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Capital gains (at least as currently taxed) are extremely sensitive to tax rate because the taxpayer can choose to sell or not sell (ie it isn’t like income). So if you have a higher capital gains tax you likely will have less gains because taxpayers obtain a better ROI leaving their pre tax investment in asset X instead of their post tax investment in asset Y.
As a practical matter, a lower CGT is one where lower taxes might actually be revenue raising.
That just kicks the can down the road a bit. They eventually sell if they want to get access to the money to do other stuff with it.
The lock in effect is studied and is real. Again, the higher the capital gains rate the higher ROI to stay invested in the same asset.
Think of it this way. You invest 100 dollars in Apple stock. It appreciates to 150. You could sell and pay 10 of tax on the gain leaving you with 140 to invest. Or you could keep 150 exposed to Apple. Provided the return on that 10 outstrips the ROI on the 140 invested in non Apple stock, I keep my money in the Apple stock.
Also there are strategies to monetize without triggering gain (eg leverage, death).
I don't deny the lock in effect is real and present to some degree, but it's not a way to avoid taxes, only to delay them a bit. Owning stocks is not an end unto itself for most people, they're a vehicle to get returns, either through dividends or appreciation. So yes, they can own the Apple stock for longer, but eventually they'll sell which triggers the full effect of the tax.
The death loophole is bad and should definitely be closed. I'm not sure how leverage could be used to avoid taxes, but it should probably be closed as well.
Leverage just enables you to get the cash today and pay tax much later (or maybe never with death). Delaying taxes over a long enough time period is effectively avoiding taxes from an NPV perspective.
That's just more can-kicking then, not an actual way to avoid taxes.
At this point, I don’t know what you are even arguing. The point was that CGT are highly sensitive to the tax rate because you can easily avoid paying tax today. Also the higher the CGT rate the more the lock in effect. So a lower CGT rate easily can lead to more capital gains!
Are you arguing no?
Your argument to me seems like the following:
Motte: Higher capgains means people could elect to stay in the market longer, thereby delaying when they pay their taxes
Bailey: Higher capgains means people could elect to stay in the market longer, thereby avoiding taxes forever
I'm arguing against the bailey. You keep restating the motte, but then it sort of seems like you want to edge towards that bailey. The main way to avoid paying taxes is through death via the step-up loophole, which should absolutely be closed. Beyond that, there's a small cost to the government getting the money later from the concept of the time-value of money, which certainly does exist but which is still a fairly small piece.
I think you are vastly underselling the cost to the government. Right now their WACC is probably what around 4 or 5%. If 4% and lock in is 20 years you almost cut the tax in half in PV terms.
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