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by rmrfstar
2228 days ago
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I'm not sure how taking the corporate rate to zero addresses any of the issues raised here. The 16th amendment only authorizes an income tax. A tax on unrealized gains would likely be a "direct" tax, which makes it a non-starter. So, if you take the corporate rate to zero and raise the capital gains rate, you will push any remaining dividends into buybacks. Because most equities are ultimately owned by households that don't need to sell shares to finance consumption, the result will be a dramatic reduction in tax revenues. It is perfectly legitimate to argue that the US should collect less taxes, but if that's your point you should just come out and say it. I agree with your broader point that buybacks are themselves neutral. Corporate leverage, however, is a serious problem that needs to be addressed. |
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Raising capital gains and dividend rates to ordinary income rates should favor neither, with one exception. Capital gains would need to be indexed against inflation, otherwise in any high inflationary period they could produce effective tax rates over 100%.
And investors require dividends and buybacks, or their is no reason to own stocks. So both will continue and most stock owners will pay significantly higher tax rates on them, partially offsetting their higher dividends and returns.
But you are correct that this will probably lower tax receipts in the near term, but it will also increase investment and R&D, which will help tax receipts catch up over time.
And of it does lower tax receipts it’s also evidence we have been eating our own seed corn, capital wise.