Policy for Capital Gains preference

Question 1

capital gains preferential rates alleviates/encourages

Answer 1

1. lock in effect

2. Encourages savings and investment

Question 2

Lock in effect

Answer 2

1. If you have a capital asset that has appreciated you aren’t taxed until a realization event. So selling property results in a tax hit. so people only tranfser at death

Question 3

Economists (on lock in effect)

Answer 3

think property is better off in the hands of people who value it more than you did. Want people to sell

Question 4

encouragement of savings and investment is good because

Answer 4

society is better off long term because it facilitates production of capital goods which is good.

Question 5

Disputed on preferential rates

Answer 5

1. Argument on how much it leads to investment and savings
2. Argument on how much taxing capital gains reduces investment. and savings
3. Equity Argument

Question 6

R’s for capital gains pref rates because

Answer 6

they want economic growth, and this leads to economic growth which is good for all.

Question 7

D’s against pref rate

Answer 7

want to divide up existing pie- redistribution

Question 8

Equity argument

Answer 8

Rich have capital gains, so this gives rich preferential rates.
(Warren buffet argument)

Question 9

rebuttal to warren buffet argument

Answer 9

Now rich are wage earners, back in the day they were capital owners.

Question 10

Remember corps can’t pay

Answer 10

taxes- they are a piece of paper.

Question 11

People pay taxes (corps) who

Answer 11

1. stockholders-less dividends
2. Cosumers higher prices
3. Employees lower wages

Question 12

CBO says who pays taxes in corps

Answer 12

Shareholders- investors get less dividends