re: #20 Targetpractice

I’m okay with unearned income like capital gains being taxed at a lower rate since the policy objective is to encourage investment, but the rates need to be reevaluated.

Long term cap gains ought to be taxed at a rate that is lower than the ordinary income rate, but not at the current 15/20% rate.

While Alouette mentioned in the dead thread the fact that noise is being made of the fact that some states are approaching 50% marginal income, the fact is that few would ever see that rate - ever - with the current tax policy.

The top tax rate only applies to the income over the top tax rate. And people who are in the top tax rate are often those who have significant non-ordinary income (dividends, capital gains), so their rate will be much lower than claimed.

Where adjusting the capital gains/dividends tax rate runs into trouble is to find a balance between encouraging investment and raising revenues. It also raises questions of complexity with a tax system that is already overly complex.

One possibility is to apply the rates as follows:

Current Bracket / Capital gains long term rate
10% / 0%
15% / 0%
25% / 10%
28% / 15%
33% / 25%
35% / 28%
39.60% / 33%

The long term rate essentially becomes the rate from two brackets beneath your own for ordinary income. I’d have to see how much revenue this would raise.

Thing is that most people would accept this kind of rate change/increase if you can direct where the revenues go specifically. If you say it’s going to go towards road/bridge fund, they’ll buy it. If it gets lost into the maw of the general fund, not so much.