Samuel Olekanma The Spiritual Leader of Mbaise

Trump Pitches Capital Tax Cut to 15 Percent, Biden’s Rate Is More Than Double

President Donald Trump said Thursday that he would like to see the capital gains tax slashed to 15 percent, while his rival in the race for the White House, presumptive Democrat nominee Joe Biden, has called for it to be lifted to a number that would be nearly triple Trump’s proposed tax rate.

Trump told Fox News‘s Maria Bartiromo in a phone interview on Thursday that, if re-elected for a second term, he would push to slash today’s long-term capital gains tax rate, which for income in excess of $441,451 from assets held longer than one year is now taxed at 20 percent.

Biden’s plan calls for taxing long-term capital gains and qualified dividends at the same rate as income tax, so at 39.6 percent on income above $1 million.

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Presumptive Democratic presidential nominee former Vice President Joe Biden delivers a speech in Wilmington, Del., on July 28, 2020. (Mark Makela/Getty Images)

Currently, capital gains between $40,001 and  $441,450 are already taxed at 15 percent, while those less than $40,000 enjoy a 0 percent tax rate, so some argue Trump’s proposal would benefit primarily wealthier Americans and its impact as a stimulus measure during the COVID-19 crisis would be limited.

“If you look at the distribution of capital gains, it’s mostly going to folks who are probably doing fairly well or doing better than a lot of folks who are vulnerable right now,” Garrett Watson, a senior policy analyst for the Tax Foundation, told Cheddar.

Trump talked up his capital gains tax on Monday, however, insisting it would create jobs.

“Looking very seriously at a capital gains tax cut and also at an income tax cut for middle-income families,” Trump said, adding, “I think it will be very exciting. A capital gains tax is going to be a lot of people put to work.”

Proponents of capital gains tax cuts argue that, for various reasons, the move spurs capital formation and business investment, which, in turn, creates jobs.

“We’d like to take it back to 15 percent, where it was for quite a long time because it helps jobs, investment, productivity, and wages,” White House economic advisor Larry Kudlow told reporters on Wednesday.

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White House economic advisor Larry Kudlow addresses a press briefing on the U.S. economy and new U.S. employment and unemployment numbers in the Brady Press Briefing Room at the White House in Washington, on July 2, 2020. (Tom Brenner/Reuters)

A U.S. Chamber of Commerce Foundation study cited in a policy note by the Institute for Policy Innovation estimated the impact of a proposal to slash the top capital gains rate to 15 percent.

“In response to a rollback of the capital gains tax to 15 percent, the model finds that the taxable bond rate rises, the cost of capital to the corporate sector and non-corporate business sector falls, and the tax-exempt bond rate rises,” the authors wrote, adding that “The evidence from the past 20 years shows compellingly that past reductions in the capital gains tax rates (1978, 1981, and 1997 for instance) stimulated the financing and start-up of new businesses, while new business activity stalled after increases in capital gains taxes (1969 and 1986).”

The findings of a recent Princeton University study (pdf) were supportive of the view that capital gains tax cuts mean more business investment.

“Taken together, the findings are consistent with a class of the ‘traditional-view’ models predicting that lower capital taxes spur equity-financed investment by increasing the marginal returns on investment,” the study notes.

Critics argue capital tax cuts are a windfall for the rich, reduce budgetary inflows, may have a neutral impact on capital investment and job creation, and have not been shown to spur economic growth significantly.

“Donald Trump’s decision to pitch a capital-gain tax cut to benefit the wealthy few, when every other aspect of the economy is in free fall, is a slap in the face to the middle class families struggling to get by,” said Michael Gwin, a Biden spokesman, in remarks to The Wall Street Journal.

Given the current pandemic-driven economic malaise, it is also unclear how much business investment would be encouraged through the capital-forming mechanism of a capital gains tax cut. Some economists argue the bigger problem now is depressed demand due to a historic surge in joblessness and a collapse in spending due to fear about the future, conditions for which supply-side measures may be less effective than direct stoking of demand via things like cash payments to American families.

“Cutting taxes on savings and investments is maybe important and a reasonable goal for tax policy, but it doesn’t seem to have much relation to the current economic situation,” Kyle Pomerleau, resident fellow at the American Enterprise Institute, told the Cheddar. “I think providing economic relief to households makes more sense.”

Yet while the pandemic-driven policy climate seems to favor demand-side measures like cash to families over supply-side steps like cutting corporate taxes, Trump said that vowing to raise taxes is unlikely to be popular with voters.

“In the old days when you were a politician, you talked about tax cuts,” Trump said. “You didn’t talk about tax increases. I’ve never heard of a politician that got elected, ‘We are going to increase your taxes.’”

Biden’s planned policies, which include raising taxes on people making over $400,000 a year, would increase taxes by $4 trillion over the next 10 years, according to an analysis by the Tax Policy Center.

“They want to tax $4 trillion, it’s going to be the biggest tax increase in history by far,” Trump told Fox News. “They’re big taxers. It’s just something that won’t work. We’ll have—you will see a depression the likes of which you have never seen. You’ll have to go back to 1929, I guess it doesn’t get too much worse than that.”