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Taxing Savers and Investors

The United States has long been a forward-thinking country that builds for tomorrow through saving, investment, and entrepreneurship. Saving gives us security, investment gives us rising incomes through enhanced productivity, and entrepreneurship drives economic growth and dynamism, creating new opportunities.

However, over the last fifty years, all three have been eroded. Citizens aren’t saving enough, businesses aren’t investing enough, and the country is undergoing a retreat in the level of economic growth and dynamism.

As it is, the U.S. tax code places substantial burdens on each of these essential factors of our economy. What’s worse, while other nations have become more attractive, there has been a proliferation of proposals in the U.S. that would only cause further harm—wealth taxes, “mark-to-market” capital gains taxes, estate taxes, and financial transaction taxes.

Below, we offer in-depth analysis of these and other proposals, which highlight a harmful trend in tax policy. Americans are industrious, entrepreneurial, and innovative. Policymakers should ensure we have a tax code that enhances those qualities, not hinders them.

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Comparing Wealth Taxation and Income Taxes

A low wealth tax rate is equivalent to a high-rate income tax. The interaction between wealth taxes and the existing income taxes must be considered when analyzing a wealth tax plan.

Comparing 2020 capital gains proposals

Comparing Capital Gains Tax Proposals by 2020 Presidential Candidates

Biden, Sanders, and Warren have staked out similar plans to increase capital gains taxes on the wealthiest Americans. While all three candidates have called for taxing capital gains at ordinary income rates, the phase-in levels and top marginal tax rates vary.

Elizabeth Warren’s Plans Could Lead to Effective Tax Rates Over 100 Percent on Capital Income For Some

Illustrating Senator Warren’s Taxes on Capital Income

Taken together, these proposed tax changes would significantly raise marginal and effective tax rates and increase the cost of capital, all of which would lead to a reduced level of output and less revenue than anticipated.

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Booker’s Plan to Eliminate Step-up in Basis and Expand the Estate Tax

Removing step-up in basis would encourage taxpayers to realize capital gains and it would plug a hole in the current income tax, while increasing federal revenue. Combined, however, with the estate tax, this would result in a significant tax burden on certain saving by requiring both the appreciation in and total value of transferred property to be taxed at death

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JCT Report Shows Capital Gains are Sensitive to Taxation

JCT’s report on capital gains elasticities reminds us that capital gains realizations, at least under a tax system that allows deferral, are sensitive to tax rates. Moving to mark-to-market taxation of all capital gains would remove this sensitivity by taxing capital gains annually.

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No Good Options as Chicago Seeks Revenue

Facing an $838 million budget shortfall, a looming pension crisis, and an aggressive spending wish list, some Chicago policymakers and activists are expressing interest in a laundry list of new and higher taxes that could, collectively, raise as much as an additional $4.5 billion a year.