increases in societal inequality lead to poorer health outcomes and lower social cohesion, as well as undercutting our national creed that every individual has the opportunity to succeed, the pursuit of a more balanced distribution of wealth is in itself a valuable goal.
In addition, as pointed out in a recent paper by the Tax Policy Center, an equal rate of taxation on personal income and capital gains could fund a decrease in corporate taxes. This outcome could "increase the attractiveness of the United States for investment by both foreign and domestic companies…reduce the incentive for many to escape the impact of the U.S. corporate tax by investing in lightly taxed foreign companies…and decrease the incentive for companies operating in the U.S. to shift reported income to their non-U.S. affiliates," which when taken together cost the U.S. tens of billions of dollars in lost tax revenues.
The attention that Mitt Romney has brought to the issue of the capital gains tax offers a rare opportunity to not only make our society more equal but also to prevent capital flight. What's more, if an increase in capital gains taxes is coupled with a decrease in corporate taxes, the proposal might even be politically feasible.