WaPo goes back to basics: lower taxes on capital gains help the rich get richer
Sept. 14, 2011 — Kudos to Steven Mufson and Jia Lynn Yang for their recent in-depth article in the Washington Post on how it is that we have a system whereby “anyone making more than $34,500 a year in wages and salary is taxed at a higher rate than a billionaire is taxed on untold millions in capital gains.”
The story provides important historical perspective, exploding the common idea that the way things are today are the way they have always been. In fact, the rate on capital gains was 28 percent when President Reagan left office. It was President Clinton who signed on to cut those rates to 20 percent. President George W. Bush got the rates cut to 15 percent, where those rates remain today.
Another important feature: highlighting the crucial role that Alan Greenspan played in selling the story that the “appropriate capital gains tax rate was zero.” As was the case with other Greenspan pronouncements, his arguments about the counterproductive nature of capital gains taxes were widely accepted as gospel.
And not just by Republicans. The reporters make clear that many Democrats “have been champions of keeping taxes on investors relatively low.”
A classic method of obfuscation is the argument that “everyone benefits.” But the Post’s reporters here are having none of that:
While it’s true that many middle-class Americans own stocks or bonds, they tend to stash them in tax-sheltered retirement accounts, where the capital gains rate does not apply. By contrast, the richest Americans reap huge benefits. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent.
Finally, the article reports that some tax experts characterize the evidence for the theory a low capital gains rate “spurs more investment in the U.S. economy” as “murky at best.”
All in all, the article provides important food for thought on an issue where different presidents and different congresses have come to different conclusions at different times.
We hope it will encourage stories that examine what alternatives may yield greater benefits to a greater number of people.