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Economists Have “Deep Skepticism” Towards Clinton’s Capital Gains Tax Plan

- November 13, 2015

Former Senior Tax Economist For Bill Clinton’s Administration, Leonard Burman, Said His General Impression Of Clinton’s Tax Plan Was “Deep Skepticism.” “‘My general impression is deep skepticism,’ Leonard Burman, director of the non-partisan think tank the Tax Policy Center and a former senior tax economist in President Bill Clinton's Treasury Department, said in a telephone interview.” (Jonathan Allen, “Clinton’s Capital Gains Tax Plan Aims At Long-Term Investment,” Reuters, 7/23/15)  

  • Burman: “I Don’t See The Logic” In Clinton’s Tax Hike Proposal. Frankly, I don’t see the logic in trying to encourage people to hold assets for longer than they want to,’ he said. He said there were already strong incentives for individuals to hold onto assets, and the dividends they can produce, for a long time. He also noted that vast amounts of assets are held by entities, including non-profits, foreigners and retirement funds, not subject to the individual capital gains tax. (Jonathan Allen, “Clinton’s Capital Gains Tax Plan Aims At Long-Term Investment,” Reuters, 7/23/15)  

Empirical Studies “Struggle” To Confirm The Idea That Tax Rates On Investment Income Are An “Important Driver” Of Investment Activity. “Empirical studies also struggle to confirm the idea that tax rates on investment income are an important driver of real investment activity. A recent, statistically sophisticated study of the 2003 dividend tax cut by Danny Yagan, for example, finds that ‘the tax cut caused zero change in corporate investment.’” (Matthew Yglesias, “Hillary Clinton’s Capital Gains Tax Reform, Explained,” Vox, 7/20/15)

“Changing How Things Are Taxed At The Investor Level Will Make No Difference At All” To The “Time Horizons Over Which The Corporations Will Invest.” “Changing how things are taxed at the investor level will make no difference at all to that: nor will they make any difference at all to the time horizons over which the corporations invest. This is a non-solution based on an ignorance how the markets work. How unusual that Hillary should fall for it…”(Tim Worstall, “Hillary Clinton’s Capital Gains Changes Won’t Make A Blind Bit Of Difference To Short-Termism,” Forbes, 7/20/15)

Economists Christophe Chamley And Kenneth Judd Concluded That The “Socially Optimal Level Of Investment Taxation Is Zero” And That “People Who Derive All Their Income From Wages Benefit In The Long Run From Not Taxing Capital Income.” “The economics-y reason is a result in theoretical macroeconomics stemming from work by Christophe Chamley and Kenneth Judd that shows that under appropriate assumptions, the socially optimal level of investment taxation is zero. The result involves a lot of math, but the intuitive idea is that the less you tax investments in capital goods, the more capital goods you get. And the more capital goods you have, the higher your wages will be. Consequently, even people who derive all their income from wages benefit in the long run from not taxing capital income.” (Matthew Yglesias, “Hillary Clinton’s Capital Gains Tax Reform, Explained,” Vox, 7/20/15)

Clinton’s Capital-Gains Tax Rate Hikes Are “Not Going To Make A Blind Bit Of Difference” In Countering The Short Term Nature Of Decision Making In The Marketplace. “The aim being to make people invest for the longer term, and counter what is seen as the dreadfully short term nature of most decision making in the marketplace. It’s not going to make a blind bit of difference of course for the suggestion itself ignores a very basic economic fact about investment markets: they are forward looking.” (Tim Worstall, “Hillary Clinton’s Capital Gains Changes Won’t Make A Blind Bit Of Difference To Short-Termism,” Forbes, 7/20/15) 


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