Rubio’s Call for No Capital Gains Tax Is a Break With the G.O.P.
When Steve Forbes ran for president in 1996 on a plan that called for no taxes on dividends and capital gains, Mitt Romney, then a private citizen, took out a full-page ad in The Boston Globe attacking his proposal as plutocratic.
.. Mr. Rubio seeks a lower top rate than is imposed today, but one higher than any other current Republican presidential candidate has proposed. Mr. Cruz’s plan, which combines a flat income tax with a value-added tax, would impose an effective combined tax rate of 24.4 percent on wages.
.. First, a large fraction of capital income is taxed twice, at the corporate and individual levels. Dividends are distributions of already-taxed corporate profits, while a rise in a stock price represents a rise in expected future taxable corporate profits. Second, economists generally believe the revenue-maximizing tax rate on capital gains is much lower than the revenue-maximizing tax rate on salaries. This is in large part because capital gains are voluntary; you pay only if you sell an appreciated asset, so investors are likely to respond to higher tax rates by not selling.
Third, and more controversially, some economists say capital is significantly more sensitive to tax policy than labor. That is, high taxes on capital income will do more to discourage investment than high taxes on wages do to discourage work. Capital taxes are therefore more damaging to the economy than wage taxes.
.. When you start to see Republican economic advisers admitting that tax cuts on dividends and capital gains aren’t working, you know the game is up.