Capital Gains Taxes

A good deal gets written about capital gains taxes, but an article by Kevin Drum writing for Mother Jones caught my eye, so I thought I’d share some of his insights plus a thought or two of my own.

He sees arguments for higher capital gains taxes as baroque in nature; interesting. Drum believes the common rationale for lower taxes on capital gains is that it provides impetus for growth; good deal right? It has in the past made our country and most European countries grow. So, it is good but with it he sees a caveat.  Capital gains are good more and more capital gains is not necessarily good. He believes, and I agree that there needs to be a balance between capital gains and labor income.

He recalls Ben Bernanke in 2005 warming of a savings glut. Too much money was coming to this country but not enough productive places to use it. As a result we developed the housing inflated prices, and strange Wall Street investments which all came plummeting down.

Drum sees the real problem as an investment drought, the other side of the savings glut. If the money had gone into productive work with the resulting labor income increase all would have been good. But when the imbalance takes place we have the mess we have.

So, do we need higher capital gains taxes? He believes it would definitely help. He thinks it may not of averted the crash but it might have lessened it.

I think Drum makes a very good case. It has definitely played a role in the redistribution of wealth over the last several decades. I would further argue that capital gains taxes should be progressive as income taxes should be. There are many retired folk currently harmed by low return on capital investments to maintain a retirement income they believed they were developing. On the other hand, that is not exactly the problem of the multimillionaires. They may see it as a nice game with who has the most wins, but the standard of living is hardly affected.