Tax rates and perverse incentives (1 Viewer)

[Sand]

http://taxfoundation.org/blog/federal-government-lost-money-2013-tax-increases-investors

As President Obama prepares to roll out another tax increase proposal targeting capital gains and dividends, it’s instructive to look at what happened the last time he did that. Fortunately, the IRS just released preliminary data on tax year 2013, the year the top tax rate on capital gains and dividends went from 15 percent to 23.8 percent. The fiscal cliff deal raised the top rate to 20 percent and the Obamacare investment surtax added 3.8 percentage points.From the IRS data, we can see that investors didn’t just sit there and pay the higher tax rate. Qualified dividend income dropped 25 percent, from $189 billion in 2012 to $141 billion in 2013. Capital gains dropped 12 percent, from $475 billion to $416 billion. Recall this was in the midst of a historic stock market boom.

Ouch. The fairness crusade has resulted in a massive tax loss to the government, and in a year in which the markets gained hugely.

Over 100 billion lost - and the newest proposal put out there increases these rates to even higher. Why is this a good idea again?

 

[shadrap]

It's a good idea because were socking it to the rich. Makes those with less feel better even though it does not improve their lot. (slumping)

 

[Slapdash]

Pretty misleading article. Capital gains and dividends were actually up sharply in 2012 because taxes were being raised in 2013. Looking through at the 2011 and 2010 data tables make that very clear. Even with the "massive loss" in 2013, these capital gains are much higher than prior years.

It is no surprise people time these increases. Companies were making capital distributions like crazy in December 2012.

Also, 2013 featured the fastest Real GDP growth of the last decade, a decline in unemployment rate from 7.9% to 6.7%, and 30% stock returns. I think the economy did alright....

 

[Tennessee_ATO]

Pretty misleading article. Capital gains and dividends were actually up sharply in 2012 because taxes were being raised in 2013. Looking through at the 2011 and 2010 data tables make that very clear. Even with the "massive loss" in 2013, these capital gains are much higher than prior years.

It is no surprise people time these increases. Companies were making capital distributions like crazy in December 2012.

Also, 2013 featured the fastest Real GDP growth of the last decade, a decline in unemployment rate from 7.9% to 6.7%, and 30% stock returns. I think the economy did alright....

This. Companies also hoarded cash and resisted repatriating foreign gains to avoid dividends in the hopes of getting more favorable tax treatment in the future. That works in the short-term, but in the long-term, investors want to get paid at some point, even if they have to pay the tax man.