Is it any surprise that the folks who have the most to gain from low capital gains tax rates are lying?
From John (I have a rich wife) McSame to the multitude of multi-millionare pundits who couldn't analyze a spreadsheet if you told them their children's trust funds depended on it, we're being lied to.
Lower capital gains tax rates do NOT result in more tax receipts. Surprised? I thought not.
Here's why....
First - McCain is lying or ignorant - take your choice - when he says raising the Capital Gains rate would raise the taxes for everybody with an IRA or 401(k).
Deferred income is taxed as regular income when you withdraw it. Either way, McCain once again proves he knows little about the economy.
Second - historically, the pundits are correct - but for only the first year after a tax cut. If you know you'll pay 20% if you take a gain at the end of the year, but 15% if you can hold off until the first of the next year, what will you do? Duh!
So - there's a 'first year' effect when rates change, which gives the false impression that the LONG TERM effect is the same. It is not.
What happens then is human nature. If you have a choice between paying 33% income tax or 15% capital gains tax, what would you do? Why make as much of your income eligilble for 15% as possible.
So - people twist the rules to claim $Billions more in capital gains than ordinary income. Proof? A few tidbits from the IRS 2005 numbers:
If you were among the lucky 750,000 taxpayers who had an adjusted gross income of $500,000 to $10 million, you paid an average of 24.2% of your AGI in Federal Income Taxes. On average, 26% of your income was from Capital Gains.
If you were among the very lucky 13,443 taxpayers with an AGI over $10 million, you paid an average of just 20.8%
The merely wealthy paid at a 16% higher rate than the really wealthy.
Now why is that?
It is the low capital gains tax rate. The wealthiest of the wealthy have managed to divert ever-increasing amounts of income to capital gains, instead of regular 'earnings'. Those lucky few claimed capital gains income totalling 51% of all AGI in that bracket.
Meanwhile, the 90% of us taxpayers in the under $100K brackets only average 0.3% of our income in capital gains.
The numbers can be gleaned from this IRS Table (which covers only those who file the long form) and this IRS Table which shows total income and taxes from 1913 - 2005.
One other item of note. INCOME TAX receipts were DOWN from 1981 levels until 1986 - Ronnie Raygun's entire first term. They went down again in 1987 and 1990 and 1991. And down from 2001 levels through 2005.
So much for the 'cut taxes and raise revenues' bull.