12 October 2008

John McCain's Capital Gains Taxe give away.

John McCain in a second attempt to look like he is doing something proactive to help the economy has proposed to lower the capital gains taxes. He claims that his is a move targeted to help the middle class. Stating in an interview a McCain adviser stated:


“The market’s the focus,” a McCain adviser said. “You want to stop the fleeing.”

Now it seems to me that if you want to keep peoples money in the market removing capital gains taxes is a bad idea. Currently captial gains taxes provide a disinsentive to selling your stock assets. If you remove the disinsentive people now take less of a hit when the sell their stockes and transfer the money to something like precious metals, oil, a saving account or the shoe box under their matress.


Furthermore reducing capital gains taxes, for the most part, is not going to help the middle class. A reductiong in captial gains tax gives a disproportionate benefit to the wealthy. Persons in the top 3% of tax payers account 83% of the capital gains income. The Tax Policy Center says it best.


Fewer than one in seven individual income taxpayers reported taxable
capital gains in 2006. Over half of taxpayers with gains had incomes below
$75,000, but most capital gains were reported by very high income taxpayers. The
3 percent of returns with AGI over $200,000 reported 31 percent of AGI and 83
percent of capital gains; the 0.3 percent with AGI over $1,000,000 reported 15
percent of AGI and 61 percent of capital gains. Many more Americans accrue
capital gains on corporate shares they hold within tax-deferred
employer-sponsored retirement plans, but they do not pay capital gains tax on
these gains.


Bottom line this policy might help some middle class people. But once agin, John McCain's tax policy disproportionately benefits the rich. Bellow is a graph, again from the Tax Policy Center (h/t: Obsidian Wings) comparing the estimated effect of the Tax Plans proposed by both canidates:



The entire episode goes on to prove once again somthing John McCain admited he does not understand the economy very well. Watch and see:


(side note I still miss Tim)

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