A few days ago, I looked at the conservatives’ claim that reducing tax rates produces more revenue. We saw that the gains in revenue were largely from increased Social Security and Medicare taxes. A secondary component of that increase was capital gains taxes.
The chart below shows the relationship in the percentage of capital gains taxes to individual income taxes collected as one series and the second series is the amount of corporate and individual dollars collected (in 2000 constant dollars). We can see the close relationship that an increase in capital gains taxes has on total income tax collections. (Click image to enlarge)
I have long advocated abolishing capital gains taxes for a number of reasons. The chart above shows just how unpredictable this tax is as a source of income for the federal government, making it difficult for any government to adequately budget for it. The lost revenue could be made up with a small surcharge on investment transactions, as I have suggested previously.