James Pethokoukis

Politics and policy from inside Washington

An obvious tax cut

Aug 31, 2010 18:37 UTC

Josh Barro of the Manhattan Institute give a wonderful explanation of the wisdom of indexing capital gains taxes for inflation. Here is  a taste:

But 2011 would be a good time to revisit indexation. First, this could help offset the negative economic effects from the likely rise in the top capital gains rate from 15% to 20%: taxpayers would face higher capital gains tax rates, but they would know that they are protected from tax on inflationary gains. Also, low inflation makes this an opportune time to introduce indexation, as the revenue loss from indexation is linked to the inflation rate, and would therefore be lower than usual.

The fiscal impact of indexation could be reduced by applying it also to the deduction side of the tax code, notably including the mortgage interest deduction. This would mean that only the portion of home mortgage interest in excess of the inflation rate would be deductible. Again, low inflation rates make this a politically opportune time for such a reform, because the near-term effect on tax bills would be small.

COMMENT

STORYBURNthere: I suppose you want the 1970s economy too – high inflation, low growth, incompetent government (Ford / Carter), sky-high energy prices, disco music ad nauseum. I’ll take Reaganomics any time, thanks.

Posted by Gotthardbahn | Report as abusive

Now here is a tax bill I like, mostly

May 4, 2010 20:31 UTC

The good folks at the Heritage Foundation alert me to a House bill proposed by Republicans Jim Jordan and Jason Chaffetz: Here is what H.R. 5209 would do: 1) Eliminate the tax on capital gains; 2) Reduce corporate income tax to 12.5 percent; 3) Kill the death tax; 4) Immediate expensing of business expenses; 5) Reduce payroll tax by half for 2010.

Me: The payroll tax cut would be a huge revenue loser, as would the death tax. But the rest seem smartly targeted for economic growth. Given the budget deficit, tax-cutters need to be really smart and pick reductions that optimize economic growth.

COMMENT

Concern for the long term budget deficit should be a priority over optimizing growth now. Any tax cut should be balanced by a tax increase somewhere else.

Posted by drewbie | Report as abusive

Greenspan agrees with me: Save the stock market, save the world

Dec 18, 2009 00:56 UTC

All year I have been saying a great way to boost the economy is to boost the stock market. Make it easier to raise capital and restores net worth. Now Alan Greenspan is saying the same thing:

“The stimulus is only a third spent, and its order of magnitude is not large enough to compare with the strength and power of the remarkable global equity increase that’s occurred since early March,” Greenspan, 83, said in a telephone interview yesterday from Washington. “Capital gains have proved a far greater stimulus than one can attribute to the $787 billion program that has been only partially spent.”

COMMENT

Does stock that pays special dividend always go down by the amount of the dividend?

  •